Foreign Trade During the Decade of Economic...

Zimbabwe’s Foreign Trade Performance During the Decade of Economic Turmoil

Will Exports Recover?

Bartlomiej Kaminski and Francis Ng

2/2/2011

Key words: Zimbabwe’s economy, macroeconomic stability and policy, economic governance, foreign trade performance, export competitiveness, natural resources, factor intensity, revealed comparative advantage, export specialization

JEL classification: F10, F13, F14, O11, O13, O24

A revised version of a background paper prepared for Zimbabwe’s Diagnostic Trade Integration Study in Africa Region (AFTP1). Without in any way asking them to share responsibility for opinions and interpretations expressed in this paper or for errors that might remain, the authors are grateful to Angelica Katuruza, Praveen Kumar, Sydney Mabika, Gift Mugano, Simon Nyarota, for their useful comments and suggestions on the draft of this report. In particular, we would like to thank Ian Gillson for numerous discussions and involvement in all stages of our work on this project. E‐mails of correspondence: "Bart Kaminski"<[email protected]>; “Francis Ng”<[email protected]>

Political instability and economic mismanagement have extracted a heavy toll on Zimbabwe’s economy. Over the last decade or so, traditional surpluses in agricultural products and industrial raw materials have either diminished or disappeared turning Zimbabwe into a net importer of agricultural products. The volume of exports has been in decline each year since 1998 while both contracting exports and imports have shifted away from the EU to the South African market. Yet, considering the extremely poor quality of Zimbabwe’s economic governance and the anti‐foreign trade bias of its institutions and economic policies, it is rather surprising that all exports—except for food products—have not contracted more. Following the restoration of macroeconomic stability in 2009 after more than a decade of inflation and hyperinflation, the major barrier to economic activity has been removed. Yet, macroeconomic stability alone will not put the economy on the path of sustained growth unless weaknesses in the country’s investment climate are addressed. The damage inflicted by a decade of ill‐conceived economic policies has been huge but it can be reversed once policies conducive to the revival of specializations in line with Zimbabwe’s endowments in natural resources, relatively high quality of human capital and attractive natural environment are in place.

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Contents Executive summary ................................................................................................................................... 4

Introduction .............................................................................................................................................. 8

A. Determinants of foreign trade performance: governance and macro‐instability ............................ 8

B. Observations derived from empirical analysis of Zimbabwe’s foreign trade ................................. 10

C. Structure of the report .................................................................................................................... 12

1. Zimbabwe’s lost decade: economic governance, macroeconomic disequilibria and other self‐

inflicted wounds ...................................................................................................................................... 14

1.1. Quality of economic governance in 1996‐2009 in a comparative perspective ........................... 14

1.2. Economy in a frenzied free fall in 1999‐2008: implications for foreign trade ............................. 18

1.3. Zimbabwe’s foreign trade performance in a regional perspective.............................................. 25

1.4. Concluding observation ............................................................................................................... 27

2. Highlights of Zimbabwe’s trade performance: openness, dynamics, and direction of trade ......... 29

2.1. Deceptive increase in openness ................................................................................................... 29

2.2. Trade in services: transportation and tourism ............................................................................ 31

2.3. Dynamics of foreign trade in goods in 1997‐2008 ....................................................................... 34

2.4. Zimbabwe’s export rebound in 2003‐07: was it price‐led or quantity‐driven? ........................... 36

2.5. Changes in Zimbabwe’s direction of trade: a shift in exports from the EU towards Southern

African markets ................................................................................................................................... 41

2.6. Zimbabwe’s export performance in regional markets................................................................. 44

2.7. Concluding comment ................................................................................................................... 45

3. Drivers of Zimbabwe’s trade performance: evolving patterns of specialization ............................ 47

3.1. Diversity in exports has declined ................................................................................................. 47

3.2. The degree of processing embodied in exports and imports ...................................................... 49

3.3. Agriculture and agro‐processing: contraction of net exports ...................................................... 53

3.4. Factor and technology content of foreign trade and revealed comparative advantage ............. 55

3.5. Victims and survivors: new and vanishing specializations ........................................................... 59

3.6. Revealed comparative advantage: predictable shifts from agriculture to extractive sectors ..... 62

3.7. Conclusion .................................................................................................................................... 69

4. Moving forward: how to revive exports? ....................................................................................... 71

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4.1. Restoration of macroeconomic stability: its initial impact and the challenge ahead .................. 73

4.2. A new setting for foreign trade policy: implications of the multi‐currency regime .................... 75

4.3. Expanding the export base calls for new investments but barriers persist ................................. 79

4.3. Conclusion .................................................................................................................................... 82

References .............................................................................................................................................. 84

Appendix 1: Note on foreign trade reporting in Zimbabwe ................................................................... 87

Appendix 2: Note on geography‐ and policy‐induced costs of trading across borders .......................... 99

Appendix 3: Taxation as the most binding formal constraint to do business in Zimbabwe ................. 103

Statistical Annex .................................................................................................................................... 106

Tables

Table 1: The values of aggregate quality of governance (SAG) indices for Zimbabwe and selected SADC countries in

1996, 1998, and 2002‐09 ............................................................................................................................................. 15

Table 2: Dimensions of economic governance quality in Zimbabwe in1996, 1998, 2000, 2002‐09 ........................... 16

Table 3: Exports of selected minerals in terms of volume and value in percent of their peak performance and share

in total exports in 2010 (in percent) ............................................................................................................................ 20

Table 4: Imports of capital equipment and FDI flows to Zimbabwe and Zambia in 1995‐2008 (in millions of US

dollars) ......................................................................................................................................................................... 23

Table 5: Foreign trade growth performance of selected Sub‐Saharan African countries in 2001‐08 (in millions of US

dollars, dollars and percent) ........................................................................................................................................ 26

Table 6: GDP and its growth in real and value terms according to different sources over 1998‐2008 (in millions of

US dollars and percent) ............................................................................................................................................... 30

Table 7: Zimbabwe’s trade in services in 2000 and 2008‐2010 (in millions of US dollars) .......................................... 31

Table 8: Receipt from international tourism according to Zimbabwe’s balance of payments statistics and the World

Bank’ world development indicators database in 2000‐08 ......................................................................................... 33

Table 9: Exports and imports of goods in terms of value and exports in percent of imports in 1997‐2008 (in millions

of US dollars) ............................................................................................................................................................... 35

Table 10: Three phases of export growth in 1990‐2008 (in percent) .......................................................................... 36

Table 11: Exports of selected commodities and total exports as reported by Zimbabwe’s authorities and importers

of Zimbabwe’s products in 2000‐08 (in current prices)............................................................................................... 36

Table 12: Major Zimbabwe’s exports in terms of natural units in 2000‐08 ................................................................ 37

Table 13: Prices of major Zimbabwe’s exports in 2000‐08 (in US dollars per unit) ..................................................... 38

Table 14: Cumulative annual change in prices and quantities exported in 2001‐08 and 2003‐07 (in percent) .......... 39

Table 15: Total values of exports of selected commodities expressed in constant quantities and prices in 2000‐08

(in millions of US dollars) ............................................................................................................................................. 40

Table 16: Direction of trade in 2000‐08 (in millions of US dollars and percent) ......................................................... 42

Table 17: Exports to neighboring countries, EU‐27 and ROW in 1997‐2008 (in millions of current US dollars and

percent) ....................................................................................................................................................................... 44

Table 18: Zimbabwe’s export performance in neighboring countries in 2000‐08 (in percent) ................................... 45

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Table 19: Various indicators of concentration in 1994, 1997, 2002, 2007 and 2008 (in percent and numbers) ........ 48

Table 20: Shares of top ten in total exports and values of Herfindahl‐Hirschman index of total exports and of

exports to South Africa and European Union: four‐digit SITC items ........................................................................... 49

Table 21: Developments in Zimbabwe’s exports in terms of end‐use product categories ......................................... 50

Table 22: Developments in Zimbabwe’s trade by end‐use product categories in selected years over 1997‐2008 (in

millions of US dollars and percent) .............................................................................................................................. 51

Table 23: Direction of Zimbabwe’s exports by end‐use to South Africa, European Union and rest of the world in

1997 and 2008 (in percent) ......................................................................................................................................... 52

Table 24: Net exports of raw food and agricultural products in 1997‐2008 (in current millions of US dollars) ......... 54

Table 25: Change in factor content of Zimbabwe’s trade in goods in 1994‐97, 1997‐2003 and 2002‐07 .................. 56

Table 26: Exports in terms of technology intensities in 1997 and 2002‐08 (in millions of US dollars and percent) ... 58

Table 27: Dynamics of Zimbabwe’s trade in terms of technology and factor intensities in 1994‐97, 1998‐2002,

2003‐07, and 2008 (in percent and millions of dollars) ............................................................................................... 59

Table 28: Victims and survivors in 2008 against the average in 1994‐97, 1998‐2002 and 2003‐07 (in millions of US

dollars and four‐digit SITC product lines) .................................................................................................................... 61

Table 29: Low technology labor intensive products with the values of RCA exceeding unity in 1997 and 2008 ........ 62

Table 30: Resource intensive products with values of RCA exceeding unity in 1997 and 2008 ................................. 63

Table 31: Export specialization in South African and EU markets in 1997, 2002 and 2007‐08: number of SITC three‐

digit products with values exceeding unity in terms of technology, natural resource and labor content .................. 64

Table 32: Agricultural ‘losers:’ values of RCA and exports in 1997, 2002‐2008 (in millions of US dollars) ................. 65

Table 33: Exports and values of RCA of three‐digit SITC manufactured products that lost comparative advantage in

world markets in 1997‐08 and their technology and factor content .......................................................................... 66

Table 34: Exports of three‐digit SITC sectors that acquired revealed comparative advantage in 2007‐08 (in millions

of US dollars in 1997 and 2002‐08) ............................................................................................................................. 68

Table 35: Projected exports of selected agricultural and non‐agricultural commodities in current prices and

volumes in 2010 (in percent) ....................................................................................................................................... 74

Table 36: Zimbabwe’s exports and imports of sensitive agricultural and non‐agricultural products in 2002‐09 (in

percent) ....................................................................................................................................................................... 77

Figures

Figure 1: Moving in different directions: Zimbabwe’ quality of economic governance against that of Mozambique

and Rwanda in 1996,1998, 2000, 2002‐09 .................................................................................................................. 16

Figure 2: FDI in Zimbabwe and Zambia in 1994‐2009 (in millions of US dollars) ........................................................ 22

Figure 3: Two different tales: Imports of machinery and equipment (index 1996=100) and FDI into Zimbabwe and

Zambia in 1994‐2008 (index 1997=100) ...................................................................................................................... 23

Figure 4: GDP and foreign trade in US dollars per capita and percent in 1997‐2000 and 2003‐08 ............................ 30

Figure 5: Zimbabwe’s exports and imports of goods in 1997‐2008 (in millions of current US dollars) ....................... 34

Figure 6: Exports to neighboring countries, EU‐27 and ROW in 1997‐2008 (in millions of current US dollars) .......... 43

Figure 7: Developments in trade balances of traditional inputs and Zimbabwe’s total trade balance in 1994‐08 (n

millions of US dollars) .................................................................................................................................................. 51

Figure 8: Exports of low‐technology labor intensive products, resource intensive and medium to high‐tech products

in 1994‐2008 (in millions of US dollars) ....................................................................................................................... 58

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Executive summary

The objective of this report is to provide preliminary answers to three intertwined questions that are

essential to the development of a strategy that would boost Zimbabwe’s foreign trade performance:

How a decade of economic chaos has affected Zimbabwe’s export base? Whether lost export capacity

can be restored? And what policy actions are now necessary to set Zimbabwe on a path of sustained,

export‐led growth?

The short answer to these questions can be summarized as follows:

As a result of economic policies pursued in 2000‐09, exports of goods in terms of quantities are well

below the levels achieved in the 1990s, albeit with some notable exceptions discussed below, and

the balance of trade has been in deficit since 2006. For services, revenue from tourism has increased

steeply over 2009‐10 to reach the levels previously recorded in the 1990s, which has helped

somewhat in offsetting significant expenditures associated with the costs of transporting goods into

Zimbabwe. But it also suggests that the potential for double‐digit growth in this sector, at least in

the short‐term, has probably already been exhausted;

Despite significant contractions in the real output of exporting sectors, not all capacities have been

lost and some can be restored relatively quickly. The most affected sectors were labor intensive

agriculture and miscellaneous industrial sectors. Less affected were capital intensive extractive

industries. Output of tobacco can be probably increased in a relatively short period, as can agro‐

processing.

