This is the 2nd instalment of “Stabilising the Zim dollar through manufacturing”
Clifford Shambare
In order to verify why manufacturing is necessary for the stabilisation of the Zimbabwe dollar, we need to examine the country’s trade balance so far, with the weak manufacturing system that is currently in place.
The trade balance figures for the past three years are as follows: 2017 ($1,298 billion): 2018 ($1,472 billion); 2019 ($1,978 billion). (source: Ministry of Trade and Commerce).
Clearly, the trade deficit is on an upward trend for the period covered; this means the country’s economic performance is deteriorating in the current period. Be that as in may, in such analysis it is the long term trend that matters most, so we need to go back further to be able to determine the trajectory of this indicator better.
However, even if we confine our analysis to the current situation, we can still safely conclude that under the current conditions of relatively low revenues (exports included) from manufacturing — reducing this trade deficit will be a tall order for us.
On the other hand, a cursory analysis of the country’s imports clearly shows up the weakness of our economy today. To begin with, the Zimbabwean economy has a defective structure of which (its) weak manufacturing system is its Archilles Heel. The bulk of our imports is currently made up of fossil fuel, electricity, soya beans (for cooking oil) and wheat (for bread and confectionery).
As far as energy is concerned, the country is in a precarious position from where it is finding the going quite tough. This effectively means that as it is, if we do not resuscitate our coal generated energy systems soon, we will continue to foot a huge electricity bill arising from the import of same. That said, for the long term we need to consider our oil from coal and oil from gas — that is the Whange and the Muzarabani options, respectively. This is in spite of the commissioning of the Batoka III station at Kariba.
On the other hand, the importation of the said crops continues to present us with another headache (We shall look at this aspect of our economy in other articles).
When the matter is considered in its totality, there are two sides to the country’s economic equation; that is the local economy, and its (external) trading partners. As far as the latter is concerned, the country has many alternatives to choose from as trading partners; this is a good thing.
As far as the other side of the equation goes, such a choice does not exist; Zimbabwe remains Zimbabwe, period! This is a rather tricky situation in that there is no alternative to a course of action that demands that Zimbabwe cures its own economic ills first. It is only after this, that it becomes both a complementary and competitive trading partner to those other economies that it deals with trade wise.
That said, Zimbabwe’s import and export figures show that there are discrepancies between the total imports and top imports figures, as well as between total exports and top export figures. As far as imports are concerned, this effectively means that a considerable proportion of the country’s imports are in the form of finished goods — mostly consumer goods, and services.
But an economy whose imports comprise a considerable proportion of finished goods and services and also depends on the export of commodities for its revenues — will likely never prosper in the long term. This is indeed, the case with Zimbabwe; it means that, other things being equal, our trade deficit — among other major economic indicators — will always be difficult to eradicate because the value of our exports will be relatively much lower than for its finished goods. Therefore, if we happened to reduce its deficit at all, this will be because we will be exporting untenably large amounts of these commodities — a practice that is difficult, if not impossible — to sustain.
This predicament will be worsened if the country’s trading partners are selling mostly finished goods, in addition to, capital goods. This is the case with Zimbabwe and indeed most, if not all — African economies — in the current period.
Moreover, the economy is not diversified enough and therefore, by depending for its revenue on a few commodities — it will be very sensitive to any mishap occurring in its internal systems. In our case where tobacco and to a lesser extent, sugar and cotton — contribute a sizeable proportion of our exports, drought — a natural phenomenon — can simply wipe out a good chunk of our source of revenue because our irrigation systems are weak in the current period.
At this juncture, let us zero in on Zimbabwe’s overall current economic scenario by focusing on her raw material(s) profile since its manufacturing industries depend on it. Apart from agricultural commodities — most of the raw materials we are using to run our manufacturing industries enter the system in a semi-processed or even finished form (refer to my article of the this paper’s June 28 —July 4, 2019 issue on raw materials). This implies that our industries are not starting from the point of processing our natural resource base, but from the middle of most of our value chains.
The former is the cheapest and most beneficial strategy for any economy to start from since by following this route, one is able to exploit and benefit fully, from the whole value chain. This result will be even better if they are also able to make use of productivity gains — a condition that requires the use of technology and human capital in the form of skills.
On the other hand, further critical examination of Zimbabwe’s economy shows up its unsophisticated and rather shallow structure. Its economic complexity index (ECI) — previously one of the highest on the continent according to a 2013 analysis by the American, Joseph Stieglitz, one of the most respected economists in the world today — has fallen drastically over the past couple of decades.
Today, Zimbabwe’s economic structure has also deteriorated to that state where it shares a lot with those of other African economies, with the exception of South Africa. For example, a report in the July 15-19, 2019 issue of this paper estimates that currently, the country needs some US$34 billion for infrastructural rehabilitation!
Considering that the country’s annual GDP currently stands at US$17 billion, we can already see what such a situation means for us! Without the involvement of foreign investors, we may never be able to fix our infrastructure even if our economy improves.
As I have always maintained, Zimbabwe has got a lot in common with other African countries. This is the case with trade deficits. But this is a legacy from the past where African economies were never meant to be economically self-sufficient; they were designed to supply raw materials to the developed economies. Sadly, most of us (Africans) seem not to be aware of — or even to appreciate this fact.
Looking closely at Zimbabwe’s scenario still, we come to realize that the country is exporting those goods that should form a major part of the raw materials for our industries — as commodities, these being tobacco, and cotton lint from the agricultural sector; and platinum, nickel, diamonds, chromium and granite, from the mining sector.
This kind of scenario puts us in a very weak position as far as building a healthy economy is concerned. To begin with, our trade balance is likely to remain negative; secondly, our capacity to pay back debt — let alone to achieve real economic growth — remains precarious. Overall, these are characteristic symptoms of underdeveloped and unindustrialised economies. So this situation implies that only industrialisation can effectively cure these ills.
That said, the way I see this matter, most of us seem to confuse manufacturing with industrialisation.
Industrialisation itself, is a phenomenon that is broader in scope and deeper in profile than manufacturing. And the best indicator of industrialisation is the capacity of a given economy to produce capital goods, specifically machine tools and machinery. This implies that in order to be industrialised one needs to do a lot of work. Not only that; as I said in Part One of this article, there may be a need for a complete paradigm change among the whole Zimbabwean populace in the way they visualise themselves in the world order of things on the economic front.
Nonetheless, starting at raising the capacity of the present system is the logical thing to do under the current circumstances. So in that sense, a long term strategy is required. In that case the best strategy for us to adopt is to deal with the capacity issue while at the same time, moving towards this goal of industrialisation.
In taking this route we find that currently, we face several challenges in the manufacturing sector of this economy. Firstly, there is the question of capacity, then comes product quality and then availability and adequacy of the raw materials required in each industry. And last but not least, the identification of markets for our products.
As far as capacity is concerned, sometime in 2017 a study was done by CZI on this subject where it was found that the average plant capacity in the country then was 47 percent. At that time no clear reasons were given for this state of affairs but plant obsolescence was definitely one of them. This implies that new plant needs to be installed and that obviously needs foreign currency which is the one we are after. So already, we have fallen into a state of dilemma. So how should we get out of this one?
Like I said in Part One of this article, there is need for venture partnerships and FDI in this case. But now, it is a question of the pace at which it is responding tour courtship. So far, it appears the current pace of the entry of FDI into the country is rather slow. However, given our current political complications, this should be expected.
In these circumstances, a bit of patience while not reducing the intensity of our efforts in this direction, is what is required of Zimbabweans today.
◆ Clifford Shambare is an agriculturist-cum-economist and is reachable on 0774960937.