Zimbabwe stands at a crossroads, where the promises of trade liberalisation clash with the stark realities of slow economic growth and dwindling domestic production.
As the nation grapples with an economic landscape characterised by high inflation, a growing trade deficit, and inconsistent trade policies, the question arises: can trade liberalisation truly stimulate economic growth, or does it risk making Zimbabwe a mere consumer in an already saturated market?
This article delves into the intricate relationship between trade liberalisation and economic growth in Zimbabwe, exploring both its potential benefits and its inherent challenges.
In recent years, Zimbabwe's economy has been plagued by a sluggish growth rate, marked by a dramatic decline in exports and foreign direct investment.
Reports suggest that the country's agricultural exports, apart from tobacco, have diminished significantly, losing their competitive edge within the region.
Manufacturing, once a backbone of the economy, faces ongoing decline, leading to an increasingly narrow export basket dominated by mineral resources.
This lack of diversification has raised alarms among policymakers and economists alike.
The roots of this underperformance can be traced to inconsistent policies, unpredictable macroeconomic conditions, and a lack of foresight in economic governance—all of which have fostered an unfavorable environment for private investment.
- Budget dampens workers’ hopes
- Govt issues $24 billion Covid-19 guarantees
- Letter to my People:They have no answers for Nero’s charisma
- ZMX to enhance farm profitability
Keep Reading
A recent report from the Zimbabwe Economic Policy Research Institute (ZEPRI) underscores these issues: “The underperformance of Zimbabwe's economy stems from poor macroeconomic governance and a mixed bag of trade policies that often create uncertainty for investors.”
Responding to these challenges, Finance minister Mthuli Ncube has announced measures aimed at curbing the informal economy and reducing the influx of lower-cost imports.
“We cannot allow our economy to be a supermarket for imported goods; we must invest in our local producers,” Ncube declared at an economic forum earlier this year.
In January, he outlined strategies to combat the informalisation of the economy, including halting the smuggling of goods. He noted that Zimbabwe was becoming increasingly reliant on imports for even basic commodities, which were landing at cheaper prices than local products.
This influx of imports has adversely impacted major retail players such as OK Zimbabwe Limited and the N Richards Group, with the Maji-Marefu Institute of Economic Governance reporting significant shifts in buying patterns.
These developments highlight the urgent need for a concerted effort to support local industries and encourage domestic production.
While trade liberalisation is touted as a pathway to greater economic growth through expanded markets and competition, the flip side reveals a critical tension between free trade and protectionism.
With local industrial capacity utilisation hovering around 45%, the need for protectionist measures to support fledgling local manufacturers is evident.
As economist Tinashe Chikanda opines, "A hybrid approach may be necessary – one that harnesses the benefits of trade while safeguarding our local industries from being overwhelmed."
The African Continental Free Trade Area (AfCFTA) presents a significant opportunity for Zimbabwe to tap into a larger market and enhance intra-African trade. Nevertheless, the current state of the local economy raises questions about its preparedness for a more competitive landscape.
Chikanda warns that without addressing fundamental strengths and weaknesses, local producers may struggle to reap the benefits of trade liberalization.
The potential of AfCFTA to revolutionise Africa’s economic development is substantial, with projections indicating a potential 52% increase in intra-African trade.
Yet, Zimbabwe must first confront the challenges of a large trade deficit, high inflation, and inconsistent trade policies that have characterised its economic landscape.
Policymakers must navigate this complex landscape with care.
Recommendations for stimulating economic growth while promoting trade openness include reducing trade barriers, enhancing the investment climate for foreign direct investment, and implementing robust monetary policies to control inflation.
Notably, the increased importation of fast-moving consumer goods, chemicals, and other products from South Africa has exacerbated revenue losses for local manufacturers, leading to job cuts and factory closures.
These products have been the mainstay of local manufacturers since independence in 1980 and their influx in the local economy represent revenue losses.
The effects spin off to widespread job cuts, low capacity utilisation, tax defaulting, factory closures and a general slump in GDP
Doubts, however, still remain on whether our local producers have capacity to produce the quality and quantities demanded locally at competitive prices.
Hence, investing in human capital through education and training programs is essential to developing the skills necessary for a dynamic and competitive workforce.
"The relationship between trade liberalisation and economic growth is not static; it requires ongoing assessment and adaptation," emphasised Grace Mlambo, an economist at the University of Zimbabwe. "Our goal should be to create a sustainable economic model that integrates trade policies with comprehensive development strategies."
To thrive amidst these challenges, local producers must focus on enhancing their production capabilities and embracing economies of scale.
While trade restrictions may seem contrary to free trade protocols, they might be necessary to protect Zimbabwe’s iconic brands and foster healthy market competition.
According to the findings, trade liberalisation is an important significant variable to determine economic growth in Zimbabwe. Its multiplier effect is significant both in the short run and long run. As an economy become more open, it is possible to coup the benefits of international trade through importing capital and intermediate goods as well as creating a bulk market for domestically produced goods and services in the international market.
Furthermore, the results show that in the short-run a negative relationship exists between inflation and economic growth in Zimbabwe.
That means that an increase in inflation rate reduces economic growth and vice versa. FDI has a little positive impact on economic growth in Zimbabwe.
As Zimbabwe moves forward, the balance between trade liberalisation and protectionism will play a pivotal role in shaping its economic destiny.
While the potential for growth through international trade is significant, it is imperative that Zimbabwe addresses the underlying challenges that hinder its progress such as large trade deficit, high inflation, and limited foreign direct investment, trade policies have been inconsistent, with a mix of protectionist and liberalisation measures.
To promote economic growth, the government should:
Promote trade openness: Reduce trade barriers, such as tariffs and quotas, to increase trade and economic cooperation with other countries.
Encourage foreign direct investment: Create a conducive business environment, including stable macroeconomic policies, to attract foreign investment.
Control inflation: Implement monetary and fiscal policies to control inflation, which has a negative impact on economic growth.
Develop human capital: Invest in education and training programs to develop the skills and knowledge necessary for economic growth.
By fostering an environment conducive to trade, investing in local industries, and developing human capital, the nation can harness the benefits of trade liberalization while safeguarding its economic sovereignty.
In this critical juncture, Zimbabwe must not lose sight of its identity as a producer in the global market.
The journey toward sustainable economic growth demands cohesive policies that interlink trade, fiscal, monetary, and industrial strategies. Only then can Zimbabwe hope to transform its economic landscape from a dependency on imports to a vibrant economy driven by local innovation and production.
- Nyawo is a development practitioner, writer and public speaker.
- These weekly articles are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultants (Private) Limited, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zimbabwe). Email- kadenge.zes@gmail.com or Mobile No. +263 772 382 852