Restoration and the development of new export capacities requires an overhaul of existing

economic policy. In particular, without the removal of policy barriers to domestic and foreign

investments, the development of a diversified exports base will not be realised.

However given the extent of current bottlenecks, their removal may (a) be relatively straightforward

assuming political commitment; and (b) release powerful forces stimulating economic activitity.

Put differently, the payoff from economic reforms can be quick and significantthanks to an existing

dissonance between the country’s endowments and its subpar performance.

These observations derive from an empirical analysis. The diagnostics underlying them may be usefully

divided into two groups: foreign trade performance and economic governance.

Foreign trade performance While there is a commonly shared view in Zimbabwe that the main problem facing the economy is

underutilized production capacity in most sectors, an examination of Zimbabwe’s export performance

does not provide empirical support to this view. The exports base has shrunk, although probably less

than data on the contraction of GDP might suggest. Exports and imports have undergone a huge

transformation during the period of economic turmoil in 2000‐08. These changes can be summarized as

follows:

The contraction in exports and imports was quite substantial although not as large as the fall in real

GDP per capita:

o Had Zimbabwe exported the same quantities in 2008 as it did in 2000, the value of its

exports would have been around 50 percent higher than they were in 2008. In real terms,

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exports in 2008 were significantly lower than a decade earlier. In 2000 prices they were at

least 30 percent lower in 2008 than in 2000;

o Had Zimbabwe’s exports grown at the region’s average, their value in 2008 would have been

2.3 times higher than they actually were. Zimbabwe’s share in the region’s exports fell from

5 percent in 2000‐02 to 3 percent in 2005 and, further, to 2.2 percent in 2008. In order to

retain its export share in 2002, the value of exports in 2008 would have had to be US$5

billion or around 2.3 times higher than it actually was that year;

o Had imports grown in line with the region’s average, the value of imports would be 1.8 times

higher or US$4.7 billion rather than US$2.7 billion in 2008. The contraction of imports has

been less pronounced than that for exports. Relative to other countries in the region, the

share of Zimbabwe in the region’s imports fell from 3.8 percent in 2000 to 2.2 percent.

o Consequently:

Zimbabwe’s trade openness as traditionally defined has paradoxically increased. The

fall in GDP per capita there was accompanied by an increase in foreign trade as a

percent of GDP solely because both exports and imports per capita did not fall as

steeply as GDP.

Deficits in goods trade replaced earlier surpluses. Zimbabwe ran a significant trade

surplus in 1999‐2005 followed by growing deficits in goods trade. Export coverage of

imports fell from 130 percent in 2000 to 83 percent in 2008 and 51 percent in 2009.

The structure of Zimbabwe’s exports has changed rather substantially mainly as a result of

differences in the pace of contraction of different product groups as well as both exit and entry of

exporters;

o The contraction in agricultural exports was much more pronounced than in exports of

minerals. Industrial raw materials replaced agricultural foods and feeds as major exports in

2005: the value of exports of agricultural foods and feeds fell from around US$1 billion in

1997‐2001 to US$400 million in 2005 while that of industrial raw materials rose from around

US$150 million to US$400 million in 2005 and US$800 million in 2008;

o The contraction in exports has been accompanied by a shift from low‐technology unskilled

labor‐intensive to non‐processed natural resource‐intensive products with the share of

medium to high technology exports remaining unchanged;

o The degree of processing embodied in Zimbabwean exports has remained unchanged as one

set of products (industrial raw materials) has replaced another (food and feeds), both being

low value added traditional inputs;

o … while the concentration of Zimbabwe’s exports has increased dramatically especially to

Zimbabwe’s two major markets (South Africa and the European Union) e.g.

The number of SITC four‐digit exports exceeding the value of US$1 million has

steadily fallen from 140 in 1994‐97 to 133 in 2003‐07 and 114 in 2008;

The values of the Herfindahl‐Hirschman Index of export concentration for:

South Africa‐destined exports surged from an average of 0.018 in 1994‐97

to 0.19 in 2003‐07 and 0.22 in 2008;

EU‐destined exports increased from 0.11 in 2003‐07 to 0.14 in 2008.

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Zimbabwe’s foreign trade has also undergone a fundamental change in terms of its geographic

composition triggered by a redirection of trade to its neighbors, mainly South Africa, at the expense

of falling exports to the EU and the rest of the world. Zimbabwe is the second most trade dependant

economy in Southern Africa. The turning point was in 2003, when the value exports to its neighbors

increased 53 percent in that year alone overtaking exports to the EU, which contracted 9 percent:

o The shift in the geographical pattern of Zimbabwe’s trade was therefore not triggered by

expanding exports. Redirection of Zimbabwe’s exports has been due to a redirection of

exports from the EU to South Africa. The change in the geographical pattern of Zimbabwe’s

imports has been less pronounced, yet displays striking similarities with those for exports.

The share of South Africa in Zimbabwe’s total imports was 63 percent in 2008 and much

higher than its exports (34 percent).

Quality of economic governance Zimbabwe’s economy was in the state of a free fall in 1999‐2008: its GDP was falling every year while

inflation was increasing to reach an astronomical 500 billion percent in 2008. The introduction of the

multi‐currency regime in April 2009 marked a turning point not only in restoring macroeconomic stability

but also because it ended trade suppressing foreign currency regulations and other confiscatory

measures.

The major findings concerning the evolution of the quality of economic governance over the last decade

can be summarized as follows:

The quality of economic governance as measured by regulatory quality, political stability, and

government effectiveness dramatically deteriorated. Zimbabwe moved from an average performer

in the regional context in the 1990s to a poor one already in 2000. Subsequently, the quality of

economic governance continued falling, elevating Zimbabwe to one of the worst run and least

competitive economies in the world.

Despite the restoration of macroeconomic stability in 2009, the quality of economic governance has

not significantly improved according to various international rankings. Reasons include poor quality

of economic regulations and disregard of the government for private property rights as exemplified

by its indigenization program prompting capital flight and erecting new barriers to foreign direct

investment.

While other countries in the region have introduced economic reforms and seen significant

improvements in the quality of their business environments, Zimbabwe was moved in the opposite

direction. Ease of doing business has deteriorated in all dimensions and lags behind most other

countries.

Not surprisingly, the incidence of corruption, as captured by Transparency International’s corruption

perception indices, has moved in step with the deterioration in the quality of economic governance.

Despite notable improvement in 2009, Zimbabwe remains perceived as the most corrupt country in

the region.

Macroeconomic stability alone will not revive exports: policy reforms and new investments will Most constraints in Zimbabwe are policy‐induced weaknesses whose removal does not require

significant amounts of time or resources, and so could be relatively quickly addressed provided there is

political commitment to liberal economic reform which is indispensable to revive growth and reduce

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unemployment. Complementing macroeconomic stability with measures friendly to private sector

development would go a long way to boosting economic growth in the country.

This calls for the development of a comprehensive program of economic reforms that would address all

aspects of Zimbabwe’s economic regime. Without significantly reducing regulatory hassle and the fiscal

burden of conducting business in Zimbabwe, the revival of labor‐intensive exports will be impossible.

Reform is not only necessary for job creation but also to alleviate the very real risk that the country will

become even more dependent on foreign aid and continue under‐performing relative to its significant

potential.

However, the reversal in economic fortunes in any significant way is not likely to be achieved without

inflows of FDI (foreign direct investment). FDI has stayed away from Zimbabwe for the last ten years

going to its neighbors instead. Without a dramatic increase in FDI inflows, modernization of Zimbabwe’s

extractive and manufacturing sectors will simply not occur.

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Introduction The Global Political Agreement (GPA), signed on September 15, 2008, and the introduction of a multi‐

currency regime in April 2009 have provided a modicum of political certainty and restored

macroeconomic stability. The latter put an end to hyperinflation and removed some of the most

damaging measures introduced during the economic chaos in 2000‐09. A key question is whether these

measures will suffice to restore economic growth and boost exports?

A. Determinants of foreign trade performance: governance and macroinstability This study provides an indirect answer to this question through examining both economic governance

and foreign trade performance. At the most general level, the answer is that macroeconomic

instabilities were not the sole cause of Zimbabwe’s disastrous economic performance. Instead, it was

also the product of low quality of economic governance and the government’s disregard for private

property rights. Government policies have failed to strike a balance between redistributive functions

and growth generation. Rent‐seeking behavior, aimed at transferring or keeping wealth thanks to

political connections, was encouraged while activity that increases the economic pie was suppressed.

Restoration of macroeconomic stability without setting institutions that “reward socially useful

entrepreneurial activity once started (…) as otherwise individuals cannot be expected to take the risks of

losing their money and their time in ill‐fated ventures” (Baumol et al. 2007, p. 7) will fail to produce

sustainable economic growth.

At a more pedestrian level, another cause of the country’s poor growth record is that Zimbabwe has not

had institutions and structures supporting protection of property and contract rights combined with a

low cost of doing business, i.e., easiness to enter and exit business activities, low taxation and regulatory

compliance cost, high flexibility of labor markets, and a reasonably well‐functioning financial system.

Only under these conditions, could firms have had incentives to expand and cut costs in order to stay

competitive.

Indeed, all success stories of economic development over the last two decades have been based on

export‐oriented policies combined with business‐friendly environment, political and macroeconomic

stability, and low or declining barriers to imports of goods and services, and openness to FDI inflows.

Successful countries have also developed infrastructure commensurate with growth in internal demand

for inputs and for expanding transportation of goods, storage facilities and ports. Zimbabwe appears to

score satisfactorily in terms of physical access to external markets. Its major urban and industrial centers

are linked with paved roads and railroads both tied into an extensive central African transportation

network with all its neighbors.

But the government has so far failed to follow up on opportunities stemming from restoring macro‐

economic stability. It has been acting as though macroeconomic stability by default would end under‐

utilization of capacities and restore employment. The problem is that some human capital might have

been lost as a result of long‐term unemployment. More importantly, as our analysis of Zimbabwe’s

exports performance suggests, these production capacities may no longer exist. The scope of firms

engaged in export activities significantly declined in the 2000s. Some survived by selling in domestic

markets, but even those that did did nowbadly need new capital investment to stay competitive. High

real interest rates combined with an unfriendly investment environment do not make these investments

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possible. Except for the removal of some restraints on current business activities (e.g., the foreign

currency surrender requirement, foreign exchange controls), there has been no improvement in the

investment climate. Put differently, the quality of Zimbabwe’s business environment has improved but

only marginally as other barriers that put Zimbabwe at the bottom of several international rankings have

remained in place.

The size of Zimbabwe’s economic reversal was unprecedented during peacetime, so the pace of

rebound should be without precedent had the issue been of only activating existing capacities. GDP per

capita contracted by around half and so did Zimbabwean exports and imports. Agricultural exports

collapsed. Minerals and low processed industrial raw materials have replaced them as Zimbabwe’s

largest exports, despite the contraction in terms of volumes exported. Exports of manufactured goods

stagnated in terms of value and fell in terms of quantities. And the unemployment rate hovered at

around 70‐80 percent. Under these circumstances, one would expect strong economic growth had the

only barrier been the absence of macroeconomic stability. But this is yet to take place. Zimbabwe’s GDP

growth of 5 percent in 2009—albeit the first recorded expansion since 1998—and the projected GDP

growth of 5.4 percent in 2010 strikes one as rather modest considering the unprecedented size of the

country’s economic contraction.

It is tempting to compare Zimbabwe with the economies that transitioned from central planning

following the collapse of the Soviet bloc in 1989‐2001. There are some things common to them, but

there are many other features that put them aside from Zimbabwe. The most common theme is that

both crises were human‐made, i.e., they were the result of wrong institutions and bad economic

policies. By the same token, nothing short of a complete overhaul of the economic regime could revive

the economy. But the similarities end there as reformers in the Soviet bloc recognized that the whole

framework of economic policy making had to be overhauled while Zimbabwean policy makers appear to

be unable to recognize the contribution of their economic policies and institutions to the collapse of

national economy. While radical reformers in Central Europe quickly overhauled excessive regulations

and liberalized foreign trade and foreign investment regimes, Zimbabwe is yet to recognize that

economic revival calls for similarly deep and bold measures.

Policies, rather than external and infrastructural constraints, remain responsible for Zimbabwe’s

performance which remains well below its potential. Like Central European transition economies,

Zimbabwe borders a much higher developed economy, South Africa. Although land‐locked, Zimbabwe

does not suffer from—to use Paul Collier’s phrase (2007, p. 5)—the “trap of being landlocked with bad

neighbors.” Both Botswana and South Africa have superb quality of economic governance by world

standards and rate highly in trade logistics. While Mozambique and Zambia rank lower than them,

neither of these countries has a dysfunctional government.1 Not unlike Central European transition

economies, Zimbabwe also has high quality human capital relative to other countries in the region. Its

1 According to the World Bank’s survey of the cost of doing business in 2010, Zimbabwe ranked third in the world in terms of the highest cost of importing and exporting after Chad and Central African Republic. But traders from Zambia, Zimbabwe’s north‐eastern neighbor, paid 35 percent less for imports and 19 percent less for exports per container. This clearly cannot be explained by geography alone.

