The Sunday Mail
Trade Focus
Allan Majuru
A state of Zimbabwe’s export composition requires attention.
Over-dependence on exporting minerals and other primary commodities over the past years, has effectively put the country’s eggs in one basket.
The long and short of it is that, there is a need to diversify exports, paying attention to value-added exports.
As a starting point, the National Development Strategy (NDS1), launched last year by President Mnangagwa, gives attention to value-addition and beneficiation.
In line with the policy plan, the country plans to increase the contribution of value-added exports to total exports from 9 percent in 2020 to 20 percent by 2025.
This will be achieved through strengthening value addition of mining and agricultural commodities, capacitating the manufacturing sector, reviewing legislation and provision of key enablers.
Increasing export offerings will boost revenue streams, earning the country the much-needed foreign currency.
This can help Zimbabwe hedge against negative trade shocks by stabilising export revenues as well as enabling the country to direct positive terms of trade shocks into growth, knowledge spill overs and increasing returns to scale.
Diversification of exports and the economy, in general, is important for Zimbabwe as it builds resilience for the country to absorb external economic shocks.
Through export product diversification, the Government can achieve some of its macroeconomic objectives such as sustainable economic growth, satisfactory balance of payment, employment creation, and redistribution of income.
Current status
Zimbabwe’s exports have been dominated by primary commodities, which accounted for US$3,210 billion of the US$4,39 billion export receipts in 2020, representing 73 percent of total exports.
Despite the challenges currently affecting production, there is potential to diversify exports because the country once had a diversified export product composition.
In 1992, the country’s export product composition was quite diversified, with the top 10 exports made up of textiles, agricultural products, clothing, processed foods and beverages, chemicals and leather and hides.
That year, the top 10 exports constituted 90 percent of Zimbabwe’s total export receipts. However, this has since shifted towards dependence on minerals and commodities.
In 2020, the top 10 export products were mainly minerals and mineral-related products, including gold, nickel, chrome, diamonds, and platinum.
The rest were un-manufactured tobacco and cane sugar.
This is not sustainable because a lower product concentration reduces a country’s vulnerability to external economic shocks when there are negative developments on the global market.
In the same light, dependence on a few export products puts the country at risk, as effects of any changes (economic, political and policies, amongst others) that may take place in the markets for such commodities will filter through to the exporting country.
The heavy dependence on exporting primary commodities presents challenges because it raises instability of terms of trade with potential consequences on the country’s trade and economic growth.
Across the world, countries that are commodity dependent or have a narrow export basket usually face export instability, which arises from unstable global demand.
The prices of commodities the country exports most are determined externally and as such, if the international prices fall, the country also risks losing export receipts through reduced foreign currency earnings against increased production.
What happens, for example, is that if the mining sector sneezes, the entire country will catch a cold.
When products are exported in their raw form, we end up exporting value as well as potential jobs that would have benefited the local economy.
Diversifying the export basket
The need for Zimbabwe to diversify its export products can never be overemphasised.
Studies have also shown that countries with diversified export baskets generally experience faster economic growth; therefore, variation in export diversification levels explain the differences in growth trajectories across African countries.
Besides protecting the country from price variations and shocks, diversification can also affect growth and the potential for structural change depending on the type of products exported.
For example, a shift towards development and promotion of value-added products creates a huge potential for industrial revolution within the economy and a shift from being simply agriculture-based to an industrial economy, which might have agribusinesses as one of the cogs in the machine.
Export diversification towards the direction of sophisticated products will be beneficial to economic development.
By diversifying the export portfolios, the country can potentially access a stable revenue stream than by concentrating on just a few products and markets.
For the country to meet the targeted ratio of 7:14 set by the country’s National Export Strategy (NES), which is to achieve US$7 billion total exports by 2023 and US$14 billion total exports by 2030, there is a need for rapid export growth, which will in turn require progressive improvements in competitiveness and a diversification of the country’s export base.
To achieve this diversified export economy, ZimTrade — the national trade development and promotion agency — has been on a drive to capacitate exporting businesses that are operating along value-added product lines.
Specific strategies and programmes are being implemented for the key sectors identified by the NES as being low hanging fruits by having a comparative advantage and export potential. For export products, focus is on improving production and product competitiveness on sectors such as processed foods, horticulture, cotton to clothing value chain, arts and crafts, pharmaceuticals, leather and leather products, iron and steel, wood and furniture, and fertilisers and chemicals.
Exports in these sectors can easily increase given their demand on the global and regional markets.
For example, the horticulture import market in Africa is valued at over US$6.2 billion.
With trade agreements such as the AfCFTA offering easier access to continental markets, through preferential rates and reduced customs cost, it is easier for local companies to export their products to these destinations.
Another good example is wood and furniture, which currently is mostly imported from outside the African continent at a value of US$4,8 billion, proving that there is an opportunity for local manufacturers to supply the continent.
The services sector also has potential to diversify Zimbabwe’s exports based on our capacity in areas such as tourism, transport, education, medical, business services, information and communication technologies, construction and engineering, finance, events and meeting, and energy related services.
Some of the activities and programmes that ZimTrade is carrying out to assist exporters improve their competitiveness include, technical assistance in partnership with expert organisations such as PUM of the Netherlands and SES of Germany.
ZimTrade also has sector specific programmes like food for export masterclass, which focuses on growing food-related exports from female entrepreneurs.
Young entrepreneurs in value-added sectors are being capacitated under the Eagles Nest youth export incubation programme.
Additionally, ZimTrade is also assisting local manufacturers find markets both regionally and internationally through its various trade promotion activities.
To improve market access ZimTrade has also been working on improving the ease of doing export business through lobbying for policy-related interventions.
ZimTrade is also assisting companies in the services sector to become export ready as well as building the right market linkages.
These activities are contributing towards the realisation of 15 percent growth of services exports.
Allan Majuru is ZimTrade’s chief executive.
