Zimbabwe economic recovery under threat from South African imports

Shops in Zimbabwe, a country that became a regional economic power on the back of its strong manufacturing sector, are now filled with foreign goods priced in US dollars and rands.

Zimbabwean economic analyst Jonathan Waters said goods were coming from various sources; cheap biscuits from Dubai are just one example. He said a degree of “pricing normality” has been introduced, both by dollarisation and competition with local goods, where retailers have been used to making money from very high margins.

Waters’ company Zfn does regular retail price analysis on a basket of 20 imported and five locally produced goods, and has found that since January1 the price of the basket has come down to 70.94 from 85.34.

A decade ago, Zimbabwe was the second-largest exporter within the Common Market for Eastern and Southern Africa (Comesa) trade grouping, exporting about 8000 industrial products.

But now local manufacturers are finding it hard to compete, even internally, in the harsh trading environment. Long-standing price controls mean companies’ stock levels have diminished and most are operating at only 10% of capacity.

Power, in short supply, is about five times the average regional price, further undermining competitiveness.

The supply side of industry, primarily the agriculture sector, is at all-time lows due to the land seizures of the past decade and a lack of support for new farmers. Some manufacturers have survived by setting up contract farming arrangements with small farmers.

Although many companies have kept up exports as a hedge against local economic decline, they have battled with onerous government policies that effectively force them to hand over the bulk of their foreign currency earnings.

The biggest constraint to the growth of the private sector is a dearth of working capital and skilled workers.

Several Zimbabwean companies have complained that dollarisation has led to a big increase in costs and a new headache — ever-increasing amounts of foreign currency.

But strong management skills remain and many good, well-priced assets still exist, making recapitalisation a priority for recovery in manufacturing.

South African parent companies are looking at ways to help Zimbabwe subsidiaries boost production capacity, and many businesses south of the Limpopo have eyes on investment opportunities.

With dollarisation increasing the availability of fuel, regional transport companies that avoided Zimbabwe in the past few years will once again route their trucks through the country.

Regional trade is also likely to pick up with a growing normalisation of the macroeconomic climate — although international markets, many lost as a result of land seizures and the breakdown of livestock controls, may not be so easy to get back.

Dollarisation has given the country breathing space to get its economy moving but, in the longer term, it is likely to cause more problems than it solves if not accompanied by a broad range of economic reforms.

The US dollars that had built up in the black market have quickly been absorbed into the liberalised environment and demand has rapidly outpaced supply. Economic instability is likely if there is not a significant hard currency injection soon.

A large import bill means currency continues to drain out of the country, mostly to SA, to source goods, and very little value is coming back.

Foreign inflows remain limited to targeted funding for humanitarian assistance at this stage. Both the International Monetary Fund and African Development Bank have said they will only start funding Zimbabwe again when arrears of 160-million and 460-million, respectively, have been paid.

Potential funders and investors believe it is too soon to plough money into the new unity government, which is hobbled by the presence of President Robert Mugabe and his old-guard ministers.

There are also concerns about a lack of co-ordination between new finance minister Tendai Biti and Mugabe’s Central Bank governor Gideon Gono.

Prime minister Morgan Tsvangirai has said the country needs 5-billion to set it on a recovery path, but the spending focus seems to be on consumption (such as civil servants’ salaries) rather than on productive policies.

The new government meets in Victoria Falls this week to map out a short-term recovery plan, which will give funders waiting in the wings some indication of how they might assist. SOURCE: Sunday Times (SA)