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workers are praised in neighboring countries for their work ethics and the country does not seem to

suffer from a shortage of entrepreneurial talent.

Thus, broadly conceived quality of economic governance remains Zimbabwe’s biggest problem choking

off foreign trade and economic growth. It rather dramatically deteriorated in 1997‐2008 and the

incidence of corruption has been on the rise since 1997‐98. Zimbabwe’s fall to the bottom of various

international rankings In the 2000s points to a very unfriendly business and investment climate. Indeed,

in nominal terms, FDI inflows peaked in 1996 at US$52 million, fell to US$28 million in 1997 and

subsequently never exceeded US$10 million averaging barely 0.06 percent of the GDP.2 Domestic

investments were also very low. Zimbabwe suffers from the trap of bad governance. While in the

presence of geographical barriers, poor infrastructure and a shortage of entrepreneurial skills,

improvements in institutions and policies can do little to put a country on a path of sustainable

economic growth. But these barriers are not particularly binding for Zimbabwe. With literacy rates at

over 90 percent Zimbabwe has a population better educated than the average in Africa. Moreover,

climate, fertile soil and ample endowments in natural resources, all create huge opportunities for export

activity.

Yet, despite its many assets, Zimbabwe has failed in generating economic growth throughout most of

the period covered by this study, i.e., 1994‐2008.3 The last decade or so was largely a lost decade in

terms of economic development. Zimbabwe got stuck in a low‐income trap suffering from pervasive

corruption, gross economic mismanagement and political instabilities. Financing the budget deficits

through printing money led to hyperinflation that would reach 231,000,000 percent in July 2008 until

the local currency was abandoned as “…the printing press was not able keep pace with the expansion of

local currency” (IMF 2009: p. 7). Cash shortages and a significant divergence between the parallel cash

and electronic transaction exchange rates led to the official adoption of hard currencies for transactions

in early 2009. Faced with shortages of foreign currency triggered by poorly designed economic policies

(e.g., allocation of foreign exchange at subsidized exchange rates to parastatals and poor farmers), the

authorities introduced measures (surrender requirements on exports proceeds, the retention of foreign

exchange earnings above mandatory surrender levels, and the confiscation of foreign currency deposits)

further suppressing foreign trade activities. Furthermore, the government’s program of seizure of white‐

owned farms by squatters and forced land‐acquisition program expelling around 3,000 white farmers in

2000‐02 dealt a blow to the agricultural sector, traditionally, a backbone of the Zimbabwean economy.4

B. Observations derived from empirical analysis of Zimbabwe’s foreign trade Zimbabwe provides a textbook illustration of the negative impact of economic mismanagement and

political instabilities on foreign trade performance. An empirical investigation of developments in

Zimbabwe’s foreign trade performance leads to the following major observations. First, paradoxically

foreign trade has turned out to be more resilient to the folly of economic policies than overall economic

2 Derived from data in UNCTAD ‘s FDI database. 3 The availability of foreign trade data from external sources has determined the time coverage of this analysis, as the reliability of Zimbabwe’s statistics leaves much to be desired. 4 For a detailed timeline of critical events in the history of Zimbabwe, see British Broadcasting Corporation’s website at http://news.bbc.co.uk/2/hi/africa/country_profiles/1831470.stm (accessed on May 31, 2010).

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activities as captured by the GDP. The openness of Zimbabwe’s economy significantly increased in 1998‐

2008 as GDP per capita was falling faster than foreign trade. Both exports and imports per capita in

current prices recorded a modest positive growth during this period. These developments produced an

intersection of two linear trends of falling GDP and rising share of foreign trade in the GDP crossing at

around 2004‐05. In all, Zimbabwe’s export performance over the last decade has been lackluster, albeit

quite impressive when cast against its dismal economic growth performance.

Second, viewed in a longer perspective of the last two decades, one may distinguish three phases in

Zimbabwe’s export performance: phase of growth in 1990‐97; phase of contraction in 1998‐2002; and

the phase of moderate recovery in 2003‐07, although only in terms of the value of exports, which came

to a halt in 2008 when exports fell 8 percent. External factors were decisive: 2002‐03 marked the

beginning of the five‐year commodity boom notable for its exceptional duration, the number of

commodities involved, and the heights that prices reached reflected the resilience of developing country

growth during this period (WB 2009). Zimbabwe has failed to take advantage of opportunities offered by

the boom. Its exports in 2008 would have been around 30 percent higher had it exported the same

amounts as in 2000. It also underperformed vis‐à‐vis its neighbors, as its share in total exports of

neighboring SADC countries fell from 5 percent in 2000‐02 to 3 percent in 2005 and further to 2.2

percent in 2008.

Third, the differences in exports growth performance between the 1990‐97 and 2003‐07 phases raise

concerns over the depletion of levers of growth in the future. Zimbabwe’s exports have become less

diversified and increasingly concentrated on products with low level of processing and high natural

resource content. This does not augur well for the future export growth performance unless some

measures encouraging the development of the internationally competitive private sector are taken.

Fourth, there are strong indications that the industrial base supporting exports has significantly shrunk.

Consider the following: the share of capital equipment in total imports fell from around one third in

1990‐98 to around one‐fifth in the 2000s; the degree of processing embodied in Zimbabwe’s exports fell

in the 2000s as exports shifted towards industrial raw materials and resource intensive products; so did

the technological content marked by a dramatic shift from low technology labor intensive products to

natural resource‐based products; export offer has become less diversified with the fall of the number of

products with exports exceeding US$500 thousand; and net exports, as measured by the difference

between exports of a product and its imports, have been rapidly falling.

Fifth, Zimbabwe’s surplus in trade in natural resource intensive products has fallen rather dramatically

mainly due to the combination of falling exports of foods and feeds and their rising imports. While

exports coverage of imports was on average 510 percent in 1994‐97, it fell to 224 percent in 2002‐07

and 164 percent in 2008. Put differently, Zimbabwe exported around five times more natural resource

intensive products in 1994‐97 and more than twice as it imported in 2008. Surplus in trade of

agricultural foods and feeds fell from US$1.1 billion in 1997 to US$ 99 million in 2008. Excluding feeds,

Zimbabwe has moved from a net exporter to net importer of food. But its agro‐processing business

appears to have survived the economic chaos decade, although its base has been diminished.

Sixth, the rise to prominence of natural resources in Zimbabwe’s exports has not been the result of

different rates of expansion of products with different endowments in factors of production. Except for

12 | P a g e

natural resource intensive products, exports of human capital intensive products have been stagnant

and those of unskilled‐labor intensive products have been falling. Both developments are particularly

worrisome considering that Zimbabwe has a large pool of cheap skilled and unskilled labor.

Paradoxically, exports of unskilled labor intensive products experienced the second largest decline: its

negative LSG (least square growth) rate of 4.3 percent was larger than the pace of decline of capital

intensive exports of 4.0 percent but lower than that of skilled labor intensive products. However,

exports of skilled labor intensive recorded the largest decline in 2008. Their share in total exports fell

from an average of 6.4 percent in 2002‐07 to 3.2 percent in 2008.

Seventh, a great shift in geography of Zimbabwe’s exports from the EU to South Africa has taken place

since the beginning of this century. The shift in geographical patterns of Zimbabwe was not triggered by

expanding exports to its major external markets. Neither was it triggered by the surge in exports to all of

its neighbors as exports increased only to South Africa. The EU was taking almost half of Zimbabwe’s

total exports in 1994‐2000 and accounted on average for 24 percent of Zimbabwe’s imports during this

period. By 2008, these shares fell to 21 percent for exports and 7 percent for imports.

Hence, the change in direction amounted to redirection of exports from the EU to other countries,

mainly to neighboring South Africa. This was not the result of the emergence of new export capacity, as

exports in real terms were stagnant, if not falling, but a simple redirection as the presence of

Zimbabwean exporters in EU markets fell rather precipitously. So did it in other than South Africa

regional markets, albeit to a smaller extent.

Last but not least, contrary to what one might expect considering proximity of South African markets,

Zimbabwe’s South African‐oriented export basket has converged towards that of the EU‐oriented one.

In consequence, Zimbabwean total exports have become less diversified and increasingly concentrated

on a few minerals. While the traditional measures of concentration do not necessarily reveal it, as

Zimbabwean exports have always been dominated by a few large items—tobacco, nickel, the difference

is that the number of exported items above US$500,000 has significantly declined indicating the

disappearance of small and medium enterprises in the export sector.

C. Structure of the report The remainder of this report is organized as follows. The first chapter asks about links between the

quality of economic governance, overall economic performance and foreign trade performance in a

regional perspective. Chapter 2 provides a bird’s‐eye‐view of Zimbabwe’s foreign trade performance: it

ponders over the paradox of expanding economic openness, as traditionally defined by the percentage

of foreign trade in GDP, in spite of a disintegrating economy; it discusses developments in trade in

services; identifies three phases in Zimbabwe’s export development between 1994‐2008; and, assesses

the extent to which the last phase of moderate growth was driven by price‐increases; it compares

Zimbabwe’s trade performance with that of its neighbors; and, last but not least, it seeks to identify

changes in Zimbabwean geographical patterns of trade. Chapter 3 turns to an examination of change in

Zimbabwe’s exports in terms of patterns of specialization, factor intensities, degree of processing and

technology content. It also identifies losers and survivors of hyperinflation in 2002‐08 and seeks to

assess changes in revealed comparative advantage of Zimbabwean exports. The last chapter tries to

sketch prospects for a revival in exports: it argues that some traditional exports are still viable and those

13 | P a g e

that did survive the vagaries of economic policies in the 2000s could be expanded. But this will not come

by default, as serious policy‐induced barriers to reviving exports are still in place. These barriers go well

beyond trade policy: they stem from bad policies and a weak institutional framework. Without

addressing these key issues, prospects for export‐led growth are slim.

14 | P a g e

1. Zimbabwe’s lost decade: economic governance, macroeconomic disequilibria and other selfinflicted wounds

Neither geography nor shortages of entrepreneurial talent and, more generally, high quality human

capital put up insurmountable barriers to Zimbabwean economic growth based on integration into

regional and global markets. Zimbabwe is amply endowed in natural resources and skilled labor, its

moderate climate is friendly towards agriculture, and, although it is landlocked, it has easy access to

seaports and cheap maritime transport. The question addressed in this section therefore concerns the

quality of economic governance. Leaving aside macroeconomic stability as a necessary condition for

staying on a path of economic growth, the quality of economic governance defined here broadly as a set

of institutions, regulations and policies assuring political stability, protection of property rights and

accountability of those in power. Good governance is critical to employment and economic expansion

because it is private enterprise that creates wealth and funds government, not the other way around.

1.1. Quality of economic governance in 19962009 in a comparative perspective In order to assess Zimbabwe’s quality of governance, an equivalent of government directive capacity, we

use the results of the World Bank’s “Governance” surveys systematically conducted since 1996, albeit

not on an annual basis.5 The international survey covering more than two hundred countries across the

world gives numerical estimates ranging between (‐) 2.5 (worst case) and (+) 2.5 (best case) together

with ranking in percentile6 for the following six dimensions of governance: voice and accountability,

political stability, government effectiveness, regulatory quality, rule of law and control of corruption. We

use the average of estimates of political stability, government effectiveness and regulatory quality as an

approximation of the quality of economic governance—hereafter referred to as a single aggregate index

of economic governance (SAG)—for two reasons. First, these indicators are critical dimensions of

business climate. Political stability impacts investment decisions and in extreme situations of its

absence, i.e., violence, it may completely disrupt economic activities. The inclusion of political stability

as a component of economic governance can be justified on the grounds of its influence on investment

decisions: political instabilities suppress private investment activities even more than macroeconomic

instabilities. More generally, democratization can be viewed as an investment in social capital improving

governance and economic growth performance. The quality of regulation is of little relevance unless

supported by a government having the capacity to enforce regulations, i.e., government effectiveness.

Second, three other indicators pertinent to such dimensions of governance as the rule of law, control of

corruption, and voice and accountability are not taken into account as they do not yield extra

information. They are strongly correlated with the selected three indicators, with the values of

correlation coefficients equal or above 0.97.

