The continued strengthening of the United States dollar against the South African rand will accelerate the contraction of Zimbabwe’s already burdened manufacturing sector, a new report has shown.
BY NDAMU SANDU in ADDIS ABABA, ETHIOPIA
The rand has been depreciating against major currencies and reached an all-time low of R16,84 to the United States dollar in January before rebounding.
South Africa is Zimbabwe’s major trading partner.
In a country profile report for Zimbabwe, the Economic Commission for Africa (ECA) said the weakening of the rand against the dollar meant that Zimbabwean manufactured goods were less competitive domestically, as they become more expensive than imported South African goods.
It said exports to South Africa declined by $37,3 million in August 2015 purely as a consequence of a strong dollar.
“Thus, the continued strengthening of the United States dollar will lead to a further contraction of the already stressed local manufacturing sector, resulting in additional job losses,” ECA said.
Government says it can enhance competitiveness through the use of internal and fiscal devaluation. This involves reducing the cost of production and putting a tax on imported products that have local substitutes and an equivalent reduction on payroll taxes such as employers’ social contributions.
ECA said the tight liquidity situation was dampening economic growth and hampering support for social protection initiatives and basic social service delivery.
“While the multi-currency environment brought stability, its potency continues to be undermined by the liquidity crunch. The use of monetary policy as a tool for economic management under the current regime remains severely limited and, while the introduction of bonded coins by government provided temporary relief, this measure remains inadequate,” it said.
Zimbabwe adopted a multi-currency regime in 2009 to stem hyperinflation that is estimated to have surpassed 500 million percent. Bond coins were introduced in 2014 to complement the multi-currency regime by providing smaller denominated coins. The use of bonded coins is credited with fuelling a reduction in the prices, mainly of basic commodities.
ECA said the economy remained highly vulnerable to fluctuating primary commodity prices, both minerals and agricultural products.
Commodity prices especially for minerals have continued to retreat since early 2011 and the growth of the Zimbabwean economy has slowed down significantly as a result, it said.
“Reduced revenues from mineral exports, combined with low levels of investment in the sector, have undermined value addition and the GDP growth,” ECA said.
Zimbabwe’s country profile report was released yesterday alongside reports of 19 other African countries. Reports for the remaining countries will be released in due course, according to ECA.