Keely Franke & Simba Mavurudza Friday, November 14, 2014

Zimbabwe: International Trade Policy

Despite major efforts made in the post-colonial era to reform trade policies in

Zimbabwe in the 1990s, recent events have led to a severe retardation in Zimbabwe’s

trade. The government has taken little action to try to change any of these policies in

accordance to the economic disaster that the country has been experiencing for nearly a

decade. This paper aims to analyze the trade policies, which were effective in boosting

Zimbabwe’s economy. It will then assess the factors causing the deterioration of

Zimbabwe’s trade policies, and the debt which has resulted thereof.

Trade policies have had a significant effect on changes in growth, employment,

and ownership of resources. In 1990 the government implemented three major trade

policies: an export retention scheme (ERS), Open General Import Licence (OGIL), and

Export support facility (ESF). The main goal of these programs was trade liberalization

(Chitiga, 2004). The ESF included a shift from the rationing of foreign currency to

market based access. Increasing the access to foreign currency gave Zimbabwe a

competitive advantage, and thus allowed for increases in the export of agriculture and

mining. With an OGIL, a certain list of goods could be purchased without foreign

currency restrictions. In addition, the ERS allowed exporters to retain foreign currency to

pay for goods not on the OGIL. Retention increased from 5% in mining and 7.5% in

agriculture to over 50% in all sectors (Chitiga, 2004).

The effect of these policies led to an overall increase in export growths putting

Zimbabwe well above the average of African countries. In years 1991-95 export growth

was 6.9% and increased to 15.5% between 1996-00 (IMF, 2005). The most negative

result in the eight years of trade liberalization was the decrease in manufacturing exports.

During trade liberalization, one inference that can be drawn was a lack of control of

imports, for example, very cheap goods being imported from countries like China. This

might have led to the manufacturing industry being undercut as demand increased for

these cheaper goods. Overall real GDP declined by 3.8% due to the “de-

industrialization” during this time period (Chitiga, 2004).

As seen in appendix 1, all exports took a dramatic decline in 2001. The

agricultural sector suffered the most due to a “fast track” land reform program and poor

privatization program (Foreign, 2001 & IMF, 2005). Both programs were implemented

in rash efforts, which led to a lack of transparent, coherent planning needed for any

successful policy. These programs are now suspended, and the results are major

shortages in export crops. To further this dismay, many of the export processing zones

(EPZ) were also slowed or halted due to the poor economic circumstances. These zones

were created in 1996 to give companies located in the zones special benefits in export.

The Department of Customs has begun to disregard these advantages and charge normal

duties on raw materials and equipment (Foreign, 2001).

For the first time since the 90s, the government raised tariffs on many of these

raw materials and machinery, including domestically produced foods (Foreign, 2001). In

addition, harsh controls on foreign currencies are the most significant barriers to imports.

The little foreign currency that was left was allocated to importing food to make up for

low agricultural production (OECD, 2004). Still the imports of goods decreased from an

already -20.8 per cent of GDP to -43.4 in 2002 per cent of GDP in 2004 (OECD, 2004).

At the same time, the government lifted controls on exchange rates resulting in the

plummeting of the official exchange rate from 38.1 Z$/US$ in 1999 to 9,922.6 Z$/U$ in

2004 (IMF, 2005). As a result, Zimbabwe has seen an ever growing trade deficit, which

has widened from 2.4 per cent of GDP to almost 15.6 per cent of GDP in 2003.

The deterioration of the capital and current accounts has made the foreign

currency crisis worse. This has in turn made it increasingly difficult for the government

to repay its debt. The decrease in funding from donor agencies led to an increase in

payment of foreign payment arrears from US$109 million in 1999 to US$2.6 billion at

the end of 2004 (IMF, 2005 & OECD, 2004). The IMF has suspended aid to Zimbabwe

since June 2002, because the country exceeds US$132 million in foreign debt. It is

estimated that nearly two years worth of exports would be needed to finance the gap in

the balance of payments (OECD, 2004).

The political crisis deepened when President Robert Mugabe was “elected” for

another term 2002. This caused many of the foreign investors to pull out, because of

uncertainty over interest rates, inflation, and nationalization of private companies. The

situation in Zimbabwe is only to seen to worsen in the future. It has severely impacted

foreign trade, and any hope of reviving the economy will lie in pressure from the

international community in how it distributes and recommendations for more feasible

trade policies.

References

Chitiga, M. (2004) Trade Policies and Poverty in Zimbabwe – A Computable General

Equilibrium Micro Simulation Analysis. Report Submitted to Poverty and

Economic Policy Research Network.

Foreign Trade Barriers: Zimbabwe. Retrieved November 8, 2005 from

www.ustr.gov/assets/Document_Library/Reports_Publications/2001/2001_NTE_Report/a

sset_upload_file469_6606.pdf.

International Monetary Fund. (2005) Zimbabwe: Selected Issues and Statistical

Appendix. International Monetary Fund, Washington, D.C.

OECD. African Economic Outlook Zimbabwe. Retrieved October 3rd, 2005 from

http://www.oecd.org/infobycountry/.html.

Todaro, M.P. & Smith, S.C. Economic Development—9th ed. The Addison-Wesley series

in economics.

Appendix 1