Table 1 presents values of the SAG index for selected SADC countries normalized for each dimension of

governance so that the best performer is 100 and the worst performer is zero. Thus, the scores for other

countries will show the distance separating them from the best and the worst performer in terms of the

quality of governance. In general, three groups of countries can be identified: decent performers with

5 For an explanation of methodology, see Kaufmann D., A. Kraay, and M. Mastruzzi (2007). 6 Percentile rank gives the percentage of countries worldwide (above 200 but their number has varied) that rate below the selected country (subject to margin of error) with higher values indicating better governance ratings.

15 | P a g e

the value of SAG above 60 percent; average performers with the values of SAG between 40 percent and

60 percent; and dismal performers with the value of SAG below 40 percent. South Africa (since 2000),

Botswana, Mauritius, and Namibia (since 2004), have decent levels of economic governance. The

remaining countries were within world median except for Zimbabwe, which slipped from this group

beginning in 2000. Zimbabwe’s quality of governance was already below the region’s average in 1996,

but it did not stand out as a pariah.7 Subsequently, there was a strikingly deep regress with Zimbabwe

replacing Rwanda as the worst performer among comparator countries (Table 1). The good news for

Zimbabwe is that its immediate neighbors—listed in Table 1, above the row with the data for

Zimbabwe—have rather good quality economic regimes: put differently, Zimbabwe—in contrast to a

number of other African landlocked countries—is fortunate in not being surrounded by ‘bad neighbors.’

Table 1: The values of aggregate quality of governance (SAG) indices for Zimbabwe and selected SADC countries in 1996, 1998, and 2002‐09

1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009

Botswana 71.0 73.4 73.7 71.4 72.8 70.8 71.8 69.0 69.5 70.4 70.2

Mozambique 45.3 54.1 53.4 50.0 47.6 45.8 47.4 50.8 50.3 51.2 53.1

South Africa 49.9 57.8 62.0 61.8 62.7 64.6 64.8 65.5 65.1 64.3 61.5

Zambia 50.7 49.3 46.3 41.5 43.3 44.8 42.5 46.9 48.2 49.7 49.9

Zimbabwe 44.5 42.2 29.0 19.7 20.0 20.4 15.1 21.5 18.3 15.7 14.4

Malawi 46.8 53.2 49.2 45.4 46.1 46.0 45.8 43.9 47.5 45.7 46.2

Mauritius 65.7 71.1 70.4 68.9 71.3 69.4 69.2 69.7 71.0 73.7 70.6

Namibia 66.4 64.7 58.6 59.7 59.9 60.4 59.6 62.1 62.8 66.1 62.4

Tanzania 50.5 49.8 48.7 46.4 44.2 45.1 45.5 47.9 48.4 48.2 49.2

Memorandum:

Rwanda 12.0 24.6 30.3 28.6 34.5 38.0 34.5 43.0 45.7 47.9 48.2

Source: derived from data discussed in D. Kaufmann, A. Kraay, and M. Mastruzzi, 2009. Governance Matters VIII: Governance Indicators for 1996-2008 and available at www.worldbank.org/wbi/governance

The ground lost against other comparator countries has been outstanding. While Rwanda moved from

the value of SAG of seven percent in 1996 to a very respectable 48 percent in 2008‐09, Zimbabwe

moved in the opposite direction with the value of SAG falling from 45 percent to 14 percent over the

same time span. In order to appreciate how low this score is for Zimbabwe, bear in mind that Rwanda

was in 1996 only two years after the civil war ended and three years before its first local elections.8 In

order to appreciate the distance lost, compare Zimbabwe with Its Eastern neighbor, Mozambique, which

scored on a par with Zimbabwe in 1996 and stayed in an average group in the 2000s. As it can be seen in

Figure 1, it stayed the course making significant strides in building policy and institutional foundations of

competitive markets.

7 Zimbabwe scored also well below the countries listed in Table in annual rankings compiled under the “Index of African Governance” (earlier, in 2007‐08 named the Ibrahim Index of African Governance). For 2009 ranking based on data for 2008, consult the website http://www.worldpeacefoundation.org/africangovernance.html. For methodology and theory, see Rotberg and Gisselquist (2009). 8 The Tutsi rebels defeated the Hutu regime and ended the killing in July 1994. Domestic political stability has been solid, although under threat of several thousand Hutu insurgents operating out of the neighboring Democratic Republic of the Congo. Rwanda held its first local elections in 1999 and its first post‐genocide presidential and legislative elections in 2003.

16 | P a g e

Figure 1: Moving in different directions: Zimbabwe’ quality of economic governance against that of Mozambique and Rwanda in 1996, 1998, 2000, 2002‐09

Source: As in Table 1.

A closer look at the constituent dimensions of the SAG for Zimbabwe indicates that regulatory quality

has consistently negatively contributed to the value of the SAG as it has been lagging behind other

dimensions of governance—political stability and government effectiveness (Table 2). By 2006, the

government has become dysfunctional: its ability to implement measures has all but disappeared while

the quality of regulation has even further deteriorated. The latter, however, no longer mattered as the

government lacked the capacity to implement regulations. Excluding the value of regulatory quality

dimension, the average for other two dimensions would be 8 percent in 2008. Hence, although political

stability was maintained, the state became largely dysfunctional. And so did the economy with

hyperinflation and steeply falling aggregate output (see section 1.2).

Table 2: Dimensions of economic governance quality in Zimbabwe in1996, 1998, 2000, 2002‐09

1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009

Political Stability 47.5 43.3 29.9 23.0 28.2 27.4 25.4 38.4 32.6 30.5 29.3

Government Effectiveness 43.8 40.3 31.5 31.1 29.5 30.7 22.0 22.7 22.5 14.8 13.9

Regulatory Quality 42.1 42.9 25.5 5.1 2.2 3.3 2.0 3.3 1.9 1.8 2.0

Source: As in Table 1.

Deterioration in governance quality has moved in tandem with creating new opportunities for rent

seeking. The incidence of corruption, as measured by Transparency International’s CPI (corruption

perception index) has also increased.9 By 2007 Zimbabwe became the most corrupt country amongst

comparators with the value of CPI falling from quite a respectable score of 4.2 in 1998 to 1.8 in 2008 as

compared with the average of four for the region (Annex Table 1). As the IMF (2009) report noted: “A

further deterioration in the business climate exacerbated the economic decline in 2008. A tightening of

price controls and exchange restrictions, a pickup in land invasions, the confiscation of foreign currency

deposits, and frequent changes in business regulations made it more difficult to conduct business in

Zimbabwe.” While other countries made progress in making conditions of doing business more

9 The corruption perception index (CPI) assumes values from one (maximum incidence of corruption) to ten (no corruption)

0

10

20

30

40

50

60

1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009

Zimbabwe

Mozambique

Rwanda

17 | P a g e

transparent and kept the incidence of corruption at unchanged levels, Zimbabwe moved in the opposite

direction. But in 2009, the value of CPI moved up to a still very low score of 2.2: yet, this is the first time

that an improvement was noted and Zimbabwe’s score in terms of the average for comparator countries

raised from 45 percent in 2008 to 59 percent.

A weakened state and collapsing regulatory quality, also captured in the World Bank’s Doing Business

annual surveys,10 have raised transaction costs of conducting business activity and undercut the

competitiveness of Zimbabwe’s economy in global markets. According to the 2009 Africa

Competitiveness Report (ADB 2009) and Global Competitiveness reports (WEFA 2009), Zimbabwe was

ranked as one of the countries with the least competitive economy: it ranked 133rd on the overall Global

Competitiveness Index out of the 134 countries’ surveyed, scoring 2.9 points out of a possible 10. It was

ranked higher than only one country worldwide, Chad, also in earlier surveys 2007‐09 (WEF 2009). The

major reason was that since around 2000, the growing gap between government expenditures and

revenue was covered increasingly by printing money and implementing other business‐unfriendly

measures including expropriation of hard currency profits and administrative rationing of access to

foreign currencies.

Although Zimbabwe has a very long way to go in order to establish policies and institutions capable of

reversing the trend of economic decline, political and economic changes that took place in 2008‐09 have

already improved the quality of economic governance, which is yet to be captured in most international

assessments. Except for the Transparency International ranking, which duly registered improvement in

its measure of Corruption Perception Index, the verdict of other organizations on Zimbabwe has

remained unchanged.

Thus, it is rather surprising to note that two major events, i.e., signing on September 15, 2008 of the so‐

called Global Political Agreement (GPA), between the Zimbabwe African National Union‐Patriotic Front

(ZANU‐PF) and the two formations of the Movement for Democratic Change (MDC), on resolving the

challenges facing Zimbabwe, and an agreement adopted in April 2009, to abandon printing of the

Zimbabwean dollar, and replace it with the US dollar and the South African Rand did not have any

perceptible, positive impact on Zimbabwe’s rankings in 2009,11 although they, taken together, have

significantly altered the political and economic landscape in Zimbabwe. While the GPA has not lived up

to the task and despite complaints about a political stalemate, the current arrangement negotiated

under the GPA is clearly superior to the one existing prior to it. It is also not clear why dumping of the

Zimbabwean dollar was not enough to boost international assessments of the quality of economic

governance. After all, this has ended hyperinflation and has helped remove some restrictive regulations

directly linked with administrative attempts to contain hyperinflation (e.g., price controls, surrender

requirements). But, without some degree of macroeconomic and financial stability, the economy cannot

grow: it usually contracts. Hence, the introduction of a stable currency has been a huge improvement.

Both events have clearly improved Zimbabwe’s economic regime and contributed to political stability.

Yet, there are still reasons for concern. In particular, except for the removal of measures that became

redundant once local de‐based currency was dropped, not a single measure has been taken to address

10 For information, see the World Bank’s site at http://www.doingbusiness.org/. 11 To the contrary, the value of SAG declined in 2009.

18 | P a g e

other weaknesses of Zimbabwe’s investment and business climate. Macroeconomic and financial

stability are a necessary condition but not a sufficient one to ensure that current and potential investors

can retain not only the returns to their investments but also investments themselves, as the rule of law

remains capricious. Together with incentives, these are critical conditions to attract investments, both

domestic and foreign, that remain unmet so high levels of static and dynamic inefficiency in the

allocation of resources persist in the economy.

1.2. Economy in a frenzied free fall in 19992008: implications for foreign trade Zimbabwe’s economy, which was in a tail spin for almost a decade, has two dubious world records of

the early 21st century: highest inflation, or hyperinflation, and deepest contraction in aggregate output

experienced during peacetime. Some observers note, however, that the income loss in 1994‐2004 alone

exceeded even the income losses incurred by Côte d’Ivoire, Democratic Republic of Congo, and Sierra

Leone during their respective conflicts (Clemens and Moss, 2005). In 1996‐98, Zimbabwe was the fastest

growing economy in Africa; in 1999‐2008, it became the fastest shrinking economy in the world with an

average contraction of the real GDP of 6 percent per year. The trough appears to have been reached in

2008 with 15 percent fall in real GDP as compared to 2007, on top of 48 percent cumulative decline in

1999‐2007. The GDP in constant 2000 prices fell from US$8.3 billion in 1998 to US$4.3 billion in 2008. In

2009, real GDP increased 6 percent for the first time since 1998 and is projected to be 5.4 percent in

2010 (Figure 2).

Figure 2: Real GDP growth and contraction (in constant 2000 prices) and annual rates of inflation in 1995‐2008 (in millions of US dollars and percent)

Notes: Right axis—the values of CPI in percent; Left axis—GDP in millions of 2000 US dollars

Sources: World Bank WDI database, IMF Article IV Consultation Staff Reports, 2009 & 2011, and The 2010 Mid‐Year Fiscal Policy

Review, Ministry of Finance, Harare, 14 July 2010.

There were two intertwined channels through which Zimbabwe’s exports performance was negatively

affected: escalating macroeconomic instabilities combined with the overvalued official exchange rate;

and the dramatic contraction in output triggered the government’s program of "indigenization of

the economy" including the ill‐designed land reform. While other countries suppressed inflation to

single digit levels in the early 2000s, Zimbabwe was moving in opposite direction: after Zimbabwe's

23 21 19 3259 56

77

140

432

282 302

‐7.7‐100

0

100

200

300

400

500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (p)

Inflation, consumer prices (annual %)GDP (constant 2000 US$)

19 | P a g e

confiscation of white‐owned farmland and its repudiation of debts to the International Monetary Fund,

hyperinflation set in and lasted to 2009. Inflation exceeded 50 percent already by 1999 and continued

its march upwards to reach 432 percent in 2003 (see Figure 2). Inflation, as measured by CPI (Consumer

Price Index), slightly fell in 2004‐05, albeit it was still very high with three‐digit annual growth rates.

