Export incentives to drive diversification

Zimbabwe’s economy has for far too long been skewed towards the primary industries of agriculture and mining, which in turn has meant that the country has been exporting mostly primary commodities.

This makes it extremely vulnerable to the vagaries of the global market.

The numbers are glaring. According to figures from ZimTrade, primary commodities accounted for US$3,21 billion of the US$4,39 billion export receipts last year, representing 73 percent of total exports.

But a move toward greater economic diversification will position the economy on a more even keel.

Economist and Monetary Policy Committee (MPC) Persistence Gwanyanya, told the Business Weekly that the new staggered export incentives are a key element in the broader goal of economic rebalancing.

“The concentration of exports in a narrow range of commodities has been worrying. More than 85 percent of exports are generated from five major commodities namely gold, platinum, chrome, tobacco and diamonds.

“The incremental incentive is seen as a major driver to diversifying the economy towards manufacturing,” he said.

“To achieve the National Development Strategy (NDS1) objectives, Zimbabwe’s industrial base has to grow from between 10 to 15 percent to 30 percent share of gross domestic product (GDP) and export incentives are seen as one of the most effective measures to achieve that.

“With the said increase in manufacturing sector share of GDP, The NDS1 average growth target of at least 5 percent per annum is most likely to be achieved.”

Government through the Reserve Bank of Zimbabwe (RBZ) recently announced an incremental export incentive scheme to boost the country’s exports.

In terms of the new incremental export incentive scheme, all exporters currently retaining 60 percent of their foreign currency receipts will have their retention threshold increased to 80 percent.

They are an upgrade on previous export incentives, a regime that was introduced by the apex bank in 2016 to boost the country’s exports.

“The idea of incremental exports incentives is seen as an improvement from the previous export incentive scheme as it rewards extra effort in exports generation,” said Gwanyanya.

“Unlike the previous scheme where 5 percent incentive was paid on exports, the incremental export incentive rewards for only increase in exports from the current average levels.”

Zimbabwe is targeting to increase the contribution of value-added exports to total exports from 9 percent last year to 20 percent by 2025.

Zimtrade CEO Allan Majuru has said the country has seen diversified exports before.

“Despite the challenges currently affecting production, there is potential to diversify exports because the country once had a diversified export product composition. In 1992, the country’s export product composition was quite diversified, with the top 10 exports made up of textiles, agricultural products, clothing, processed foods and beverages, chemicals and leather and hides.

“That year, the top 10 exports constituted 90 percent of Zimbabwe’s total export receipts. However, this has since shifted towards dependence on minerals and commodities,” said Majuru.

“In 2020, the top 10 export products were mainly minerals and mineral-related products, including gold, nickel, chrome, diamonds, and platinum. The rest were unmanufactured tobacco and cane sugar.

“This is not sustainable because a lower product concentration reduces a country’s vulnerability to external economic shocks when there are negative developments on the global market.”-ebusinessweekly.co.zw