Trade Policy Review: Zimbabwe by James T. Hurungo Class of 2007 tralac gratefully acknowledges the financial support from the Dutch Foreign Ministry for the Postgraduate Diploma Programme, and for the preparation of this paper. Copyright tralac, 2010. Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. This paper was prepared by a student on Postgraduate Diploma in Management Practice (Trade Law and Policy Management). All views and opinions expressed remain solely those of the author/s and do not purport to reflect the views of tralac. This publication should be cited as: Hurungo, J.T. 2010. Trade Policy Review: Zimbabwe. Stellenbosch: tralac.
Table of Contents EXECUTIVE SUMMARY... 4 1. Introduction... 7 1.1. Zimbabwe s Economic Environment... 8 1.2. Trade Liberalisation Policies in Zimbabwe... 9 1.3. Exchange Rate Dynamics and Trade Policy... 11 2. Zimbabwe s Trade Dynamics... 13 2.1. Imports... 13 2.2. Exports... 13 2.3. Zimbabwe s Trade with other Trading Blocs... 13 3. Intra-Regional Trade... 14 3.1. Zimbabwe s Trade within SADC... 14 3.2. Zimbabwe s Trade within COMESA... 16 3.3. Zimbabwe s Comparative Advantage... 16 4. Trade Policy Regime: Framework and Objectives... 17 4.1. Bilateral Trade Agreements... 18 4.1.1. Zimbabwe and Botswana... 19 4.1.2. Zimbabwe and South Africa... 19 4.1.3. Zimbabwe and Mozambique... 19 4.1.4. Zimbabwe and Namibia... 19 4.1.5. Zimbabwe and Malawi... 20 5. Regional Trade Agreements... 20 5.1. Common Market for Eastern and Southern Africa (COMESA)... 20 5.2. Southern African Development Community (SADC)... 21 5.3. Implementation Challenges... 21 6. Multilaterial Trade Agreements... 22 6.1. World Trade Organisation... 22 6.2. Cotonour Agreement/Economic Partnership Agreement... 23 7. Analysis of Zimbabwe s Tariff Structure... 24 8. Policies and Practices... 25 8.1. How Trade Policy is made in Zimbabwe... 26 8.1.1. Government and Interactions with other Stakeholders... 26 8.1.2. Lead Authority on Trade Policy... 27 8.2. Bilateral, Regional, and International Trade NEgotiations... 28 8.2.1. Bilateral Trade Negotiations... 28 2
8.2.2. Regional Trade Negotiations... 28 8.2.3. Multilateral Trade Negotiations... 28 8.3. What Informs the Trade Policy Choices in Zimbabwe?... 29 9. Future Directions of Zimbabwe s Trade Policy... 29 9.1. Zimbabwe s Trade-Related Capacity Needs... 29 9.2. Zimbabwe s Major Constraints to Trade... 30 9.3. Interventions to Address Capacity Gaps in Zimbabwe... 31 10. Conclusion... 32 REFERENCES... 33 APPENDIX... 34 3
EXECUTIVE SUMMARY Zimbabwe is a landlocked country with a population of about 14 million, and belongs to both the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA). It is also a member of the World Trade Organization (WTO) and is participating in the negotiations to conclude an Economic Partnership Agreement with the European Union, in the Eastern and Southern Africa (ESA) Economic Partnership Agreement Group. The WTO s Uruguay Round saw the establishment of the Trade Policy Review Mechanism in 1989. These Trade Policy Reviews (TPRs) are now viewed by the WTO as measures to achieve greater transparency and understanding of trade policies and practices of contracting countries. The TPR is also important for examining member countries trade policies and practices in the multilateral trading system. Currently, however, Zimbabwe does not have one concise and clear document which clearly outlines its trade policy direction. Zimbabwe has generally embraced the need to engage in international trade, as demonstrated by the numerous trade agreements into which it has entered. The country has trade engagements at the bilateral, regional, and multilateral levels, including a number of bilateral trade agreements with other regional members such as South Africa, Mozambique, Botswana, Namibia, Democratic Republic of Congo, and Malawi. While all of these are clearly articulated separately, there is no single National Trade Policy for the country. Overall, up until April 1998 and particularly during the Economic Structural Adjustment Programme (ESAP) period, Zimbabwe implemented a trade policy liberalization component of its economic programme in full. The country had credible and sustained trade liberalization episodes although it risked a partial policy reversal when it sharply increased statutory tariffs in January 1995. In trade, an overvalued exchange rate makes imports cheaper for consumers and exports more expensive for producers. Zimbabwe s imports have been coming largely from South Africa due to the existing bilateral preferential trade agreement (PTA), while the country s Look East Policy has seen more imports coming from China. Within SADC, the country s main exports have been destined to South Africa, with 71.5% of exports to the region going to that country in 2004. This clearly shows the huge demand for the country s products in neighbouring SA, which could have been due to the bilateral trade agreement which exists between the two countries. 4
Furthermore, South Africa has a huge and expanding market for Zimbabwean products, and Zimbabwean exporters have capitalized on the proximity of this market as less cost is incurred during transportation. The second largest destination for Zimbabwean exports is Zambia with 8.97%, followed by Botswana, Malawi, and Mozambique with 6%, 5.96% and 2.45%, respectively. Trade liberalization within the WTO has seen a worsening of market access conditions for Zimbabwe. However, an analysis of the country s export patterns shows that tobacco remains a major export product, and hence Zimbabwe should concentrate more on the production of this crop. The country has in the past been one of the top five world producers of tobacco. The Ministry of Industry and International Trade (MIIT) is the key ministry involved in all trade-related policy issues in Zimbabwe. There is also involvement of non-state actors in policy formulation and in the area of trade. The MIIT has formed the Trade and Economic Review Committee which encompasses all other stakeholders. Given the absence of a concrete single trade policy framework in Zimbabwe, trade capacity building should help Zimbabwe to put in place a sustainable trade policy framework