Subsequently, however, it rebounded exceeding one thousand percent in 2006 and swiftly moving to

stratospheric levels in 2007‐08 to peak in September 2008 “… at about 500 billion percent” (IMF 2009, p.

5). The decision, adopted in April 2009, to abandon printing of the Zimbabwean dollar, and instead to

use hard currencies (especially the US dollar and the South African Rand), with the Rand as the

reference currency, has put an end to hyperinflation and CPI, with the value of minus 7.7 percent,

moved to a negative territory in 2009 for the first time since independence in 1980 (see Figure 2).

While hyperinflation alone would have undercut both current economic activity and investments, as the

experience of a number of South American economies in the 1980s has demonstrated, Zimbabwe’s

misery was aggravated by two government’s interventions: one typical for a number of countries

undergoing hyperinflation and the second unique to Zimbabwe, i.e., the government’s program of

"indigenization of the economy." The first intervention was the usual government temptation to ‘solve’

hyperinflation by outlawing it and instead dealing with its symptoms, rather than with the root of the

problem, i.e. deficits financed by printing money. The government introduced price and interest rate

controls, exchange controls, state monopsonies (e.g., Grain Marketing Board) and foreign currency

surrender requirements on exporters. The latter amounted to the confiscation of a portion of revenue

from exports. These measures contributed to further distortions in the economy; increasing shortages of

daily necessities; and, predictably, the emergence of a black market and profiteering. Furthermore, since

controlled prices were set at a fraction of market prices, there was a shift to produce goods not subject

to central price controls further distorting the allocation of resources.

Another consequence of growing macroeconomic instability was that convertibility of the Zimbabwean

dollar for current account transactions became increasingly limited. The domestic currency became

increasingly overvalued in 2000‐03, which prompted the government to establish special regimes for

tobacco and gold exporters, while the parallel market premiums exploded (Muñoz, 2006). Black markets

emerged where the US dollar would be traded at exchange rates several times higher than the official

rate.12 Already in 2002 (the end of third quarter), US dollar was exchanged at ZWE$740 in parallel

markets while its official exchange rate was ZWE$55 (Sandawana 2007). Subsequently, the gap between

two rates expanded rapidly.

Exporters were of course negatively affected. The overvaluation of the official exchange combined with

extremely lax fiscal and monetary policies undercut competitiveness of Zimbabwean exports. The

growing of the parallel market premium led to smuggling at the expense of legal exports. Muñoz (2006)

empirically shows a strong negative relationship found between the parallel market rate depreciation

and the value of legal exports in Zimbabwe in 2000‐04. Furthermore, with the price of imports rising and

growing difficulties in accessing foreign currency, producers dependent on imported inputs would often

12 Various ad hoc measures, such as the introduction of a managed foreign exchange tender system early in 2004 or the gradual relaxation of the surrender requirements have failed to prevent the apreciation of the official exchange rate, simply because “… the demand for foreign exchange continued to pick up” (Muñoz, 2006 p. 4).

20 | P a g e

go out of business if no domestically produced substitutes were available. Those who did not

increasingly turned to customers abroad than sell their products domestically. While strict foreign

currency‐surrender requirements, often amounting to confiscation of up to half of foreign currency

earnings by the government, was clearly a disincentive to export,13 the rewards of having access to hard

currencies and escaping domestic inflation offset these losses for some products. On balance, one might

have expected some diversion of sales away from the domestic to foreign markets during this time and,

therefore, a lower contraction of exports than that of aggregate output.

The disastrous macroeconomic environment combined with political instabilities and the government’s

program of "indigenization of the economy" was bound to erode one, if not all of three pillars that

historically shaped Zimbabwe’s external performance, i.e., tourism, agriculture including agro‐

processing and other simple manufactures, and mining. Tourism is always the first victim of political

instability and violence and the first to recover once the situation warrants the removal of travel

warnings by foreign governments. In fact, by 2006, the current value of revenue from tourism exceeded

the peak value reached in 1996. In mining, given the size of ‘sunk capital’ this sector was less affected by

macro‐instabilities than agricultural production.

Nevertheless, extraction sectors have also not flourished: to the contrary, exports of most minerals fell

in terms of volume in the 2000s. Except for diamonds and platinum group metals, which significantly

expanded both production and exports in the 2000s, exports of other minerals in terms of volume stood

well beyond their peak levels in 2000‐01. Thanks to sharp increases in prices of gold and copper, the

value of their respective exports exceeded previous record levels in the 2000s set for gold in 2006 and

for copper in 2000, despite lower volumes exported (Table 3).

Table 3: Exports of selected minerals in terms of volume and value in percent of their peak performance and share in total exports in 2010 (in percent)

Volume, Index Values, Index Share in total exports

Minerals 2010 peak

year=100 2010 peak

year=100 In 2010

Platinum Group Metals (‘000 ounces) 63.6 2008 76.8 2008 18.9

Gold (‘000 ounces) 30.7 2001 106.3 2004 14.5

Diamonds (‘000 carats) 115.4 2009 89.3 2005 2.0 Nickel (tons) 33.3 2000 16.5 2007 1.9

Copper (tons) 95.5 2000 268.8 2000 1.1

Agricultural products

Flue‐cured tobacco (tons) 38.5 2001 67.3 2001 20.4

Sugar raw (tons) 80.0 2000 126.8 2000 3.4

Sugar refined (tons) 4.7 2002 5.2 2000 0.1

Flowers (tons) 23.9 2002 24.2 2002 1.1

Source: Derived from data provided by the Reserve Bank of Zimbabwe

The agricultural sector—the backbone of Zimbabwe’s economy—witnessed huge drops in output as the

prime victim of Zimbabwe’s chaotic land reform program, albeit not the only one. In 2004, the maize

production stood at around one‐third of its level in 1999; wheat production at around 8 percent; and

13 The surrender requirement is a tax on exports, as exporters are obliged to convert a portion (50% in 2003) of foreign currency earnings into domestic currency at official exchange rates several times below black market exchange rates. Since every dollar converted loses almost all of its value, exporters have incentive keep money abroad further aggravating the severe shortage of foreign currency.

21 | P a g e

tobacco production at around one‐fourth (Clemens and Moss 2005). Agricultural output fell below the

levels needed to feed the local population and Zimbabwe ceased to be one of the largest exporters of

foods in Africa and now relies on food aid. So did the volumes of agricultural exports fall and to a much

larger extent than those of minerals: except for raw sugar whose exports stood at 80 percent of their

volume in 2000 but with refined sugar exports at 5 percent of their level in 2002, exports of tobacco was

at 38 percent of their volume in its peak year 2001 and cut flowers at 24 percent of its peak in 2002. The

values of their exports were also well below their respective peaks in 2000‐02 (Table 3).

A decade long mismanagement of the economy combined with violations of private property rights and

ad hoc confiscations of private property by the government was also bound to extract a heavy toll on

manufacturing. New production capacities did not emerge in the 2000s and some existing industrial

capacities, deprived of investment, disappeared. Furthermore, since the farm sector supplied about 60

percent of the inputs to the manufacturing base (Richardson, 2005), its collapse led also to the

breakdown of manufacturing output. In contrast to most other African countries, Zimbabwe had a

sophisticated manufacturing base. In the 1990s, Zimbabwe was one of four African countries with the

share of manufactures (mainly textiles, cement, chemicals, wood products, and steel) in total exports

exceeding 20 percent: the other countries were Kenya, Mauritius, and South Africa (Wood and Jordan,

2000). Although exports of manufactured goods continued contributing more than 20 percent to the

total in 2000‐08, the value of exports of manufactured goods of US$556 million in 2008 was US$10

million lower or 2 percent less than in 1997.14 Moreover, this relatively high share was mainly the result

of a slight increase in the value of exports of steel and iron products. Consumer goods including textiles

and clothing were particularly negatively affected: their exports in current prices stood in 2008 at 58

percent of their peak level in 1996.

Hence, hyperinflation combined with a heavy dose of state micromanagement of most economic

activities including foreign trade was bound to bring about the retrenchment in exports and,

consequently, imports. Yet, the foreign trade sector had displayed quite remarkable resilience and its

contraction, although rather dramatic, strikes one as less steep than one might have anticipated given

the conditions of doing business in Zimbabwe in 2000‐09.

The second action that negatively impacted investment in Zimbabwe was the government’s program of

"indigenization of the economy," launched in 2000. Although initially its main target was confiscation of

around 4,000 large‐scale commercial farms—accounting for 70 percent of Zimbabwe’s arable land and

owned exclusively by white Zimbabweans—under the so‐called "fast‐track land reform" announced in

February of 2000,15 the program was subsequently expanded to foreign investment with the adoption of

the Indigenization and Economic Empowerment Bill of 2007. But already in 2000, the investors in other

14 Exports of manufactured goods, defined as SITC 5 through 9 minus 68, are based on imports from Zimbabwe reported by its trading partners to the UN COMTRADE database. 15 As Clemens and Moss (2005) note: “Most Zimbabweans (including white farmers) say that land reform was both necessary and inevitable. The tragedy of Mugabe's approach is that it has harmed those whom a well‐ordered, selective redistribution program could and should have helped. Generally the farms have not been given to black farm managers or farm workers.” Moreover, although the official goal was to divide the farms into hundreds of thousands of small plots for traditional black farmers, most plots ended up in the hands of Mugabe’s political supporters and government officials (Richardson, 2005).

22 | P a g e

sectors of the economy felt also threatened, as many white‐owned urban businesses and offices of

foreign corporations were plundered (Power, 2003).

The government’s program of “indigenization" that requires that 51 percent equity in firms worth over

US$500,000 be transferred to black Zimbabweans has remained a huge barrier to FDI inflows.16 Despite

a dramatic fall in FDI inflows in 1999‐2008 they failed to rebound with the improvements in domestic

politics following the signing of the Global Political Agreement in September 2009 (Figure 2). The

increase in FDI inflows from US$52 million in 2008 to US$105 million in 2009 not only falls well short of

the investment needed to jumpstart the economy but FDI inflows are projected to fall in 2010 to US$85

million.17

Figure 2: FDI in Zimbabwe and Zambia in 1994‐2009 (in millions of US dollars)

Sources: UNCTAD WIR database.

Two measures of Zimbabwe’s investment ‘deficit’ illustrate the depth of undercapitalization of the

Zimbabwean economy as a result of economic chaos in 2000‐08. The first derives from benchmarking

FDI flows to Zimbabwe against those to Zambia. The second relates to imports of machinery in a

historical perspective and also in comparison to Zambia.

For the first, Zambia has actively sought FDI to supply capital and know how, whereas Zimbabwe’s

policies have actively discouraged foreign investment. While in 1994‐99 flows to both countries were of

similar magnitude, except in 1998, when they peaked in Zimbabwe at US$444 million against Zambia’s

US$238 million, in 2000‐09 FDI into Zambia continued its upward movement while those into Zimbabwe

almost completely dried up. Total FDI inflows of US$878 million over 1994‐99 to Zimbabwe were larger

than those into Zambia of US$709 million. But this was reversed, subsequently, as total FDI invested in

Zambia in 2004‐08 amounted to US$3.6 billion, whereas FDI in Zimbabwe was just US$323 million over

the same period.

16 The indigenization program is still in place encouraging transfers of profits abroad from Zimbabwean firms not owned by “disadvantaged” ZWE citizens and discouraging foreign investments. It also continues in the agricultural sector: the Harare newspaper The Standard reported taking over by the government of the Tuli cattle breeding farm (“World‐famous Tuli cattle breeders thrown off farm,” The Standard, August 15 to 21, p. 8‐9). 17 Based on balance‐of‐payments statistics of the Reserve Bank of Zambia, Harare, August 2010.

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While very low inflows of FDI deprived domestic industries of access to modern technologies and, by the

same token, kept labor productivity from growing, there are indications that the manufacturing base

was not completely erased. First, while the economic climate in the 2000s was hostile to investment

activities, they did not appear to come to a complete halt. In the absence of domestic data, the best

information shedding light on investment activities can be derived from statistics on imports of capital

equipment.18 The data shows a dramatic decline in the value of these imports, which peaked in 1996 at

US$667 million and fell 70 percent to US$217 million in 2002. Yet, despite inflation followed by

hyperinflation, these imports began recovering in 2003‐07 and rose in 2007 to 80 percent of the 1996

peak level (Figure 3A).

Figure 3: Two different tales: Imports of machinery and equipment (index 1996=100) and FDI into Zimbabwe and Zambia in 1994‐2008 (index 1997=100)

A. Zimbabwe B. Zambia

Source: Own calculations based on partners’ trade data reported to the UN COMTRADE database and FDI data from UNCTAD

WIR database.

