The Zimbabwean government introduced the Statutory Instrument 64 of 2016 (SI 64) to control the import of basic goods that can be manufactured locally. This was meant to protect local industries and also to reduce the outflow of foreign currency.
The SI 64 was met with resistance as traders cited that there was not enough being produced locally and that there would be shortages and besides, price-wise the local producers cannot compete with their foreign counterparts. The incentives that the government put in place to boost production did not yield the intended results as manufacturers still failed to increase their capacity utilisation and production.
The SI 64 meant the government would need to approve of all imports and that whole permit process was marred with corruption if some of the traders are to be believed. The government would avail the foreign currency needed to export if the need was seen.
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The government through the Industry and Commerce minister Mike Bimha said they will be relaxing the regulations on importation of basic goods as laid out in SI 64 of 2016.
Foreign currency shortages
By relaxing the import ban and calling on all companies and individuals with free funds to approach the Industry and Commerce ministry it is evident that the government is fast running out of foreign currency. What happened to protecting the local industries?
Minister Bimha says,
But as we had said time and time again these SIs such SI 64 of 2016 were not intended to ban the importation of products but were intended to regulate their importation and where we believe that there is demand exceeding supply we will obviously want to facilitate the importation of such commodities which is the case in point because of the demand as a result of the coming festive season and again because of the limited foreign currency available to local producers we would want to make sure that those with free funds be they individuals or companies they should come forward to obtain the necessary permits and licences to bring products into the market.
The foreign currency shortages are getting worse by the day and the government is now calling on those with free funds to import. Thing is the traders were importing even when the import ban was in place and will not be applying to the government.
Zimbabwe budget deficit
The honourable Minister of Finance Ignatius Chombo just two weeks ago said the budget deficit will grow from the projected $400m to $1,82 billion this year. The government overshoot by 355%. It’s not even close. That’s where the problem lies in Zimbabwe, there is no fiscal discipline.
The government now needs import duties to help them try to maintain their unsustainable spending. This is one of the reasons for the uplifting of the ban.
Balance of payments
Zimbabwe is not producing as much as it should and for the nine months to September 2017 we exported goods worth $2.5b against imports of $4b. That makes a trade deficit of about $1.5b. Now this was with the import ban in place. Imagine what will happen to the trade deficit if imports of basic goods are allowed.
Importing requires foreign currency, which the government does not have, apparently. If the individuals and companies with free funds take up the government’s call to import that means even more leakage of forex.
The imports will also negatively affect the local manufacturers and this will again reduce their production and exports in the end. Reduced exports and increased imports is how foreign currency shortages are made. So although traders will appreciate the lifting of the import ban this will worsen the foreign currency shortages we have.
Not lifting the import ban will lead to either empty shelves or increased smuggling of goods from outside the country because local production cannot meet the local demand. So either way we’re in trouble until production increases in this country.