and processes as this will enable the country to achieve real trade gains. This calls for the need to mainstream a comprehensive trade development strategy as part of a broader national development and poverty reduction strategy. Zimbabwe has maintained numerous import controls as reflected by the high tariffs relative to other countries in the region. The country has been reluctant to reduce tariffs due to overreliance on their revenue generation, hence impeding the country from embracing full import liberalization and leading to deficiencies in trade-related expertise, analytical skills, and negotiation skills, as well as insufficient resources to enable it to negotiate effectively, meet ongoing trade obligations and implement trade agreements, and poor trade policy coordination in the country. However, there is need to realize that although the country is going through a difficult period, it has great potential to expand its trade in the region. This, however, requires huge commitment and political will to ensure that the country redirects the focus of its trade policy agenda to one that will ensure long-term benefits for the country. Moreover, trade policy should be directed by the actual performance of the economy, which can only be achieved if the country begins to open up to the rest of the world and concentrate on rebuilding its 5
agricultural sector in which it has a massive comparative advantage in the region in terms of both soils and climatic conditions. 6
1. Introduction Zimbabwe is a landlocked country with a population of about 14 million people. The country is a member of several trade groupings, including the Southern Africa Development Community (SADC); Common Market for Eastern and Southern Africa (COMESA); World Trade Organization (WTO); and the group of countries that constitutes the Eastern and Southern Africa (ESA) Economic Partnership Agreement Group. The WTO s Trade Policy Reviews (TPRs) are viewed as a means to achieve greater transparency and understanding of trade policies and practices of member countries. The TPR is also important for examining member countries trade policies and practices within the multilateral trading system. Since the inception of the TPRs, Zimbabwe has had only one review in 1994, and nothing much could be obtained regarding the contents of this report. In light of such an information gap, it is imperative at this juncture to clearly review the trade policy dynamics in the country in a bid to articulate the direction that the country should take in its future trade policy endeavours. At present, the country does not have a single concise and clear document which clearly outlines its trade policy direction. Zimbabwe has generally embraced the need to engage in international trade, as demonstrated by the numerous trade agreements into which it has entered. The country has trade engagements at the bilateral, regional, and multilateral levels, and while all of these are clearly articulated separately, there is no single National Trade Policy for the country. At the multilateral level, Zimbabwe is a founding member of the World Trade Organisation and it adheres to the principles of the multilateral organization. The country is also a member of the African, Caribbean and Pacific (ACP) group that has benefited from the European Union trade preferences throughout the Lomé I to IV conventions and Cotonou agreements, and more recently the Economic Partnership Agreements (EPAs). The country also maintains a number of bilateral trade agreements with other regional members, namely South Africa, Mozambique, Botswana, Namibia, Democratic Republic of Congo, and Malawi. 7
1.1. Zimbabwe s Economic Environment Zimbabwe is a landlocked country located in the heart of Southern Africa. The country has a mixed but predominantly natural resource-based economy, and produces a range of agricultural and mineral products. The main agricultural exports are tobacco, cotton and sugar, while the main mineral export is gold. The Zimbabwean economy has experienced significant crisis since the late 1990s; with negative growth rates, soaring of inflation and plummeting investment. The land reform programme which sought to redress the land ownership imbalances has led to serious deterioration in agriculture production, leading to significant collapse of the agricultural sector. This has been worsened by massive de-industrialization which has seen unemployment and poverty levels rising. In 2003, real GDP recorded a negative growth of 10.4 percent, largely due to the collapse of the manufacturing and agricultural sector. In 2004, a negative growth of 4.2 percent was recorded due to recovery in the mining sector, and the situation worsened in 2005 when real GDP declined by 6.5 percent. With the drying up of foreign aid and dwindling foreign reserves, the country has continued to rely on the Reserve Bank of Zimbabwe for the financing of large fiscal deficits and quasi fiscal operations. This has been achieved through money printing, a factor which fuelled inflation to a rate of 2 200% as of April 2007, the world s highest such rate. The country has been rated a credit risk country, which has meant it is failing to receive any financial assistance from the International Monetary Fund (IMF) and the World Bank. The country has become increasing isolated in the international community, which has dented its chances of securing any normal access to credit both domestically and internationally. By 2005, the fiscal deficit was around 10 percent of GDP. The country s current account has remained in deficit since the 1990s, and as of 2005, the current account deficit amounted to 7.5 percent of GDP. Foreign direct investment into the country has declined. The country s gross international reserves fell from US$270 million in 1999 to just US$25 million in 2005. With an increased decline in domestic production, the country has been faced with a need to import food, which has exposed the country to serious vulnerability to external shocks. To redress the challenges the country is facing, there is need for the country to rebuild its relations with the international community through implementation of sound policies, and to reach amicable solutions with external creditors to settle arrears and restructure debt. 8