Zimbabwe’s imports of capital equipment have therefore fallen much less than FDI inflows and stood in

2008 at 75 percent of their level in 1996. However, Figures 3A and 3B present another stark contrast by

benchmarking Zimbabwe’s imports of capital against Zambia’s. They show that while machinery imports

by Zambia were almost six times higher than their value in 1996, in Zimbabwe, over 1995‐2008, they

were almost identical (Table 4).

Neither the current imports of machinery nor FDI inflows are therefore likely to elevate Zimbabwe’s

exports to bring them in line with the country’s potential. The comparison of machinery imports and FDI

into Zimbabwe with the flows into its northern neighbor, Zambia, gives some idea as to the magnitude

of flows that might be necessary to turn around Zimbabwe’s economy. Consider the following: the value

of machinery imported into Zimbabwe in 1995‐98 was almost three times higher than into Zambia and

18 As elsewhere, these are based on exports to Zimbabwe reported by other countries to the UN COMTRADE database.

0%

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1995

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Imports of machinery (1996=100)

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1995

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FDI inflows (1997=100)

Imports of machinery (1996=100)

24 | P a g e

total FDI flows over this period were 8 percent higher (Table 4). While total imports of machinery in

1999‐03 exceeded those into Zambia by 13 percent, total FDI inflows into Zimbabwe amounted to seven

percent of foreign capital invested in Zambia. The discrepancy further increased in 2004‐08: Zambia’s

total machinery imports were more than twice as large as Zimbabwe’s and total FDI into Zambia over

this period was more than ten times larger (Table 4).

Table 4: Imports of capital equipment and FDI flows to Zimbabwe and Zambia in 1995‐2008 (in millions of US dollars)

2007 2008 Total

1995‐98 Total

1999‐03 Total

2004‐08 Total

1995‐08

Machinery, excluding automobiles and parts (US$ millions)

Zimbabwe 533 510 2,592 1,463 2,140 6,195

Zambia 1,333 1,166 925 1,292 4,537 6,754

Ratio of Zimbabwe to Zambia 0.40 0.44 2.80 1.13 0.47 0.92

FDI inflows (in US$ millions)

Zimbabwe 52 60 719 65 323 1,108

Zambia 1,324 939 669 930 3,599 5,198


2007 2008 Average 1995‐98

Average 1999‐03

Average 2004‐08

Average 1995‐08

Machinery, excluding automobiles and parts (share in total imports in %),

Zimbabwe 23 22 32 23 22 25

Zambia 33 23 26 23 27 25


Sources: UNCTAD WIR database (FDI data) and UN COMTRADE database (trade data).

Indeed, the evolution of machinery imports and their share in total imports and developments in FDI

inflows shed light on the difference between the economic paths that the two countries embarked

upon. Zambia’s industrial basis was expanding in the 2000s, whereas that of Zimbabwe was either flat or

shrinking. The share of machinery imports in total imports was on average significantly larger in

Zimbabwe’s imports in 1995‐98; roughly equal in 1999‐2003; and five percentage points lower in 2004‐

08. Over the last decade or since 1999, Zambian economy imported 62 percent more machinery in

terms of value than Zimbabwe did. It is quite likely that a significant portion of these imports into

Zambia was related to foreign investment.

The decade of economic mismanagement has extracted a heavy toll on the export capacity of

Zimbabwe’s economy. Although mining was somewhat insulated, it has not survived without wounds

revealed in lower outputs. Despite suppressed investment activity, imports of machinery and parts

continued indicating that some industrial capacities have survived, albeit in desperate need of

modernization. Modernization can only occur insofar as the climate for private sector development

significantly improves. Macroeconomic stability is a necessary condition but without a genuine

reduction in the cost of conducting business there the current recovery cannot be sustained.

While large mining and farming (tobacco) operations tend to be more immune to unfriendly business

climates, small scale agricultural and industrial activities are highly sensitive to ill‐designed economic

policies and weak economic governance. Indeed, as we shall show in Section 3, exports that have been

most negatively affected were agricultural and simple industrial products. Exports of these low

25 | P a g e

technology labor intensive agricultural and miscellaneous industrial products have been consistently

declining since 1997. They have been largely responsible for Zimbabwe’s disappointing overall export

performance.

1.3. Zimbabwe’s foreign trade performance in a regional perspective Although the links between institutions, policies and foreign trade performance, are complex, one

would expect that Zimbabwe would be a laggard. Its quality of economic governance deteriorated and

was the worst among its neighbors while hyperinflation largely disorganized economic activities across

most sectors of the economy. Indeed, statistical data corroborate this expectation.

Due to weaknesses in foreign trade statistics in Zimbabwe (WB 2010), we use foreign trade data derived

from its foreign trading partners reporting to the United Nations. Zimbabwe’s exports include CIF (cost

of insurance and freight) and imports are FOB (free on board). By the same token, the data exaggerate

the value of exports and lower the value of imports: the latter should be borne in mind when comparing

foreign trade performance against that of other countries. Barring some major changes in the

composition of exports, this has no significant impact on the export performance over time as freight

and insurance usually do not undergo volatile changes over short periods of time.

For reasons of geography and policy, members of SADC (Southern African Development Community)

would be the first candidates against whom Zimbabwe’s foreign trade performance record can be

benchmarked. In terms of geography, they are located in the same region. As for policy, Zimbabwe

together with most other SADC members is also a participant in the SADC FTA (free trade area) which

came into force in 2008 but has been trading on preferential terms for much longer. The comparator

countries chosen, however, neither include all SADC member states nor are they limited to them, as

Rwanda has been also included (Table 5). The lack of data has eliminated such countries as Angola, DR

Congo, Lesotho and Swaziland. While the first two do not report trade data to the UN, two SACU

(Southern African Customs Union) members have gaps in foreign trade reporting: for Lesotho the data

are available only for 2000‐04 and Swaziland for 2000‐07. The inclusion of Rwanda derives from shared

geography (both are landlocked) and the legacy of major man‐made disasters. Moreover, it may provide

some indications of the dynamics that one may expect when a country takes strong measures to recover

from an economic crisis.

SADC is a highly diversified regional grouping in terms of the size and level of economic development of

its members, quality of economic governance as well as geography. The GDP per capita of the richest,

Seychelles, is almost forty‐times higher than that of Malawi—the poorest member of SADC. South Africa

towers over all other countries with its GDP amounting to around three‐fourths of the region’s and

population to less than one‐third of the total. The quality of economic governance is significantly higher

in SACU countries and Mauritius than in other SADC countries with Zimbabwe scoring the lowest

amongst them all in the 2000s in the World Bank’s surveys of the quality of governance covering 213

states across the world (see Section 1.1). Last but not least, geography and tourist attractiveness

profoundly impact foreign trade performance. Seychelles and Mauritius are islands as well as attractive

destinations for tourists. Exports of goods are not their main earners of foreign currency. On the other

hand, Botswana, Malawi, Rwanda, Zambia and Zimbabwe are landlocked depending on infrastructure

26 | P a g e

and quality of economic governance in other countries to get their products to seaports providing the

cheapest means of transportation.

Table 5: Foreign trade growth performance of selected Sub‐Saharan African countries in 2001‐08 (in millions of US dollars, dollars and percent)

EXPORTS Annual growth rates Average LSG rate Value of exports

2006 2007 2008 2001‐08 2000‐08 2008 (c) per capita (d) in % of GDP

Botswana 1.7 12.6 ‐4.6 8.3 9.1 4,838 2,431 39.8

Malawi 34.5 30.4 1.2 12.6 10.8 879 59 21.1

Mauritius 8.8 ‐4.5 7.8 6.3 6.3 2,401 1,876 25.2

Mozambique 36.4 1.3 10.0 30.6 23.9 2,653 122 27.8

Namibia 34.8 19.7 17.1 20.0 18.1 4,729 2,252 54.4

Rwanda (a) ‐6.2 33.2 117.1 35.0 24.5 398 37 8.1

Seychelles 11.8 ‐5.2 ‐31.7 4.4 6.2 246 2,826 25.6

South Africa 11.9 21.7 15.5 14.7 14.8 73,966 1,510 27.1

Tanzania 11.5 14.7 45.9 22.0 18.6 3,121 76 15.3

Zambia 108.3 22.5 10.4 28.4 24.9 5,099 430 37.6

Zimbabwe (b) 12.8 8.4 ‐7.6 2.5 3.6 2,230 196 56.9

Total 15.6 19.0 13.8 14.2 14.5 100,561 605 27.9

IMPORTS

Annual growth rates Average LSG rate Value of imports

2006 2007 2008 2001‐08 2000‐08 2008 (c) per capita (d) in % of GDP

Botswana ‐3.4 30.6 27.9 15.7 8.7 5,099 2,562 41.9

Malawi 3.6 14.2 59.9 20.5 17.3 2,204 147 52.8

Mauritius 15.3 7.1 19.7 10.9 12.3 4,670 3,648 49.0

Mozambique 19.1 6.3 31.4 17.7 17.1 4,008 185 42.0

Namibia 11.2 43.9 16.5 18.3 18.3 4,689 2,233 53.9

Rwanda (a) 34.2 25.1 64.4 22.3 21.1 1,146 107 23.3

Seychelles 12.2 13.4 6.1 14.2 12.2 912 10,481 94.9

South Africa 24.4 16.7 9.7 16.7 19.5 87,593 1,788 32.1

Tanzania 39.4 30.8 36.6 23.3 23.2 8,088 197 39.8

Zambia 20.2 30.3 26.3 24.9 23.1 5,060 427 37.3

Zimbabwe (b) 20.1 7.6 6.1 9.0 13.1 2,680 235 68.4

Total 22.4 18.4 14.6 16.7 18.7 123,467 759 40.1

Notes: (a) Rwanda is not a member of SADC; (b) trade data derived from partners’ foreign trade statistics; (c) in millions of US dollars; (d) in US dollars. GDP data are in current US dollars, and LSG rate stands for Least Square Growth rate. Sources: derived trade data as reported to UN COMTRADE database; and population and GDP from World Bank Development Indicators and UN social indicators databases.

Performance in exports of goods reflects these differences. Landlocked Zimbabwe with the worst quality

of economic governance in 2002‐2008 had by far the worst performance amongst comparator

economies: the average growth rates were between four‐ five times lower than the weighted average

growth rates for countries displayed in Table 5. A simple eyeballing of data leads to the following

general observation: Zimbabwe was the worst performer amongst comparators in terms of growth of

exports. The growth in 2000‐08 was by far the lowest: it was more than two percentage points below

the second worst case of Seychelles. However, exports per capita remain respectably decent: in fact,

they are larger on a per capita basis than in Rwanda, Tanzania, Mozambique and Malawi: however, if

the differential in export growth rates between them, on the one hand, and Zimbabwe, on the other, is

27 | P a g e

sustained over the next ten years, all will overtake Zimbabwe. Zimbabwe stands out in another respect:

the value of its exports in terms of the GDP was the highest amongst these countries.

Zimbabwe, a laggard among exporters, is also at the bottom in terms of import dynamics. Imports into

Zimbabwe grew faster in terms of LSG (least square growth19) rate over 2000‐08 than into frugal and

richer Botswana, but slower when measured as an average of annual growth rates. Zimbabwe’s double

digit LSG rate was mainly the result of a rebound following the sharp contraction in the value of imports

of more than one third in 2000‐01. In 2002‐06 imports grew at an average rate of 16 percent but still 10

percentage points below the growth experienced by neighboring Zambia. Other countries have

experienced strong double‐digit rates of imports growth in 2000‐08. Thanks to either surpluses in

services trade or economic aid, or both, other countries, with the notable exception of Zambia, had

imports per capita significantly higher than exports per capita.

Thus it comes as no surprise that Zimbabwe’s share in total region’s foreign trade has been on the

decline. Its share in exports fell from 5 percent in 2000‐02 to 3 percent in 2005 and further to 2.2

percent in 2008. In order to retain its share in 2002, the value of exports in 2008 would have to be US$5

billion or 2.3 times higher than it actually was in 2008. This shows the scope of decline in exports over

2000‐08. But the decline was smaller for imports. The contraction in the share of Zimbabwe in total

imports was less pronounced falling from 3.8 percent in 2000 to 2.6 percent in 2004‐06 and 2.2 percent

in 2008. Zimbabwe’s imports would have to be 1.8 times higher or US$4.7 billion rather than US$2.7

billion in order to retain its share in region’s imports in 2000. In the meantime, however, a traditional

surplus in trade in goods moved to deficits in the balance of merchandise trade.

