Trade deficit drops nearly 35 percent

08 Jan, 2020 - 00:01 0 Views
Trade deficit drops nearly 35 percent

The Herald

Golden Sibanda,Senior Business Reporter

ZIMBABWE’s trade balance improved in September last year resulting in the country’s monthly trade imbalance (trade deficit) narrowing 34,9 percent to US$25,3 million from US$38,9 million in August 2019 on increased trade volumes.

Zimbabwe Merchandise Trade Balance. Source: ZimStat, RBZ

This is according to the Reserve Bank of Zimbabwe’s latest report for the month of September 2019.

The balance of trade in Zimbabwe averaged minus US$242,14 million from 1991 to 2019, reaching an all time high of US$293 million in December of 2000 and a record low of minus US$395,7 million in December of 2009.

Balance of trade (which can be negative or positive) is obtained by taking total value of all imports and subtracting total value of all exports between two countries, or between one country and the rest of the world.

Most countries try to create trade policies that encourage a trade surplus (positive trade balance).

This is largely because they consider a surplus favourable trade balance because it’s like making a profit as a country.

Positive trade balance for Zimbabwe would mean that the country earns more from exporting than it loses importing, enabling firms to hire more workers, reduce unemployment and generating more income.

Latest trade figures from the Reserve Bank of Zimbabwe show that the country’s overall value of trade increased by 7,2 percent to US$782,2 million in September driven by increases in both merchandise exports and imports.

Exports increased by 9,5 percent to US$378,4 million in the period under review on account of increases in export earnings from flue cured tobacco (41 percent), nickel ores and concentrates (31,8 percent), and gold (7,7 percent).

The export basket continued to be biased towards primary commodities, with gold, nickel and flue-cured tobacco contributing about 72 percent of the country’s export earnings, during the period under review.

Zimbabwe’s exports were destined for South Africa, which received 41 percent, followed by United Arab Emirate at 27 percent and Mozambique at 8,3 percent while the balance was shared countries mostly in Africa.

Merchandise imports rose by 5 percent to US$403,7 million in September 2019, from US$384,4 million in August. The increase was largely on account of higher imports of diesel, fertilisers, medicines and electricity.

The country’s import sources largely comprised of South Africa (40,2 percent), Singapore (23,2 percent), China (7,6 percent), India (4,4 percent) and Mauritius.

Often times, trade deficits are an unfavourable balance of trade. As a rule, countries with trade deficits export raw materials. They import a lot of consumer products and their domestic businesses don’t gain the experience needed to make value-added products.

Dependency on imports creates little room for the development of a country’s productive capacity, as most consumption is for value goods made elsewhere, which is akin to exporting jobs to the suppliers of products.

Economies of countries that import more than they export often times become overly dependent on low value global commodity prices. Such a strategy also depletes the countries’ natural resources in the long run.

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