1.2. Trade Liberalization Policies in Zimbabwe Trade liberalization in Zimbabwe entailed a shift from the rationed allocation of foreign currency to market-based access. The main purpose of this was to extend the growth opportunity provided by international markets from the enclave of agriculture and mining during the 1980s to other activities in which Zimbabwe might have a comparative advantage. This was expected to create a high level of export growth and open the economy to external competition. These reforms were referred to as the Economic Structural Adjustment Programme (ESAP). Trade liberalisation was designed to be gradual and implemented over a five-year period from 1991 to 1995. However, the implementation was very swift. By 1994, all current transactions were outside government control, and the only restrictions left on the capital account were related to returns on investments made before independence and the holding of foreign assets abroad. This period led to the dismantling of the existing import controls, industrial licensing, and the fixed exchange rate regime that were associated with the previous system. The main objective of ESAP in the area of trade was to ensure adequate trade liberalization, which would see complete abolition of quantitative controls and the reduction and harmonization of tariffs and duties. The liberalization of trade brought about the opening up of current account transactions and implementation of a market-based exchange rate system, which allowed the exchange rate to be market-determined. Trade liberalization began with the removal of selected input items from quantitative import controls to the Open General Import License (OGIL) system, which was introduced during the second half of 1990. These measures exerted great pressure on the balance of payment (BOP), and led the government to implement import demand management measures in 1991 which included raising the minimum import tariffs to 10% on all imported goods and an additional 10% on items on OGIL (Tekere, 2001). This clearly indicates that there were problems in timing and implementation of some of the key policies during the programme, leading to implementation of measures that were contrary to the trade liberalization spirit, such as increasing tariffs. By 1992, 15% of imports were on restricted OGIL, which increased to 20% by 1993. In January 1994, Foreign Currency Accounts (FCAs) were introduced which allowed a 60% retention, which was then increased to 100% in July the same year. Besides these numerous efforts towards liberalization, other aspects of reform, such as reducing the dispersion of tariffs which are also important in trade liberalization, were not 9
included. This could be a result of the government s motive towards liberalization, which was driven more by the desire to raise revenues than the real motive to liberalize trade. The aggregate response of trade to the opening of the economy was quite dramatic as total merchandise trade (exports plus imports) increased from 45% of GDP in 1988 to more than 100% in 1998. Overall, up until April 1998 and particularly during the ESAP period, Zimbabwe implemented a trade policy liberalization component of its economic programme in full. The country had credible and sustained trade liberalization episodes, although it risked a partial policy reversal when it sharply increased statutory tariffs in January 1995. Table 1 below shows the major events in Zimbabwe s trade liberalisation process. Table 1. Components of Liberalization Episodes for Zimbabwe, 1990 2000 1990 93 1993 95 1995 97 1998 99 2000 Introduction of an Export Retention Scheme (ERS) Introduction of an Export Support Facility (ESF) for those with no ERS Devaluation of the dollar, followed by continued depreciation of the currency Liberalization of imported inputs Liberalization of the financial sector Introduction of foreign currency denominated accounts Most goods were placed on the OGIL, except strategic goods such as fuel Export subsidies were removed Liberalization of foreign exchange regime leading to currency convertibility Abolishment of OGIL and Export incentive schemes Implementation of WTO commitments New tariff regime introduced Reduction in import tariffs Conversion of non-tariff barriers into tariff equivalency Export incentives were removed (with the exception of duty drawbacks and export financing schemes) Crush of Zimbabwean dollar (November 1997) Implementation of Export Processing Zones (EPZs) Rationalized tariff structure Back to controlled exchange rate Signed the SADC Protocol on Trade, which committed it to tariff phase downs beginning 2001 10
1.3. Exchange Rate Dynamics and Trade Policy Recent trends in the Zimbabwean exchange rate, particularly in relation to the US dollar, have raised questions regarding the sustainable value of the exchange rate and the extent and likely direction of its further movements. Several commentators have suggested that the currency is well above its equilibrium value, i.e., it is overvalued. This notion is strongly supported by the emergence, in recent years, of a parallel market, which seems to gain in vibrancy and significance. The existence of a parallel market points to serious distortions which, in the case of a foreign currency market, could have disastrous effects on the overall performance of the economy. The exchange rate, as a relative price, is viewed as a very important price signalling intersectoral growth in the long run, and thus its changes have economy-wide effects. The real exchange rate (RER) affects the allocation of resources; an increase in RER will make domestic goods more expensive and will encourage consumers to substitute them with less expensive foreign goods. This has seen increased imports, particularly of consumption goods, from South Africa over the past decade. The level of the real exchange rate (in relation to an equilibrium real exchange rate level) and its stability has been shown to influence exports and private investments (Caballero and Corbo, 1989). The overvaluation of Zimbabwe s exchange rate is largely a result of the