Monday, June 24, 2013

Zimbabwe Economy Defies Odds

Zim economy defies odds

Sunday, 23 June 2013 00:00
Zimbabwe Sunday Mail

Zimbabwe has always had a very strong economy.

At one time the country had a relatively developed industrial base and was almost the second strongest economy in Eastern and Southern Africa after South Africa.

That status could have been so, even south of Sahara. However, Zimbabwe’s economy faced serious challenges caused by both exogenous and endogenous factors.

Specifically the challenges were very prominent from 2000-2008, when a group of the so-called powerful states led by Britain and the United States embarked on a campaign to bring Zimbabwe to its knees.

The nations imposed sanctions on the country to express anger over Zimbabwe’s stance to repossess its land that had been in the hands of about 4 500 farmers while over 10 million locals toiled on sandy and unproductive soils.

According to the Confederation of Zimbabwe Industries, in 2005 only 3 percent of the companies were operating at full capacity.

However, from 2006 to 2009 none of the companies were producing at 100 percent capacity utilisation. In 2009, about 82 percent of companies were operating at less than 50 percent capacity utilisation.

The manufacturing sector improved its capacity utilisation and in the first half of 2009 it increased to 32,3 percent from less than 10 percent in 2008.

However, research shows that in 2012, Zimbabwe was still very competitive and the country maintained its comparative advantage in certain products despite the above-stated low capacity utilisation.

Taking into account the challenges the economy went through, Zimbabwe has a strong economy that managed to withstand pressure and resisted grounding to a halt.

If some of the economies in Africa had undergone what this economy went through, they would have simply vanished.

The fact that the structures of the economy remained functional despite the challenges face, clearly showed that this economy is stronger than the average economy in Africa and beyond.

The research, alluded to earlier, looked at the supply capabilities of Zimbabwe from the period 1993-2010. The study was divided into three periods, namely pre-crisis period (1993-1997), crisis period (1998-2008) and post-crisis period (2009-2010).

The study used export data obtained from UNCOMTRADE relating to the period 1993-2000.

Data from 2001 to 2010 was obtained from the International Trade Centre’s Trademap based in Geneva, Switzerland, and ZIMSTAT.

The data from UNCOMTRADE was on 4-digit level while the data from Trademap was on 6-digit level. The 6-digit level is the most disaggregated international classification of products. The two datasets were scientifically married to produce supply capabilities of Zimbabwe. One would have expected Zimbabwe to have lost all its comparative advantage and competitiveness considering the challenges that the economy went through.

If this economy was a very weak one, no product would have maintained its comparative advantage and competitiveness in all the three periods.

The research set very stringent conditions that a product to be selected had to meet all the three criteria.

Given those conditions, diamonds, which began to feature in Zimbabwe from 2005, could not meet all the three criteria. Prior to 2005, Zimbabwe never produced diamonds for export.

The results showed that Zimbabwe had a very large number of products in which it has comparative advantage, hence the economy remained competitive despite the onslaught it suffered.

In fact, Zimbabwe was much more competitive than some other countries whose economies did not experience hardships.

The country was even competitive than two other members of the European Union namely: Malta (which has comparative advantage only in 209 products) and Luxembourg (156).

Zimbabwe was also more competitive than African countries such as Botswana (268), Malawi (238), Namibia (213), Lesotho (86) and Sudan (60).

This economy would have moved very much ahead of many economies had it not gone through the hardships it went through.

The intensity of the hardships was so strong yet supply capabilities of the economy remained very much intact for a large number of products.

Although Zimbabwe lost its capabilities in some products as a result of hardships, the Lord in His wisdom protected some industries/sectors and with a proper export promotion strategy these can become the pillars of economic recovery.

History tells us from the study done by Collier and Reinikka in 2001 that Uganda used an export promotion strategy which focused on an exports drive.

The recovery first occurred in the export sector and investors were given incentives to use their earnings from coffee exports to invest in non-exporting sectors. As a result of such a policy, the rest of the economy recovered successfully.

Zimbabwe is and will remain a test case of a nation that managed to withstand various pressures to sink its economy.

Those behind the sinister efforts have now realised that they are fighting a losing battle as the economy continues to show positive signs of continued growth.

Dr Macleans Mzumara is a lecturer in economics at Bindura University of Science Education

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