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close this bookThe Courier N 127 May - June 1991- Dossier 'New' ACP Export Products - Country Reports Cape Verde - Namibia (EC Courier, 1991, 104 p.)
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View the documentZimbabwe - rhe expansion of non-traditional exports: general explanation
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Zimbabwe - rhe expansion of non-traditional exports: general explanation

by Roger RIDDELL

Three particular features emerge in examining the trends in the export of 49 separately identified products from Zimbabwe to the European Community up to 1987. The first is the substantial rise in the value of these exports: from ECU 3.8 million in 1982 to ECU 30.5 million in 1984 and to ECU 48.4 million by 1987. Discussions with leading Zimbabwean exporters and analysts at the Confederation of Zimbabwe Industries in 1989 and early 1990 suggest that this rate of expansion has been sustained in the post-1987 period.

The second observation relates to expansion by sub-group. If the exports are arranged into the following categories - fresh flowers, meat, vegetables, fruit and juices, hides, leather, cotton yarn and textiles, clothing, footwear and furniture - then substantial expansion in export values to the EC has taken place in all categories with the exception of wood and furniture and leather shoes. The third observation is that there has been little major change in the share of the total originating in the major sub-groups. Thus in 1982, 77% of all these exports to the EC came from the following subgroups: leather and hides, cotton yarn and textiles, clothing and meat. In 1987, the share of these products constituted 83% of the total. It should be stressed, however, that with a thirteen-fold rise in the value of these exports from 1982 to 1987 (at current ECU prices), even the performance of the other groups of products has been far from derisory.

To what can be attributed this growth of non-traditional exports to the EC? Some of the most important factors would appear to be the following:

· the stage of development (and industrialisation) reached by the country;

· changing relations with South Africa and, to a lesser extent, other countries of southern Africa;

· particular aspects of the Lomonvention, and, finally,

· domestic economic policies within Zimbabwe.

We shall examine each of these in turn and additionally consider other factors which influence (or may have influenced) the further expansion of non-traditional exports.

The stage of industrialisation reached

A major element contributing to nontraditional export expansion has been the fact that Zimbabwe has had a long history of industrialisation. In 1938, when the first industrial census was taken, not only had the iron and steel foundries and mills been built and the Rhodesian Iron and Steel Corporation established, but the country was exporting goods manufactured in each of the International Standard Industrial Classification (ISIC) sub-sectors. By this time over 50 years ago - Zimbabwe’s manufacturing sector was already responsible for 10% of Gross Domestic Product (GDP), it employed 7% of the formal sector labour force and accounted for 8% of total export earnings. To put this into contemporary perspective, sub-Saharan Africa-wide data show that by 1984 in at least 70% of countries, the ratio of value added manufactures to GDP was less than 10%, in over 56% of countries, manufactured exports accounted for less than 10% of total national exports and in over 40% of countries fewer than 10% of employees were working in the manufacturing sector.

This long history together with the particular skills of adaptation developed during the 1965 to 1979 Unilateral Declaration of Independence (UDI) period has meant that the country has been able to develop a quality of product and reliability of supply essential for the development and maintenance of export markets in a number of manufacturing sub-sectors. This has been possible because of the depth of engineering and technical skills, plus supporting physical and financial infrastructure which has enabled the manufacturing sector to utilise and adapt imported plant and machinery.

Until recently, however, the external benefits of this build-up of skills and product development was directed principally to the sub-region and towards South Africa in particular.

The South African factor

During the pre-Independence period, colonial Zimbabwe developed strong and complex economic relationships with South Africa. These inter-linkages were strengthened further during the UDI period, so that by 1979 over 80% of all exports of non-primary products went to the South African market. Most notably the export of non-traditional manufactured products to Europe, which had been developed in pre-1965 (especially with Britain), declined significantly during the UDI period.