inconsistencies between macroeconomic policies, with the nominal exchange rate being of particular interest. The effects on exports, imports, investment, and inflation, etc. of the different exchange rate regimes are summarised in Table 2 below which shows the main parameters affecting the Zimbabwean foreign exchange market. As can be seen in the table, the country continued to display increased foreign exchange market fragility, with gross foreign reserves falling 84.2 percent on their 1996 levels by the end of 2003. The major brunt of the costs of this fragile environment fell on the productive sectors of the economy, especially the traded sectors. An analysis of how exports and imports performed in the periods within the different regimes reveals grim results. As shown in Table 2, exports declined by 22.9 percent from a value of US$2 496 million in 1996 to US$1 924 million in 1999. They recovered 14.3 percent to US$2 200 million in 2000 when the rate was allowed to adjust to inflation, before the declining trend became manifest between 2001 and 2003 when the exchange rate was fixed. In percentage terms, exports fell by 45.3 percent between 2001 and 2003 when the rate was 11
fixed, a fall of slightly more than half of the level of exports in 1996. The rising inflation is to blame as it curtailed competitiveness, while foreign currency shortages, on the other hand, limited the scope for the importation of essential raw materials. Therefore, export performance was further constrained in this vicious cycle. The same trend can be discerned in the analysis of imports. Table 2. Parameters Affecting the Zimbabwean Foreign Exchange Market Year 1996 1997 1998 1999 2000 2001 2002 2003 Nominal Exchange Rate Z$/US$ 10.83 18.61 37.37 38.14 55.06 55.03 55.03 826.44 Consumer Price Inflation End period inflation 16.4 20.06 46.66 56.9 55.2 112.1 198.3 598.7 Real Sector Real GDP (% growth) 9.7 3-0.8-2.1-6.1-3.6-11.3-8.6 * Exports** 2496 2424 1925 1924 2200 1574 1396 1204 Imports** 2247 2654 2020 1675 1907 1826 1820 1541 Trade Balance 249-230 -95 249 317-252 -424-337 Current Account Balance Incl. Official transfers 87-65 74 189-289 -389-218 -249 Official BOP Balance 4-740 -289 0-171 -194-496 -335 Foreign debt (% GDP) 55 59 109 68 58 31 52 74 Domestic debt (% GDP) 38.1 32.8 29.8 33.9 44.9 27.4 20.4 10.7 Budget Deficit (% GDP) -6.9-7.2-3.7-5.8-19.6-6.0 -.2-0.2 * Fragility Indicators Foreign reserves (US$ m) 830 272 296 478 288 121 128 131 Source: RBZmonthly bulletins, CSO Quarterly Digest of Statistics A major decline was also recorded in the exports of tobacco and gold, which were the key foreign currency earners for the country. On the back of declining export performance, the 12
shortages in foreign currency became acute as the country had precariously depended on tobacco and gold for foreign currency earnings with limited broadening of the export base. 2. Zimbabwe s Trade Dynamics 2.1. Imports In 2005, Zimbabwe s top five imports consisted of colour reception apparatus for television and video recording apparatus, worn clothing and other worn textiles, motor vehicles with spark ignition engine of cylinder capacity 2000-3000, motor vehicles with diesel or semidiesel engines, and other printed matter. These accounted for 0.42%, 0.30%, 0.25%, 0.24% and 0.23%, respectively, as shown in Table A1 in the Appendix. The country s largest share of imports came from South Africa, accounting for 49.9% of total imports, followed by China with 3.4%, United Kingdom 2.8%, Germany 1.9%, and the United States 1.6%, as shown in Table A2 in the Appendix. Most of Zimbabwe s imports have been coming from South Africa due to the existing preferential trade agreement (PTA), while the country s Look East Policy has seen more imports coming from China. 2.2. Exports Zimbabwe s top five exports in 2005 included Flue cured tobacco of virgin type, accounting for 2.35% of total exports, wooden furniture worth 1.81%, worn clothing and other worn articles 1.55%, collections and collection pieces of zoologists 1.51%, and tobacco refuse in immediate packages 1.48%, as shown in Table B in the Appendix. South Africa remained the major destination for the country s exports, receiving 10.4% of total exports, followed by Zambia, Malawi, Botswana, and United Kingdom with 8.3%, 5%, 3% and 1.9%, respectively. The largest exports for Zimbabwe are headed to South Africa mainly because of the existing PTA between the two countries as well as the proximity of the market. The United Kingdom remains a key destination for the country s exports due to the existing trade preferences under the Cotonou agreement. 2.3. Zimbabwe s Trade with other Trading Blocs Table 3 below indicates that Zimbabwe trades more with SADC and the European Union than other regions. The country s exports to SADC in 2004 amounted to about 41.36% of its 13
total exports, while its imports from the regional bloc amounted to about 63.92% of its total imports. This is mainly due to the existing SADC Trade Protocol which has ensured that neighbouring countries trade more with each other. Thus, the existence of this protocol and the numerous bilateral arrangements between the regional countries makes the SADC region the main trading partner for Zimbabwe. The country exports about 20.9% of its exports to the European Union and imports about 8.9% from the same region. This is also due to the existing Cotonou Agreement in which Zimbabwe s products benefit from preferential treatment into the EU market. Moreover, trade between Zimbabwe and the EU dates back to the colonial period during which the country benefited from imports from the European bloc and had a huge market in the EU, particularly for its agricultural and mining products. Table 3. Zimbabwe s Trade with other Regional Groupings, 2004 Exports (billion) % share Imports (billion) % share World 9,563.6 10,833.8 Trading Blocs 6,171.8 64.53 8,284.6 76.47 SADC 3,955.5 41.36 6,925.1 63.92 NAFTA 212.9 2.23 223.0 2.06 European Union 1,998.9 20.90 962.5 8.88 MERCOSUR 4,495.2 0.05 173.98 1.61 3. Intra-Regional Trade 3.1. Zimbabwe s Trade within SADC Zimbabwe had a negative trade balance with the SADC region between 2000 and 2004, with the country recording a trade deficit of about Z$3 trillion in 2004. Table 4 below shows that the total import value increased between 2000 and 2004 by about 17 800%, from Z$38 billion to Z$6.9 trillion. This may have been due to the increased isolation of Zimbabwe from the international community and hence the increased dependence on imports from South Africa. From Table 4 it can be seen that the share of imports from South Africa in 2004 was 82.48%, indicating how heavily Zimbabwe relies on its Southern African neighbour. With the imposition of smart sanctions on Zimbabwe, and worsening economic hardships, Zimbabweans have increasingly begun to import most household goods from South Africa, 14
