ZIMBABWE requires import substitution industrialisation and economic diversification policy to boost foreign currency inflows as the country continues to lag regional peers in attracting offshore investments, a new report by a local research and advisory says.
The southern African nation largely depends on exports of primary commodities in the mining sector to boost forex inflows.
But experts say such dependence often exposes the fragile economy to global headwinds and will perpetuate its status as a net importer.
According to the Reserve Bank of Zimbabwe (RBZ), total foreign currency receipts in 2022 amounted to US$11.6 billion, representing a 17.3% increase to US$9.9 billion recorded in 2022.
The growth in foreign currency receipts was largely driven by export proceeds (platinum and tobacco).
The RBZ also reported that Zimbabwe’s external sector remained relatively strong in 2022 as evidenced by a surplus current account balance estimated at US$253 million.
Overall, the sector benefited from strong export performance due to favourable commodity prices for key exports and resilient remittance inflows.
Mark and Associates, a Harare-based firm, says policymakers should also focus on service industries, leverage local capital markets to fund manufacturing activity, increase productivity in trade and promote innovation in order to diversify the economy.
“The industrial sector, which spans manufacturing, construction, and utilities presents opportunities to spur productivity,” the research firm says in its report titled Zimbabwe Forex Receipts: Fact or Fiction.
“Through increased local manufacturing, companies in Zimbabwe can identify key products the country can produce to meet burgeoning local demand, produce for global markets, and, where needed, reduce dependence on imports. For example, apparel manufacturing has increased significantly in Ethiopia to address demand in global markets, while Gabon doubled employment in its wood processing industry from 2010 to 2019.
“As highlighted in our analysis, most of Zimbabwe’s exports are extracted commodities. The picture is the same for most African economies such as Ghana, Tanzania, and Zambia. Extraction also remains the highest-productivity sector on the continent as in the rest of the world. It is not, however, a large employer, and the cyclical and volatile nature of primary commodity prices makes it difficult to base a sustainable economy on this sector alone.”
The RBZ expects foreign currency receipts to hit the US$12.0 billion mark in 2023, riding on improved mining and agricultural output.
The apex bank also reported that total foreign currency receipts for five months ended 31 May 2023 improved by 4% to US$4.64 billion versus US$4.45 billion in 2022.
Gold has continued to dominate as Zimbabwe’s single biggest export, accounting for 24% of the total value of goods exported in May 2023.
In second place are mineral mattes, an intermediate product (includes the large exports of platinum group metals).
These mattes account for 18.3% of the total value of goods exported. Tobacco contributed 12.4% whilst industrial diamonds came in at 10.1% contribution.
According to the World Bank, global economic growth is set to slow down substantially. After growing 3.1% in 2021, the global economy is set to slow to 2.1%, amid continued monetary policy tightening to rein in high inflation across different geographies.
This has negative implications on demand and commodity prices.