Trade deficit not bad but not permanently sustainable

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Dr Mangudya

Kudzanai Sharara
The country’s trade deficit continued on an upward trend for the half year to June and is now closer to the levels that were reached the whole of 2017.

Figures released by the National Statistical Office show that though merchandise imports grew during the period, it was at a slower rate than exports resulting in the $1,5 billion trade deficit in the first half of the year. In the whole of year 2017, trade deficit was approximately $1,7 billion.

Commenting on the seemingly growing negative position, Reserve Bank of Zimbabwe Governor Dr John Mangudya understandably focused on the positive aspects, and to be fair, the trade figures are not entirely bad news.

Dr Mangudya told our sister paper The Herald that the trade deficit represented productive imports used by industry and commerce to meet requirements of the growing economy which he said is a positive development.

A closer look at the numbers shows that imports of capital goods, and raw materials and intermediate goods were the key drivers of the import bill, and these are positive indicators because they relate directly to production and hard investments.

June imports were particularly telling as several items were at their highest monthly import levels in more than a year. Imports of conveyor belts and related items for example amounted to $2,1 million, the highest in more than a year. Also at a more than a year high were June imports of industrial or laboratory furnaces and ovens with imports valued at $4,5 million. Road tractors for semi-trailers were also at a high of $6,4 million in more than a year.

Even though there are signs in the latest trade data that the 2018 deficit will be higher than in the past two years, the indicators that Dr Mangudya mentioned should be given much greater attention.

First, the biggest increase in imports was in energy related products — electricity, fuels, lubricants, and related materials. Some of the imports in this category reached their highest levels in more than a year partly due to increased volumes and also due to higher global oil prices. Imports of unleaded petrol reached $54,4 million while diesel imports for June at $112,6 million were at their highest in four years.

It is also important to note the import value does not include the fuel excise tax that has become such a point of contention in the debate about the causes of higher fuel prices in the country.

As a petroleum importer, the Zimbabwe has no control over oil prices, but what it can do to reduce the burden, at least minimally, is to cut back on some of its tax obligations.

Another way that could help reduce fuel consumption, and in the process reduce trade deficit, is to put in place an efficient public transport system, subsidise its fuel consumption, then leave or increase excise taxes on private consumption to discourage or prevent high fuel consumption.

Although exports are growing, albeit at a slow pace, the biggest concern is that they are skewed towards minerals and other primary products. On the mineral side, gold exports for the month of June of $150,7 million were at a 10-year high. Diamonds exports for June, were at their 8 months high. Also at a 12 month high at $30,1 million were exports of ferro-chromium with a four percent carbon content.

It is however encouraging that some of the exports, though of a primary nature, are growing year-on-year.

For example exports of fruit and spores, at $2,2 million were probably at their record monthly high. Exports of oranges, fresh or dried were also at more than a 12-year high at $2,2 million.

Another agriculture produce, macadamia nuts in shell were also at a record of $3,4 million.

With high levels of consumption in the economy which has seen several companies report double digit growth rates, it has meant a growing trade deficit as manufacturers and retailers import raw materials or basic commodities to meet demand.

The overall picture the trade figures present is of an economy that is growing, but is still doing so on the back of consumption (imports) rather than production (exports). With the world economy on a knife-edge because of the rapidly expanding trade war launched by the US, opportunities to build a stronger export base are quickly disappearing.

The current trade deficit may not be all bad news, but that is not a permanently sustainable condition, either. There is urgent need for the country to produce more to balance what it is consuming. As much as governor Mangudya would like to point the positive trade indicators there is need for him and Government to come up with a clear-cut explanations of how they intend to address the negative ones.

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