Zimbabwe takes steps to boost its fragile economy - CNBC Africa

Zimbabwe takes steps to boost its fragile economy

Southern Africa

by Christie Viljoen* 0

Diamond gem, Zimbabwe. Photo: Wikimedia

The past two months have seen two announcements by the Zimbabwean government regarding the lifting of restrictions on the export of key mineral commodities. During the second week of June, Harare announced that it had temporarily lifted a ban on raw chrome exports (introduced four years ago) and scrapped a 20 per cent export tax on the metal, aiming to boost earnings from a struggling sector. Zimbabwe holds the world’s second-largest chrome ore reserves (after South Africa) and banned the export of raw chrome in April 2011 in an attempt to force mining companies to process the metal locally. The country exported $40 million worth of chrome ore and concentrate during 2010, falling to $14 million in the year that the restrictions were implemented, and just $1 million in 2012.

On August 10, Mines Minister Walter Chidhakwa told The Herald newspaper that he has suspended a 15 per cent tax on raw platinum exports implemented from the start of 2015. The minister indicated that mining companies asked the government to give them another two years to set up smelters and refineries after missing an end-2014 deadline. Zimbabwe holds the second-largest reserves of platinum group metals (PGMs) after South Africa. Anglo American Platinum, Impala Platinum and Aquarius Holdings own mines in Zimbabwe. Anglo’s Unki Mines unit said during March it would take two years to build a new smelter to comply with the government's demands. Unwrought exports of PGMs were worth an average of $130m p.a. during 2011-14 with a mean production of 10,000 tonnes p.a.

The central bank’s mid-term monetary policy statement released on August 5 stressed the importance of export earnings in growing the country’s monetary base and bank deposits in the absence of a sovereign currency. The statement pointed to the Reserve Bank of Zimbabwe’s (RBZ) desire to provide affordable pre- and post-shipment export financing through normal banking channels. Export diversification is also an issue being investigated by the central bank due to the country’s vulnerability to a weak tobacco crop (as seen in 2015). The RBZ would also like to see the synchronising and streamlining of export permit issuance by various regulatory agencies in order to reduce export barriers and delays.

Revenues from tobacco exports will be lower this year. The auction season started a few weeks later than usual due to the impact of adverse weather conditions delaying the maturity of tobacco crops and the drying process. Auctioning started on March 5 and the official selling window closed on July 15. Contract and auction sales of flue-cured tobacco reached 188.5 million kilogrammes by mid-July, down 8.5% from last year’s 206 million kilogramme haul. This was also the first decline in tobacco crop volume in almost ten years and will have an adverse impact of overall economic growth in the country – half of all Zimbabweans are directly or indirectly dependent on the tobacco sector for household income. The value of this year’s tobacco sales declined by just over 15 per cent to $441 million.

Zimbabwe’s export revenues are expected to decline to the lowest level in five years during 2015. The government is now trying to boost foreign earnings by undoing some questionable restrictions on mineral exports implemented in recent years. This is in an attempt to boost a fragile economy that we currently think could grow by less than 1 per cent this year. At the same time, Zanu-PF is juggling the fallout from a crackdown on street vendors in the capital, a Supreme Court ruling making it easier to dismiss workers, and plans to make (over time) a significant cut in the public sector payroll. We believe that Zimbabweans’ extraordinary patience and resilience is wearing thin, and amidst a moribund economy and regime excesses, one of these straws will one of these days break the camel’s back.

*Christie Viljoen is a senior economist at NKC African Economics

 

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