1.4. Concluding observation The weakened state and collapsing regulatory quality led to a rapidly shrinking economy, as the cost of

conducting business operations skyrocketed and the competitiveness of Zimbabwean firms in global

markets was greatly eroded despite constant devaluations. According to most international assessments

comparing the quality of economic governance and competitiveness, Zimbabwe was consistently ranked

at the bottom with the worst investment climate and highest incidence of corruption.

While the restoration of macroeconomic and financial stability has been achieved thanks to replacing

the domestic currency with the US dollar and South African rand, other barriers—such as low

government effectiveness and poor quality of regulations—are still in place. The discussion of the

quality of economic governance points to a significant challenge facing the government in overhauling

the existing economic regime. This calls for deep structural reforms. Without them, economic

performance will remain wanting, albeit likely superior to that experienced in 2000‐08.

Given the low quality of governance, i.e., the absence of institutions and policies supporting competitive

markets, combined with restrictive foreign exchange controls, confiscatory taxes imposed on exporters

through surrender requirement, inflation and hyperinflation that were all trademarks of the economic

landscape during 2000‐08, it comes as no surprise that, cast against other countries of the region,

19 According to the standard definition, the least‐squares growth rate is estimated by fitting a linear regression trend line to the logarithmic annual values of the variable in the relevant period (for a discussion, see OECD Glossary of Statistics, available at http://stats.oecd.org/glossary/detail.asp?ID=6687).

28 | P a g e

Zimbabwe’s relative position as an exporter and importer vis‐à‐vis other comparator countries has

drastically deteriorated. But it is rather surprising that foreign trade had displayed such strong resilience

in the face of devastating macroeconomic policies and an unfriendly business environment. Note that

exports in terms of value still recorded growth in the 2000s, as did imports.

29 | P a g e

2. Highlights of Zimbabwe’s trade performance: openness, dynamics, and direction of trade

Zimbabwe is unique. Except for the collapse of central planning across the former Soviet bloc and the

aftermath of civil or interstate wars, it would be difficult to find a country whose economy has been

declining for more than a decade at such a quick pace. The shrinking economy has been bound to affect

foreign trade as fewer goods were produced and fewer would be available for export. The question

addressed in this chapter concerns the long term perspective for development in trade and its linkages

with the country’s overall economy as captured by GDP.20 Both call for a careful statistical assessment as

hyperinflation made estimates of output and trade subject to wide margins of error. Yet, all signs point

to a more pronounced decline in Zimbabwe’s GDP than in its foreign trade.

Three other issues addressed in this chapter concern development in trade in services; a comparison of

price and volume changes in exports; and, shifts in geographical patterns of trade. For services, tourism

and transportation overshadow other areas in Zimbabwe’s services sector: tourism has been an

important source of foreign exchange earnings while Zimbabwe, as a landlocked country, has historically

run deficits in transportation services. In terms of prices, these have been favorable for Zimbabwean

exporters, although they did not take full advantage of them as their exports either stagnated or

declined in terms of volume. Although the period 2000‐07 witnessed a dramatic reorientation in

Zimbabwean foreign trade, Zimbabwe has not been successful in taking advantage of rapidly growing

import demand in other countries in the region. The competitiveness of Zimbabwe’s exports in regional

markets—as measured by their share in partners’ imports—has been on the decline with the exception

of South Africa.

2.1. Deceptive increase in openness Zimbabwe’s shrinking economy and stagnant foreign trade in goods in current prices led to an

unexpected increase in the openness of Zimbabwe’s economy as measured by its share of foreign trade

in GDP. Since foreign trade in goods has been stagnant and the economy has been contracting,

Zimbabwe’s openness has increased over the last decade or more.21 The stagnation in foreign trade was

due to a combination of falling exports and expanding imports in terms of value.

Zimbabwe’s economy has dramatically shrunk since 1998—the last year when GDP experienced growth

of 3 percent in real terms.22 While real GDP fell every year over 1999‐2008, Zimbabwe’s GDP in current

US dollars displayed a highly volatile picture of dramatic increases and declines with GDP increasing

almost 400% in 2001‐02. The period raising the most serious suspicions of statistical inexactness covers

the early 2000s. Recorded rates of GDP per capita growth swung from minus 25 percent in 1998 and

20 As for foreign trade statistics, we shall rely on foreign trade statistics reported by Zimbabwe’s trading partners to the UN COMTRADE database for the reasons discussed at some length in a background note prepared for this study (see Appendix 1). While the quality of Zimbabwe’s imports reporting is remarkably good, its exports statistics raise concerns. 21 It is important to note that ratio of trade to the GDP must not be interpreted as a trade policy indicator. The former depends on the size of an economy whereas the latter refer to the extent of policy‐induced barriers to trade. 22 In real terms (in 2000 prices), its GDP was falling every year at an average pace of minus 7 percent over 1999‐2008: its total GDP in real terms stood in 2008 at 35 percent.

30 | P a g e

minus 15 percent in 1999 to annual rates of growth of 40 percent, 58 percent, and 140 percent each

year between 2000 and 2002 (see Table 6). Since the population remained at roughly the same level of

12.5 million, this spectacular growth episode had nothing to do with a sudden dramatic increase in

population.

Table 6: GDP and its growth in real and value terms according to different sources over 1998‐2008 (in millions of US dollars and percent)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Index 2008, 1998=100

WB GDP * 6,066 5,964 7,399 10,256 21,897 7,397 4,712 3,418 3,711 3,553 3,180 52IMF GDP (1) 5,983 6,011 7,470 12,891 30,873 7,918 4,696 5,792 3,711 3,553 3,180 53IMF GDP (2) 6,851 5,801 8,136 12,883 30,856 10,515 4,713 4,627 5,596 3,583 3,929 57

Memorandum: annual change in percent . Cumulative

Current IMF GDP(2) ‐25 ‐15 40 58 140 ‐66 ‐55 ‐2 21 ‐36 10 70Real GDP 2.9 ‐3.6 ‐7.9 ‐2.7 ‐4.4 ‐10.4 ‐3.8 ‐5.3 ‐6.3 ‐6.9 ‐14.1 ‐63Real GDP (1998=100) 100 96 89 86 81 71 67 62 56 49 35

Notes: * There is no data available from WB from 2006 to 2009. (1) Based on IMF IFS database through official exchange rate and IMF Consultation Article IV paper 2009; and (2) Based on IMF World Economic Outlook database 2003/4, 2009, 2010; data for 2003-09 are estimates.

Neither did it have anything to do with positive developments in the real economy. Only external

intervention could explain the recorded increase in GDP per capita from US$486 in 1999 to US$2,466 in

2002 and subsequent contraction to US$376 in 2004 but this seems unlikely. One should also note a

significant divergence in IMF and World Bank’s estimates of Zimbabwe’s GDP in 2002 with the former

being 41 percent larger. Yet, in 2008, three estimates indicated a similar level of overall contraction in

relation to the 1998 level. Since the GDP statistics in current prices display rather unusual developments

in 2001‐02 with GDP increasing almost four times, which can be only attributable to a large statistical

inaccuracy, we exclude these years from our assessment of the change in the significance of foreign

trade to the Zimbabwean economy over time. Hence, years 2001 and 2002 do not show in Figure 4.

Figure 4: GDP and foreign trade in US dollars per capita and percent in 1997‐2000 and 2003‐08

Right Axis: in percent; Left Axis: US dollars Sources: GDP based on IMF IFS database through official exchange rate and IMF Consultation Article IV paper 2009; population from the World Bank’s World Development Indicators database; and trade from partner’s statistics as reported to the UN COMTRADE database.

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Exports per capita (in US$)Imports per capita (US$)

Linear (Trade in GDP (in percent))Linear (GDP (IMF) per capita)

31 | P a g e

These comments notwithstanding, the contraction in GDP was significantly larger than in foreign trade.

Imports per capita in value terms in 2008 were 21 percent higher than in 1997 and exports 1 percent

higher down from 9 percent a year earlier, whereas GDP per capita in 2008 was 64 percent lower than in

1997. The LSG rate of the contraction in GDP per capita over 1997‐2008 was 8.8 percent, whereas

imports grew at 3.5 percent and exports at 3.5 percent. As a result, foreign trade in terms of GDP grew

from 50 percent in 1997 to 154 percent in 2008.

This increased openness as traditionally defined is not, however, the product of a successful outward‐

oriented strategy but, rather, the ability of the foreign trade sector to better absorb the devastating

effects of bad economic policies pursued during this period. While the value of exports and, to a much

larger extent, that of imports continued to rise, Zimbabwe’s GDP was contracting. As Figure 4 above

graphically illustrates, the fall in GDP per capita was accompanied by an increase in foreign trade as a

percentage of the GDP solely because both exports and imports per capita fell much less.

2.2. Trade in services: transportation and tourism Detailed data on trade in services are always problematic not only in developing countries but also in

highly developed ones. Zimbabwe is no exception.

The quality of data is particularly low through most of the 2000s but has improved recently.

Consequently, the analysis is limited to three years—2008 and 2009 together with projections for 2010.

The balance of payments data made available by the Reserve Bank of Zimbabwe are not only relatively

aggregated but also, except for foreign trade in goods, cannot be independently assessed in terms of

their reliability. In the area where this is possible, i.e. foreign trade in goods, Zimbabwe’s balance of

payments statistics fail the ‘foreign trade mirror’ test in 2000‐06, especially so on the exports side (see

Appendix 1). They converge, however, in 2007‐08. Another ‘quality’ test can be derived from data on

international tourism. Except in 2003‐04, there is huge divergence between the Zimbabwean data and

those from the World Bank WDI (World Development Indicators) database. While no information for

2008 is available in the WDI database, Zimbabwe’s estimates for 2008 are in line in terms of magnitude

with the WDI data for 2007 indicating improvement in the quality of balance‐of‐payments reporting

observed in other verifiable areas of these statistics.

The developments in 2009 point to significant changes in Zimbabwe’s trade in services.23 The most

notable change has been the surge in exports of services. The value of these exports increased in 2009

by around 2.5 times or from US$219 million in 2008 to US$467 million in 2009 (Table 7).

Although imports of services also increased, the deficit in services trade contracted rather dramatically

from US$269 million in 2008 to US$112 million in 2009 and US$146 million in 2010. The deficit also

declined considerably relative to 2000, when it stood at US$322 million. Tourism, the largest net

exporter of services, was responsible for this improvement. Had net revenue from “travel” stayed at its

23 Non‐factor services include both commercial and government services. Unfortunately, Zimbabwe’s balance‐of‐payments statistics do not allow for an easy differentiation between the two. But this is not a significant problem as receipts from commercial services tower over government ones. Total trade in services includes ‘non‐factor services,’ i.e., receipts for shipment, passenger and other transport services, and travel, as well as current account transactions not separately reported, and ‘other services.’ The major item in the latter are fees for professional services and operational expenses of foreign‐owned companies in Zimbabwe.

32 | P a g e

2008 level, the deficit in trade in services would have reached US360 million rather than US$112 million.

The largest contributor to deficit has been transport, i.e., shipment and other transport taken together,

followed by professional, technical, and administrative fees.

Table 7: Zimbabwe’s trade in services in 2000 and 2008‐2010 (in millions of US dollars)

Receipts (exports) Payments (imports) Balance in services

2000 2008 2009 2010p 2000 2008 2009 2010p 2000 2008 2009 2010p

Total services 390 219 467 500 712 488 579 646 ‐322 ‐269 ‐112 ‐146

Shipment, of which 41 33 30 35 226 281 345 399 ‐185 ‐248 ‐315 ‐364

freight and insurance 22 19 17 20 187 234 287 331 ‐166 ‐215 ‐270 ‐311 transit freight 19 14 13 15 39 48 58 68 ‐20 ‐34 ‐45 ‐53

Other transport, of which 165 33 35 36 190 77 79 84 ‐25 ‐44 ‐44 ‐48

passenger fares 70 10 11 11 47 9 10 11 23 1.2 0.8 0.7

port services 95 23 24 25 148 68 70 73 ‐52 ‐45 ‐46 ‐48

Travel 89 102 350 375 79 17 22 25 10 85 328 350

Other services, of which 95 51 52 54 217 113 133 138 ‐122 ‐62 ‐81 ‐84

fees (professional, technical, administrative) 29 11 13 13 97 47 63 64 ‐68 ‐36 ‐50 ‐51

local operational expenses 21 15 15 16 0 0 0 0 21 15 15 16

Memorandum:

Non‐factor services */ 294 169 415 446 495 376 447 507 ‐201 ‐207 ‐32 ‐61 Diaspora remittances 0.4 75 198 229 n/a n/a n/a n/a n/a n/a n/a n/a

*/ total services excluding “other services;” (p) projected Source: derived from the Reserve Bank of Zimbabwe balance‐of‐payments statistics.