At independence, a number of factors converged to initiate a major attempt to shift export trade away from South Africa. The first was that Zimbabwe had clearly become far too dependent for economic and strategic comfort upon a single market, hence the build up of economic pressures to diversify. Secondly, there were strong political pressures from the incoming government to reduce dependence upon South Africa and hence to diversify both the destination of exports and the origin of imports into the country. This itself was paralleled by pressures from a wide range of South African private interests to divest from what was perceived as its now-hostile northern neighbour.

Thirdly, there has been the sanctions factor. During the 1980s - at least until mid- 1989 - international pressure to extend the range of sanctions against South Africa increased. Amid the complex consequences arising from this pressure, two merit attention here. One was that to the extent that sanctions ‘work’ they reduce the level of economic activity within South Africa and thus lead to a fall in the demand for imports. This clearly reduces the attraction of Zimbabwe-South Africa economic linkage and exposes the vulnerability of Zimbabwean dependence upon South African markets. The second is that as major international importers of South African produce reduce or cut off their imports of South African products, to the extent that Zimbabwe is able to supply these markets with her own produce, the sanctions factor provides an additional boost to diversification away from South Africa.

With the converging of all these factors and influences as the decade proceeded, the 1980s have seen significant pressures for Zimbabwe to shift its exports away from South Africa.

Two major alternative markets have presented themselves. The first, and closer to home, is the SADCC/PTA market. While export expansion to these markets has certainly occurred, there has been little increase in the share of Zimbabwean exports going to PTA/SADCC states. This has been due to a number of factors. One is that the imports required by these countries have not always been those that Zimbabwe had traditionally supplied to South Africa - the demand in these countries has been either for simpler products or for more sophisticated items (computers etc.) which Zimbabwe produces in only limited quantities and of varying quality. The second problem has been the shortage of foreign exchange to purchase products which Zimbabwe could export and for which there has been at least pent-up sub-regional demand. The result has been that the regional markets have not absorbed all the products (both the number and range of products) which Zimbabwe has been willing and able to export.

The Lomonventions

The second market has been the EC countries. As independence and the pressures to reduce export dependence upon South Africa coincided with Zimbabwe’s accession to the Lomonvention, a ready alternative was coincidentally provided. The growth of Zimbabwe’s exports to the EC has been enhanced by the provisions of the Lomonvention to which the country acceded at independence in 1980.

The Convention provides duty free access to the Community’s markets for most of Zimbabwe’s leading exports, including the country’s seven leading export products. While the Convention does not allow duty free access for agricultural products covered by the Common Agricultural Policy (CAP) (which are subject to tariffs and, in some cases, to seasonal quotas) duty free access is provided for Zimbabwe’s principle foreign exchange earner, flue-cured tobacco.

For beef and sugar, the Convention contains special arrangements. For beef, Zimbabwe has a theoretically fixed quota of 8100 tonnes to the EC. In recent years, however, as other ACP countries have failed to meet their quotas, Zimbabwe has been able to take up a portion of their unused quotas.

Zimbabwe has a quota of 30204 tonnes of sugar to EC markets which it has successfully filled since acceding to the Lomonvention. In addition, Zimbabwe is one of four African countries which supplies 75 000 t of sugar to Portugal at a price based on that paid to European sugar producers. It is Zimbabwe’s wish to have this special quota converted into a permanent ACP quota at protocol or similar conditions.

It is, however, the terms of the Convention allowing duty free access for almost all of Zimbabwe’s leading exports into the Community which have been of most profound influence. While in value terms Zimbabwe benefits most from its exports of flue-cured tobacco (ECU 119 m in 1988 and ECU 46 m for the period January to June 1989), major expansion of exports to EC markets has taken place (as noted above) in the area of nontraditional exports.

It would be erroneous, though, to conclude that expansion to the EC market has either been due exclusively, or even predominantly, to the benefits of the Lomonvention or that the expansion achieved has been without its difficulties. Through deliberate policy, the South Africans have disrupted Zimbabwe’s transport links with the sea, particularly the cheaper routes through Mozambique. In the mid-1980s, over 85% of Zimbabwe’s non-African trade was having to pass through South African ports and use South African railways, paying premiums which significantly increased the costs of exporting and therefore made Zimbabwean products to the EC less competitive.