which could have contributed to the huge amount of imports from this country. Zimbabwe also imports significantly from Botswana, Zambia, and Mozambique, and had import shares of 6.33%, 5.31% and 3.55% in 2004, respectively. Table 4. Zimbabwe s Imports from SADC Countries (Z$000), HS: H0: All commodities Country 2000 2001 2002 2003 2004 % share Angola 21 795-98,168 156,077 0.00 Botswana 3,393,681 1,803,174 2,812,737 8,005,194 438,353,011 6.33 DRC 319,146 5,305,095 268,709 2,604,293 34,974,593 0.51 Lesotho 58,554 888-29,031 - - Malawi 290,036 172,707 208,970 3,782,007 44,175,632 0.64 Mauritius 486,025 586,660 573,483 729,830 26,448,373 0.38 Mozambique 1,918,417 4,946,195 9,922,037 19,005,196 245,986,899 3.55 Namibia 224,696 267,949 134,601 298,477 6,667,042 0.10 South Africa 30,367,614 43,806,399 54,290,232 235,268,721 5,711,802,837 82.48 Swaziland 553,556 585,517 2,153,439 1,239,684 44,123,725 0.64 Tanzania 160,721 2,933 114,401 3,495,099 4,398,001 0.06 Zambia 781,342 769,523 696,554 9,831,736 368,043,407 5.31 Total 38,553,809 58,247,835 71,175,163 284,387,436 6,925,129,597 Table 5 below indicates that within SADC, Zimbabwe s main exports have been destined to South Africa, with 71.5% of exports to the region going to South Africa in 2004. This clearly shows the huge demand for the country s products in neighbouring SA, which could have been due to the bilateral trade agreement which exists between the two countries. Moreover, South Africa has a huge and expanding market for Zimbabwean products, and Zimbabwean exporters have capitalized on the proximity of this market as less cost is incurred during transportation. The second largest destination for Zimbabwean goods is Zambia with 8.97%, followed by Botswana, Malawi, and Mozambique with 6%, 5.96% and 2.45%, respectively. Total exports to the region in 2004 amounted to Z$3.95 trillion, signifying a 16 360% increase from the year 2000, which had exports worth Z$24 billion. The above analysis clearly shows that Zimbabwe relies more on trade with South Africa than any other country, as more that 70% of both its exports and imports are traded with South Africa. 15
Table 5. Zimbabwe s Exports to SADC Countries (Z$000), HS: H0: All commodities 2000 2001 2002 2003 2004 % share Angola 196,804 52,473 195,853 1,702,248 18,697,488 0.47 Botswana 2,623,915 705,340 2,140,015 43,782,881 239,146,066 6.05 DRC 470,428 146,909 872,667 5,124,779 62,701,010 1.59 Lesotho 28,551 53,169 22,655 213,574 16,362,810 0.41 Malawi 2,114,372 583,876 3,898,051 23,204,915 235,864,342 5.96 Mauritius 247,714 8,593 203,583 1,341,546 8,161,313 0.21 Mozambique 1,590,521 203,202 2,035,665 12,626,658 96,914,119 2.45 Namibia 838,347 582,020 956,645 18,524,123 70,413,516 1.78 South Africa 12,191,369 6,734,539 14,349,235 412,386,572 2,826,630,546 71.46 Swaziland 34,503 1,894 29,697 29,938 936,245 0.02 Tanzania 257,466 114,641 316,314 1,292,708 24,873,159 0.63 Zambia 3,494,709 637,629 6,476,622 33,551,014 354,802,888 8.97 Total 24,088,699 9,824,285 31,497,002 553,780,956 3,955,503,502 3.2. Zimbabwe s Trade within COMESA Zimbabwe has enjoyed a positive trade balance in its trade with COMESA countries. However, there was a significant decline in this trade balance between 1998 and 2005, falling from Z$180 million to Z$53.6 million, a decline of 70.2 percent. This was mainly attributed to the increased decline of exports into the region as a result of the decline in agricultural production. Exports declined from Z$268 million in 1998 to Z$134 million in 2005, a fall of 50%. Imports also declined from Z$88 million to Z$80 million, an 8.8 percent decline. A summary of Zimbabwe s trade with COMESA is shown in Table C in the Appendix. 3.3. Zimbabwe s Comparative Advantage Zimbabwe has always been code-named the bread basket of Southern Africa because of its ability to export most food stuffs to the region, particularly during the 1980s and early 1990s. The country has good climatic conditions for agricultural production, and during the 1980s it exported lots of grain to its neighbours. However, with the introduction of the land 16
reform exercise which has seen the invasion of farms by Black Zimbabweans, agricultural production has declined to the extent that the country is now a net importer of maize. However, an analysis of the exports of the country shows that tobacco remains a major export product for the country, and Zimbabwe should thus concentrate more on the production of this crop. The country used to be one of the top five global producers of tobacco, and this position can be retained with proper reorganization of the farming activities in the country. The country is endowed with good soils for the growth of the golden leaf and it also has the requisite labour force, making it much cheaper to grow the crop. The country also exports good quality cotton and cotton products which can give it an added advantage in the international market. 