Imports From South Africa Close To $2b In 10 Months, Trade Deficit Decreases Though

In the 10 months, January to October 2017 Zimbabwe had a trade deficit of $1.6 billion. The imports during that time reached $4.5 billion against exports of only $2.9 billion.

It sometimes feels like a catch-22 situation in Zimbabwe where imports are high because exports are low and exports are low because imports are high. However it is evident that production needs to increase as that would as the saying goes, kill two birds with one stone.

Why the high imports?

Imports have been high as the void left by low production had to be met. This importation of basic goods which is a sign of low production is often attributed to low capacity utilisation. If Willowvale reached its former heights there would be no need to import and also there would be more to export. That’s economics oversimplified.

Capacity utilisation enters the conversation because it is held that low capacity utilisation leads to low absorption of costs which in turn leads to higher costs of production. This explains why it is currently cheaper to purchase some goods from South Africa, transport them via the most expensive method, road, and still get the goods on a shelf cheaper than what it would cost to buy from just 10km away from a local manufacturer.

Of course it is not just capacity utilisation which leads to higher costs for local manufacturers. Recently the Confederation of Zimbabwe Industries (CZI) was calling on ZESA to reduce tariffs. ZESA charges 9.8c/kWh against a regional average of about 6c. 

The same applies to water, you might be shocked to find that for water, it costs $2 per 1000 litres in Zambia whilst it costs $80 per 1000 litres in Zimbabwe. Delta needs 320 million litres per year and that costs them about US$25.6m whilst that would have been US0.6m in Zambia.

These and more reasons are why local companies are not competitive. In a country where over 90% are unemployed and the average monthly income is painfully low I think we’d be forgiven for preferring the cheaper imports. We know the negative impact they have on the economy and counter any efforts to increase production.

Painful as it might be for us, government had to step in to promote local goods, to decrease our reliance on imports. They introduced some import restrictions in the form of SI 64 of 2016. By limiting the importation of basic goods that would remove competition for local manufacturers. It would become a little bit more expensive for us but in the long term, it would lead to improved production which ultimately leads to jobs for people.

It would also help if we all remembered, imports = foreign currency out, exports = foreign currency in. Controlling imports is a way to manage the cash crisis.

Did the import restrictions work?  

The imports for the same period, January to October last year totaled $4.2 billion so that means there was an increase of about $300m. Exports increased by about $700m from $2.2b last year to $2.9b this year. Exports increased by more than imports increased and this led to the trade deficit falling from $2.3b to $1.6b this year.

That is progress right there but imports still did increase. The CZI president however thinks looking at just the absolute numbers is misleading if we neglect to look at exactly what it is that is being imported. He said,

Yes, the (import) bill has not changed but you have to note the changes in the bill’s composition. If you look at the 2017 bill, you will notice that although some finished goods are still there, capital goods now make up a large chunk of it as industry re-equips and retool buoyed by SI 64 success. So sooner than later, the bill will fall because you don’t retool everyday as people do when importing finished products.

So in short, yes, the import restrictions worked to an extent. So that is why I was disappointed when the import restrictions were lifted this month. It means in desperation we are taking the easier route in the short term which threatens to take us back to square one in the long term.

If the import restrictions are to thank for the decreased trade deficit what then should we make of the uplifting of the import restrictions?

South Africa

South Africa remains our biggest trading partner as 41% of all imports in the 10 months came from our neighbours down south. Of the total $4.5b import bill, $1.8b came from South Africa.

As our biggest trading partner it would behoove us to always be on the negotiating table with them. It is because of this relationship that we have that some have been advocating for the adoption of the Rand as the official currency in Zimbabwe.

That however is unlikely to happen. There is the small matter of pride and also the effect that would have on our imports. Would that not sabotage our own industries if importing from South Africa becomes more seamless?

However if we indeed are importing fewer consumer goods then we are further along the road to recovery than most of us realise.