Domestic policy: devaluation and export incentives

A potentially more long-term problem has been the shortage of foreign exchange and the subsequent reduction in imports. As the early 1980s progressed, exporters were finding it increasingly difficult to purchase the imports that were needed to manufacture products for export, and these supply constraints were exacerbated by having to export with the added handicap of an over-valued exchange rate.

These constraints have been increasingly addressed but by no means solved in subsequent years. The Zimbabwe dollar was devalued by 20% in late 1982 and its value progressively decreased thereafter.

To address the foreign exchange shortages, a series of export incentives together with the significant expansion of an export revolving fund (which, in effect, guarantees foreign exchange required to purchase imports required for exports) have been introduced. By mid-1989, the main ones were as follows:

· Manufacturers producing for export are assured of automatic access to foreign exchange (up to 60% of the value of exports) to finance the import content of exports. This facility is called the Export Revolving Fund (ERF).

· An Export Incentive Scheme operates whereby non-traditional exports receive a tax free cash payment equivalent to 9% of the value of these exports, provided that the goods to be exported have a minimum local content equivalent to 25% of the export value.

· In addition, manufacturing exporters receive a bonus Supplementary Allocation of foreign exchange equivalent to 25% of their previous years’ incremental export performance. This money can be utilised in either the domestic or export markets.

· Tax relief on exports is covered by a series of regulations. Most importantly, a system of duty drawbacks allows full remission of duty on imported materials contained in manufactured exports.

· An Export Promotion Programme which provides for the import requirements for exports in the agricultural and mining sub-sectors also allows for freer access to imports than under the normal allocation system.

· Refunds of import or sales tax on imports and on local purchases of capital goods for projects which involve exports apply to those projects approved by the Ministry of Finance, Economic Planning and Development.

· Within the PTA, tariff reductions ranging from 10% to 70% are applicable to exports to member countries, providing certain ownership and rules of origin criteria are met.

Exports versus the domestic market

Few manufacturers in Zimbabwe export 50% or more of their total output. One of the reasons for this is not so much that Zimbabwean products are excessively uncompetitive internationally, but that domestic prices have tended to be higher than the prices which could be obtained from exporting. This has led a number of producers to argue that exporting has been little more than the ‘icing on top of the cake’ rather than a major part of business. While this attitude has been changing, and many more exporters now consider their export business to be an important and permanent part of their overall operations, it also needs to be recognised that a number of particular factors have helped to boost exports of non-traditional products. Besides the specific export incentives, listed above, reference needs to be made to a number of others.

Perhaps the single most important factor is itself linked to the all-pervasive issue of foreign exchange. The increasing shortage of foreign exchange in the post-1982 period has itself led to a depression of the local market, and to the majority of producers working at levels far less than full capacity. The availability of foreign exchange for exporters, through the Export Revolving Fund (ERF), has enabled companies to expand capacity and utilise fixed cost plant and labour. (3) As a result, it has been common for companies to price exports on a marginal cost basis and to utilise the export market to boost capacity utilisation. What is more, there is no doubt that as the ERF became a feature of business life, and foreign exchange for the domestic market became more and more scarce, businesses were also increasingly using their export allocation to purchase imported inputs which they then used to produce for the more lucrative domestic market. In short the artificial division between producing for export and for the domestic market has become increasingly less sharp. In part, the Supplementary Allocation (described above) was meant to address the problems arising from this particular abuse, but it has also been interpreted as an acknowledgement that abuse is quite widespread and that, barring a radical overhaul of the foreign exchange system, it can only be restrained, not eliminated.