4. Trade Policy Regime: Framework and Objectives In analyzing Zimbabwe s trade policy orientations, it should be realized that the country lacks a properly laid out trade policy document or framework for a specific period in which trade objectives, targets, policies, and linkages with other macroeconomic growth and development targets are clearly presented and defined. Instead, elements of trade policy come in various documents such as annual budgets, ministerial pronouncements, and others, often showing inconsistencies between practice and pronouncements. During the 1980s, Zimbabwe s trade regime was characterized by control of imports through licensing, quotas, high tariff protection, administrative exchange rate allocation, and various non-tariff barriers. The government of Zimbabwe intervened in the economy by setting a cap on prices, wages, and interest rates. These policies, however, proved to be futile by the beginning of the 1990s as the country experienced a general economic decline and there was a need for a shift from protectionism to liberalization. In 1990, with the support of the Breton Woods Institutions, Zimbabwe embarked on an autonomous structural adjustment programme with trade as a key component. Zimbabwe made a commitment to reduce tariffs under the WTO Uruguay Round, and this was augmented by further liberalization episodes through regional bodies such as COMESA and SADC. Trade liberalization has seen the lifting of restrictions on trade through removal of non-tariff barriers (NTBs) and the reduction of tariffs. Zimbabwe embraced trade liberalization as a vehicle towards enhanced domestic productivity, efficiency, improved quality and low prices, which ultimately lead to improved consumer welfare. 17
Zimbabwe s main objectives in its trade policy agenda have been guided by its commitment to WTO obligations, pursuance of export-led growth, seeking of increased market access for local products in regional and world markets, and use of tariff-based protection in place of NTBs, rationalizing and lowering the tariff structure. Table 6 provides a summary of Zimbabwe s trade policy objectives. Table 6. Zimbabwe s Trade Policy Objectives Membership to Trade arrangements WTO COMESA SADC ACP-EU ESA Trade Policy Objectives Zimbabwe lacks a clearly laid down trade policy document Commitment to regional trade integration Importance of duties for revenue generation seems to be the overriding consideration Aims at achieving a stable tariff structure and securing market access for its products New trade policy seeks promotion of exports and opening of new markets within the codified Look East Policy Pursuing a significantly liberalized economy based on tariffs Record and Depth of Trade Reforms Inconsistence in trade policy coupled with numerous reversals and lack of commitment Controls in the exchange rate and existence of price controls Bad economic management is the main issue After successfully engaging in trade liberalization, Zimbabwe reverted to import controls, increased tariffs on selective products, price controls and exchange rate controls, which directly affected trade. 4.1. Bilateral Trade Agreements Zimbabwe currently has a number of preferential bilateral trade agreements under which exporters can benefit. The preferential trade agreements may eliminate or substantially reduce customs duties and other non-tariff barriers on qualifying goods, and these may or may not be based on full reciprocity. These agreements have the same purpose and same benefits under the same qualifying criteria: the agreements aim at encouraging and 18
stimulating trade between Zimbabwe and the cooperating partner country through the elimination of tariffs and other non-tariff barriers to trade. 4.1.1. Zimbabwe and Botswana The preferential agreement between Zimbabwe and Botswana was ratified in 1988. The bilateral agreement calls for reciprocal duty-free trade on all products that are grown, wholly produced, or manufactured wholly or partly from imported inputs, subject to a 25% local content requirement. 4.1.2. Zimbabwe and South Africa The bilateral agreement between Zimbabwe and South Africa was implemented in 1964. The preferential agreement accords preferential treatment to specified items in the form of rebates and duty-free market access. A duty free regime or preferential tariff quota applies to items including dairy products, potatoes, birds, and eggs. Specified types of woven fabric, such as cotton, are subject to concessional tariff rates when they meet the specified levels of Zimbabwean content 75% in most cases. The most recent version of the agreement was signed in 1996 at which time the tariffs and quotas on textile imports into South Africa were lowered. The PTA with South Africa has seen sector specific arrangements being established in agricultural goods (1998) and clothing and textiles (1999). 4.1.3. Zimbabwe and Mozambique The bilateral trade arrangement between Zimbabwe and Mozambique was signed in January 2004 and became operational on 1 March 2005. The agreement was signed in order to eliminate tariff and non-tariff barriers and to enhance cooperation in customs and trade promotion. The agreement also provides duty-free trade between the two countries, with rules of origin specifying 25% domestic value added. This agreement, however, excludes refined and unrefined sugars; coco-cola/schweppes soft drinks; firearms, ammunition and explosives; motor vehicles; and cigarettes. 4.1.4. Zimbabwe and Namibia The preferential trade agreement between Zimbabwe and Namibia has been in effect since 1992. This agreement allows exports from either country to enter the other market free of all customs duties and charges of equivalent effect. The agreement is subject to rules of origin 19
which require at least 25 percent local content for manufactured goods. Other eligible products include mineral and vegetable products, and live animals and their products. 4.1.5. Zimbabwe and Malawi The bilateral trade agreement between Malawi and Zimbabwe was implemented in 1995. The arrangement affects all traded commodities, but the local content of rules of origin excludes packaging, simple assembling, sorting, grading, dying, calibrating, heating, salting, simple blending of imported ingredients, and affixing of distinguishing marks, etc. This is a reciprocal trade agreement with 25% domestic value added requirements. The arrangement is characterized by implementation problems, in particular with regards to rules of origin, and no dispute settlement mechanism exists. As of 2002, the bilateral agreement was under renegotiation. 5. Regional Trade Agreements 5.1. Common Market for Eastern and Southern Africa (COMESA) Zimbabwe is a member of COMESA, a regional organization set up to encourage trade by reducing and eventually eliminating trade barriers and establishing a common market. COMESA consists of 20 African states which have agreed to promote regional integration through trade development, and to develop their natural and human resources for the natural benefit of all their people. COMESA was established to take advantage of a larger market size, to share the region s common heritage and destiny, and to allow greater social and economic cooperation, with the ultimate objective being to create an economic community with high standards of living for its people. Zimbabwe, along with 12 other countries, formed a Free Trade Area under COMESA in October, 2000. The regional bloc is currently moving towards a customs union, and also aims to achieve a common market by 2014 which will see the free movement of goods, services, labour, and capital within the bloc, and the right of residency and establishment between members of the common market. This will be finalized by an economic community to be achieved in 2025, which will see the regional bloc adopting common monetary and fiscal policies and a single currency to be issued by one monetary authority. 20
5.2. Southern Africa Development Community (SADC) Zimbabwe is a founding member of SADC, which originated in 1974 in Arusha, Tanzania, and came into force in 1980 in Zambia as the Southern Africa Development Coordination Conference, SADCC. SADCC was transformed into SADC by the member states under the SADC Treaty, signed by the Heads of State in 1992 in Windhoek, Namibia. The regional body is responsible for facilitating and coordinating development projects in Southern Africa. The thrust of the bloc has turned towards enhancing trade, developing industry, and financial cooperation as priority areas. The regional body has developed a Trade Protocol which was signed in Maseru in August, 1996. The bloc had an objective of achieving a Free Trade Area in 2008 which was achieved to be followed by a Customs union in 2015. This means the bloc will have a common external tariff and then a common currency in 2016. 5.3. Implementation Challenges Whilst Zimbabwe has done a lot of work in terms of implementation of agreements within COMESA and SADC, the country still encounters numerous challenges. It appears the country has remained both a member of COMESA and SADC because it derives different benefits from the two regions. Whilst the SADC trade protocol has emphasized the need for a tariff phase down, Lewis, Robinson and Thierfelder (2002) note that the highest average tariff against another SADC country ranges from 94% (Zimbabwe against Tanzania) to 20% (Zambia against imports from Malawi). This clearly shows that the country has not been fully committed to reduce tariffs. An analysis of the tariff reduction schedules reveals that whilst SACU countries plan to reduce tariffs by the end of eight years to almost zero, Zimbabwe will only have reached slightly above half, i.e., 57.7%. Table 7 below shows that Zimbabwe will have the least tariff reduction over this period, which poses a serious challenge to the successful implementation of the SADC Trade Protocol. Table 7. Proportion (%) of Liberalization achieved in first eight years, 2000 2008 SACU Malawi Mauritius Mozambique Offer to RSA - 70.4 70.4 62.7 Offer to rest of SADC 99.5 60.0 72.5 76.3 21
Tanzania Zambia Zimbabwe 87.3 62.7 68.3 87.9 76.9 57.7 Source: Flatters, 2001. Derived from SADC Trade Protocol Project, 2001 6. Multilateral Trade Agreements 6.1. World Trade Organization Zimbabwe is a founding member of the WTO and is therefore bound by its disciplines. Since 1947, Zimbabwe, then Southern Rhodesia, has been a member of the General Agreement on Tariffs and Trade (GATT), and participated in the Uruguay Round (UR) between 1986 and 1994 which resulted in the creation of the WTO in 1995. The birth of the WTO coincided with the end of Zimbabwe s economic reforms, in which it carried out autonomous and unilateral trade liberalization policies such that Zimbabwe already had a much more liberal trade policy by the time commitments taken under the WTO came into effect. Controls on imports, interest rates, prices, and foreign exchange had been removed, tariffs reduced, and the domestic market had been decontrolled, and there was a general improvement in foreign direct investments. Given this background, Zimbabwe viewed trade liberalization within the WTO as complementary and was supportive of international instruments to buttress national efforts. The expectation was that this move would bring about increased economic growth, employment creation, increased exports, and integration of the economy into the world economy. The approach taken by Zimbabwe in the WTO was to lock in trade liberalization measures initiated within the ESAP into the WTO agreements. These measures involved: Tariff binding and tariff reductions; Eradication of non-tariff barriers in agriculture; Reductions of some domestic support measures and subsidies; Provision of greater market access to other WTO members; Liberalization of financial services; and Removal of import licenses. The country benefited from its developing country status under the WTO as it enjoyed longer implementation periods of various agreements, exemptions from some commitments, grace 22
periods, and technical support towards meeting its liberalization obligations. Whilst the country had hoped to benefit immensely from the WTO, current developments in the country indicate that there has been massive economic stagnation exports have failed to grow while imports have surged upwards as local production continued to decline due to deindustrialization and rampant disorder in the agricultural sector. The country has failed to benefit from the WTO and hence it is progressively facing increasing prospects for severe marginalization in the international trade arena. Trade liberalization within the WTO has seen a worsening of market access conditions for Zimbabwe. The WTO-induced trade liberalization has led to a narrowing of the differences between the Generalized System of Preferences (GSP) rates and the Most-Favoured Nation (MFN) rates, and between the GSP rates and the Cotonou rates, thus undermining Zimbabwe s tariff-based preferences and market