Foreign investment and liberalisation

For all the success in expanding nontraditional exports, could more have been achieved? In attempting to answer this question we shall first consider the issue of foreign investment. In the 1980s, the inflow of foreign investment into Zimbabwe has been disappointing, not least investment from the OECD countries. Thus the net flow of private investment from OECD countries to Zimbabwe fell by 64% from the first half of the 1980s to the second half, with Zimbabwe’s share of total private foreign investment in SSA falling from 8% to just 3.3% between the two periods. To the extent that investment by European countries in Zimbabwe enhances the expansion of nontraditional exports from Zimbabwe to the Community, the poor performance of European companies in this area must be a reason why non-traditional exports to the EC have not been even higher.

But do links between subsidiaries in Zimbabwe and either world-wide companies with extensive European networks or European-based companies necessarily further the expansion of nontraditional exports? The evidence is ambiguous. On the positive side, being a Zimbabwean subsidiary of a world-wide company appears, in some cases, to have led to orders from Europe being placed to which the Zimbabwean company has positively responded, while, in other cases, it has enabled export markets to be found when the Zimbabwean subsidiary signalled its desire to the parent company to initiate or expand its market in Europe. Yet in other instances, independent companies have been able to secure orders and expand exports to Europe (albeit frequently with the assistance of ‘agents’), while on the other hand being a subsidiary of a multinational corporation appears to have acted as a disincentive to expanding either into the export market in general or to European markets in particular. While it is difficult to judge the overall impact of these different reactions, it does appear that, as part of its package of measures to attempt to increase the flow of private foreign investment into the economy, government has been persuaded at minimum that new inflows of foreign investment would assist its aim of expanding nontraditional exports.

Closely related to the question of foreign investment and market linkages is the whole - and complex - issue of trade liberalisation. Throughout the 1980s the World Bank has lobbied the government hard to try to persuade it that an abandonment of many of the macroeconomic controls inherited at independence, including the interventionist system of foreign exchange allocations, will provide a major boost to both overall economic growth in general and to an expansion of non-traditional exports in particular. By early 1990 it was apparent that sufficient support for this view from within government had been canvassed for it to be ready to announce a phased (four to five year) programme of trade liberalisation, a move that is supported by the leadership of the Confederation of Zimbabwe Industries.

It is, however, by no means clear that trade liberalisation, whatever form it takes, will lead either to an automatic or rapid increase in non-traditional exports. This is apparent even from an examination of the arguments in favour of such a move put forward by its most articulate proponents, the World Bank. Thus the Bank’s 1987 strategy document appears to imply that non-exporting industries could in practice be worse off under trade liberalisation, with those which have enjoyed high levels of protection actually ‘suffering’.

The Bank fails to instil confidence either that the desired manufacturing sector expansion will result from its policy proposals; it falls back on vague sentiments of optimism. ‘In terms of individual products, the experience of other countries indicates that it is highly difficult to predict which manufacturing sub-actions will enjoy rapid growth, but there is sufficient evidence on the responsiveness of Zimbabwe’s manufacturing sector to be optimistic on its export prospects’, it says.

A major worry with the Bank’s proposals is possible de-industrialisation and the closing down of major sub-sectors of manufacturing industry.

A final worrying aspect of the Bank’s proposals lies in the increased vulnerability the Zimbabwean economy would have to external developments. A particular concern relates to greater dependence on South Africa. In commenting on this issue, the irony of the Bank’s proposals is revealed. It states that in the event of action by South Africa leading to severe adverse effects on the economy, it may be necessary to re-introduce controls, including the current system of foreign exchange rationing. Is this conclusion seen as reason for caution? Not at all. The Bank argues that with Zimbabwe’s experience it is ‘unusually well-equipped to do this quickly and efficiently’ and with the old system reestablished it would be well able ‘to undertake radical adjustments in both its macroeconomic management and allocative policies’.

Until the new policies to be announced have been in place for some time, it remains very difficult to predict the extent to which the expansion of exports, and particularly non-traditional exports, in the 1980s can be sustained into the 1990s or the extent to which new foreign investment, and particularly that which could stimulate further export expansion will be forthcoming.

R.R.