access. Due to structural deficiencies, the country has also failed to take advantage of tariff cuts within the WTO (Tekere, 2001). The country also faces difficulties in its trade interests, both in the domestic and international markets, when trade defence instruments (antidumping, subsidies, countervailing duties, safeguard measures) are brought against its exports. This is against the backdrop of continuous use of these instruments by developed countries, which in turn gives their exports competitive advantage over those from developing countries such as Zimbabwe. Zimbabwe has failed to adequately participate in the WTO permanent process of reviews and hence has failed to benefit from them. Instead, the country has continued to suffer from the burden of trying to comply with the WTO provisions. Zimbabwe should, however, continue to ensure that it taps into the benefits that accrue from membership in the WTO in a bid to address the fundamental development challenges that the country is currently facing. 6.2. Cotonou Agreement/Economic Partnership Agreements After independence in 1980, Zimbabwe became a signatory of the Lomé conventions. The cooperation involved preferential trade, technical assistance, financial and regional cooperation, and investment promotion. Under the Lomé trade preferences, Zimbabwe has benefited from the Beef and Veal Protocol, which allowed it to export 9 100 tonnes of beef into the EU annually. However, Zimbabwe could no longer meet this quota, and because of the outbreak of foot and mouth disease, exports of beef were discontinued. Zimbabwe also benefited from the Sugar Protocol, which specified the country s preferential quota at 30 225 tonnes annually, supplemented by a Special Preferential Sugar quota for 29 744 tonnes in 23
the late 1998 season. The country has managed for some years to fully utilize its quota with regards to sugar, but the recent disturbances in land redistribution have severely impacted on sugar production, hence the failure by the country to utilize this quota. With the advent of the Cotonou Agreement, and now the negotiations for Economic Partnership Agreements (EPAs), Zimbabwe is going to have non-preferential treatment in trade with the EU, and reciprocity will come in posing a serious challenge to the country whose industry and agricultural sectors are currently bleeding. The opening of the country s markets to EU products is likely to pose serious challenges to the country due to different levels of economic transformation between Zimbabwe and the EU. The country is likely to experience serious adjustment costs. 7. Analysis of Zimbabwe s Tariff Structure Before the trade liberalization period, tariffs were used mainly as a revenue-generation tool with the role of protecting the industry from being assigned to other import and exchange controls (Chitiga, 2004). However, pressure on balance of payments led government to turn to tariffs to reduce the import demand. In 1988, Zimbabwe started to use the Harmonised Commodity Description and Coding System with over 7 000 headings. Duty rates were raised to meet the increased demand for revenue from government. During the 1991 to 1996 reform period, there were frequent amendments to the tariff structure, which called for a major revision. In 1997, the government launched a new tariff structure, which brought about a reduction in the rates and a rationalization of the band structures, as shown in Table 8 below. Despite this move, in 1998 the government increased tariffs on goods considered luxuries to rates of between 70% and 100% in order to reduce import demand. In 2001, government also increased tariffs on certain processed items that have domestically-produced substitutes, such as food. In terms of the tariff regime, Zimbabwe aimed at promoting the competitiveness of its industries. Low duties existed in key industrial inputs such as capital equipment (0-5%), raw materials (5-10%), and intermediate inputs (15-25%). There are, however, considerable variations in the rates of duty in the different chapters of the Harmonized System (HS) for Zimbabwe. In the agricultural sectors (Chapters 1 to 24), low rates dominate, with a few exceptions. It s within these chapters that Zimbabwe has a strong export base. Local manufactures are, however, protected from finished goods at import tariff rates of 40% plus 24
a specific rate of duty. Industrial manufacturing products tend to attract high rates of duty above 60%, particularly as contained in Chapters 42 (articles of leather), 57 (carpets and floor covering), and 61 and 62 (clothing). Table 8. Tariff Bands for Zimbabwe Pre- and Post-1997 Goods Rates of duty before 1997 Rates after 1997 Raw materials Merit goods Education Medical Goods for the Blind Capital Goods Tools Spares Partly processed inputs Intermediate goods and consumables Finished goods 0-40 0-40 0-20 0-10 0-25 0-20 0-56 0-55 0-35 0-85 5 5 0-20 0 0 5-15 15 15 20-30 40-85 While the country has achieved significant progress in trade liberalization, currently Zimbabwe s trade policy is characterized by numerous reversals. Nevertheless, all official documents point to some liberalization. However, there is a total lack of consistent trade policy, and the country doesn t seem to be committed to all the forms of trade liberalization that had been initiated before. Instead, trade policy focuses on the use of trade measures (tariffs, import licenses, price controls), with the prime objective being revenue generation and the protection of emerging indigenous businesses. However, with the current economic meltdown, which has seen a significant number of all the previously protected infant industries closing shop, this policy seems to be increasing the economy s malaise. 8. Policies and Practices Prior to independence, Zimbabwe s trade policy was largely influenced by regional processes. The trade regime was mainly shaped by developments in the political arena, which saw Southern Rhodesia and South Africa becoming very close trade partners with a view to becoming industrial and agricultural suppliers for the southern and central Africa region. With the growth of the South African market, both in terms of population and industry, 25