Not surprisingly, given that Zimbabwe is landlocked and has large deficits for trade in goods, the major

expenditure on the services side is transport, i.e. freight and insurance, as well as transit fees. The deficit

in goods trade raises the cost of shipments as trucks delivering imports return empty to their origin. In

relation to the value of imports (CIF), the cost of freight at 11 percent in 2008‐09 appears to be in line

with other estimates for African economies.24 Studies, using freight payments as a percentage of total

imports, show roughly similar values of this ratio for African landlocked countries. For instance, Stone

(2001) estimates that out of 15 landlocked African countries, 13 of them had a ratio higher than 10

percent, and for seven the ratio was even higher at 20 percent, compared with 4.7 percent for industrial

countries and 2.2 percent for the United States.25 But the caveat to be borne in mind is that, as Arvis,

Raballand and Marteau (2010) convincingly show, freight payments as a percentage of total imports are

complex to assess and prone to errors as the actual calculation of freight payments is often difficult to

conduct.

These comments notwithstanding, there is clearly a need to carefully examine the full logistics costs of

foreign trade in Zimbabwe and the reliability of supply chains servicing this trade in order to identify

sources of excessive costs. In particular, while the transportation costs for Zimbabwe’s imports appear

acceptable compared to other African landlocked countries, they nevertheless seem to be rather high

considering that Zimbabwe is in a much better situation than most landlocked African countries. This is

24 The cost includes fees paid for transit. The ratio slightly fell from 13 percent in 2000 to 12 percent in 2002‐04, and 11 percent in 2005‐10. 25 Quoted in Arvis, Raballand and Marteau (2010, p. 2).

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because Zimbabwe not only has relatively good infrastructure but is also surrounded by ‘good

neighbors’ with very good infrastructure and respectable qualities of economic governance. For

example, around three‐quarters of Zimbabwe’s imports come from neighboring countries, mainly South

Africa. High costs therefore point to other reasons such as low levels of competition between shipping

services providers, concentration in the trucking industry market structure and restrictive transport

regulations in Zimbabwe.26

While transportation remains the biggest import item in services, tourism has been traditionally the

largest net foreign currency earner. The increase in revenue from international tourism in 2009 to

US$305 million from US$102 million in 2008 was spectacular and solely responsible for the growth in

services exports during that period.

But it seems that this estimate may be below the actual revenues. In marked contrast to official

estimates of trade in goods grossly exaggerating their values, especially in the early 2000s, the

differences between official data on travel and World Bank’s estimates were overall smaller in 2000‐04,

but huge in 2006‐07. The World Bank’s estimates of receipts from international tourism exceeded

reported receipts from travel by the Reserve Bank by the factor of more than two in 2006 and three in

2007 (Table 8).

Table 8: Receipt from international tourism according to Zimbabwe’s balance of payments statistics and the World Bank’ world development indicators database in 2000‐08

2000 2001 2002 2003 2004 2005 2006 2007 2008

WB: World Development Indicators 125 81 76 61 194 99 338 365 n/a

RBZ: Reserve Bank of Zimbabwe (travel receipts) 89 58 53 61 194 147 150 117 102

Ratio of WB to RBZ (in %) 140 140 143 100 100 67 226 312 n/a

Sources: WB; World Bank WDI database and RBZ; Reserve Bank of Zimbabwe.

Which estimate is closer to the real world? The answer to this question would call for an analysis going

beyond the scope of this study. Instead, we offer two observations pointing to the fact that revenues

were larger than estimated in official statistics. First, the potential for tourism in Zimbabwe is huge.

From internationally reconciled data, we know that in the 1990s there was substantial growth in

Zimbabwe’s exports of services as a result of increases in tourism. By 1994, travel (tourism) became the

most important item in Zimbabwe’s services exports accounting for almost half of its services exports in

that year. However, tourism receipts have fallen back sharply since then in the wake of the crisis.

Tourism receipts fell from over US$232 million per year at their peak in the 1990s in 1996 to US$61

million by 2003 and overseas arrivals fell from 331,000 in 2004 to 223,000 in 2008. Average room

occupancy rates have been about 40 percent since 2004 (see ZTA 2008).

Second, as in the case of goods trade data, which largely converged with the mirror statistics beginning

in 2006, the official estimate of revenues from travel of US$350 million for 2009 and projected receipts

of US$375 million in 2010 would fit more the World Bank’s trend than that of the RBZ. Since there is no

other information that would support a sudden increase in numbers of tourists coming to Zimbabwe in

26 Considering high expenditures on shipment and freight, their reduction would have significant positive impact on prices of imported products and would increase competitiveness of Zimbabwean exports. To our knowledge, there has been no recent study of the transport sector, regulations and cost structure in Zimbabwe.

34 | P a g e

2009, it seems that the Reserve Bank of Zimbabwe has simply improved its methodology of estimating

receipts from international tourism. Furthermore, both the World Bank and the Reserve Bank give the

same estimate of receipts from tourism in 2003 and 2004. But in 2006 and 2007, the official estimates

were at 44 percent and 32 percent of the WDI data in spite of a significant increase in the number of

people coming to Zimbabwe: the increase was 35 percent in 2007 over 2004. This is rather implausible

that this increase be accompanied by a 40 percent fall in receipts from travel as reported in official

statistics. Hence, it seems that revenues from tourism in 2009‐10 may be even larger than reported in

Zimbabwe’s balance of payments statistics.

Whatever the exact level might be, it seems that Zimbabwe’s performance in the sector has significantly

improved since 2003. Receipts per arrival significantly improved from an average of around US$50 in

2000‐05 to almost US$150 in 2006‐07. However, they were still slightly below average amounts spent by

tourists in Zambia, but not by as much as in 2000‐05 when they were on average four times as large

(Annex Table 2).

Tourism has again become a very important source of foreign currency earnings for the country creating

new jobs and offsetting expenditures on transportation of goods into Zimbabwe. Promotion of tourism

through the implementation of measures that would facilitate expansion of services attracting tourists

appears to be an area where government involvement might produce tangible effects if negative

perceptions about the country can be overcome. In contrast, the fall in current account receipts from

passenger fares for air and railroad transport services, both of them monopolized by the state, suggests

that these are areas where government involvement should be carefully assessed.

2.3. Dynamics of foreign trade in goods in 19972008 Zimbabwe’s foreign trade has displayed rather an unusual dynamic: its imports plummeted in 1997‐

2001 and then quickly recovered reaching the 1997 level in terms of value around 2005‐06, while

exports after a decline in 1998 slightly increased and then fell only to rebound at rather flat growth

rates. Because of different time profiles, Zimbabwe ran a significant trade surplus in 1999‐2005 followed

by growing deficits in trade in goods. Exports coverage of imports fell from 130 percent in 2000 to 83

percent in 2008 (Figure 5).

Figure 5: Zimbabwe’s exports and imports of goods in 1997‐2008 (in millions of current US dollars)

Source: derived from partners’ data available in the UN COMTRADE database.

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

199719981999200020012002200320042005200620072008

Exports

Imports

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High growth in the world economy and trade in 2000‐07 helped Zimbabwe recover from a contraction in

its exports in 2000‐2002 but it did little to significantly improve its exports performance. Over the whole

decade of 1997‐2008, the value of exports reached a bottom in 1998 and the value of imports bottomed

out in 2002 (Figure 5 and Table 9). In contrast to exports, imports have a distinct ‘U’ shape: they fell

rather precipitously between 1997 and 2000 contracting each year by between 11‐14 percent.

Subsequently they have been growing at an average Least Square Growth rate of 11 percent. As a result,

the value of imports was 88 percent higher than in 2000 while that of exports was 20 percent over its

value ten years earlier in 1998 but merely six percent over the value of Zimbabwe’s exports in 1997.

Table 9: Exports and imports of goods in terms of value and exports in percent of imports in 1997‐2008 (in millions of US dollars)

1997 1998 1999 2000 2003 2004 2005 2006 2007 2008 LSG rates

Exports 2,095 1,778 1,919 1,855 1,867 1,924 1,974 2,227 2,414 2,230 2.6 (a)

Imports 2,146 1,860 1,651 1,424 1,532 1,702 1,954 2,348 2,526 2,680 10.7 (b)

Exports in percent of Imports 98 96 116 130 122 113 101 95 96 83

Exports (1998=100 118 100 108 104 105 108 111 125 136 125 Imports (2000=100) 151 131 116 100 108 120 137 165 177 188

Note: (a) LSG (least square growth) rate over 1998-2008; (b) LSG rate over 2000-08. Source: derived from partners’ data available in the UN COMTRADE database.

When set against imports, the time profile of export performance differs in three respects: first, the

bottom was reached two years earlier; second, the growth was weaker; and third, the value of exports

contracted in 2008 by 8 percent, while imports increased 6 percent. The fall of exports in terms of value

is partly attributable to the Global Financial Crisis which began in 2008 and spilled over from the

financial sectors in highly developed countries to the world’s real economy. World merchandise output

fell 0.5 percent, while the rate of growth of goods significantly slowed down from 9 percent in 2006 to 6

percent in 2007 and 1.5 percent in 2008.27

Viewed in a longer perspective of the last two decades, one may distinguish three phases in Zimbabwe’s

export performance: two phases of moderate growth in 1990‐97 and 2003‐07 and a phase of

contraction in 1998‐2002. During the first growth phase an average annual growth rate was almost 10

percent, followed by contraction at an annual growth rate of 3.5 percent, and a rebound at an average

annual growth rate of almost 8 percent (Table 10). The third phase came to a halt in 2008 when exports

fell 8 percent.

Leaving aside the contraction phase, the differences in export growth performance between the 1990‐

97 and 2003‐07 phases point to a significant contraction in the country’s export base. The first phase of

growth was significantly more robust than the second one five years later: For starters, it was much

longer extending over 7 years rather than 5 years. Second, the value of exports during the peak year in

1997 stood almost 80 percent above the level in 1990, whereas the peak in 2007 was only 40 percent

above the level in 2002. Last but not least, the value of exports in 2002 stood at 82 percent of its peak

level in 1997 and that in 2007 only 15 percent. The value of exports in 2008 was only six percent above

its level in 1997.

27 Downloaded from http://www.wto.org/english/res_e/statis_e/its2009_e/its09_world_trade_dev_e.htm on May 1, 2010.

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Table 10: Three phases of export growth in 1990‐2008 (in percent)

Average annual Least Square Index, peak Share of EU Share of neighbors

growth rate Growth rate low=100 first year last year first year last year

Growth phase, 1990‐97 9.8 8.6 179 56.9 48.6 n/a 13.3

Contraction phase 1998‐2002 ‐3.5 ‐2.7 82 46.8 36.5 16.4 22.4

Moderate rebound, 2003‐07 7.0 6.4 140 30.8 22.0 31.7 43.6

Contraction in 2008 ‐7.6 n/a n/a 21.3 n/a 42.9 n/a

Source: Partners’ trade data reported to the UN COMTRADE database.

An interesting question is whether the fall in exports in 2008 sets the stage for a new contraction phase

or was it a temporary blip? Official data suggest that the contraction was limited to 2008‐09. Since

partners’ foreign trade statistics for 2009 were not available as of this writing (September 2010), it is

impossible to give a precise figure. According to the balance of payments statistics, compiled by the

Reserve Bank of Zimbabwe, exports contracted 4 percent in 2009. But they are projected to grow 21

percent in 2010. Production statistics seem to suggest that indeed exports were rebounding in 2010.

The critical question addressed in the next section concerns the extent to which increases in exports

have been driven by increases in prices of exported commodities or by increases in the volumes

exported.

2.4. Zimbabwe’s export rebound in 200307: was it priceled or quantitydriven? The value of exports during the moderate rebound phase was around 40 percent above its value in

2003. But was this growth merely the result of increasing world prices for commodities during the global

economic boom which took place during 2002‐07 or did real exports increase during this time?

Unfortunately, detailed information on Zimbabwe’s exports in natural units is not available except for a

selected group of products traced in the balance‐of‐payments statistics compiled by the Reserve Bank of

Zimbabwe, which raises questions about the reliability of official data. As discussed in Appendix 1 and

also shown in Table 11, the quality of official export reporting appears to be wanting. Leaving aside

absolute differences in estimates of the values of exports, the trend, which was similar in 2001‐02,

becomes different in 2003‐07: while mirror statistics point to the growth, official statistics point to the

collapse of exports in terms of value beginning in 2005. Beginning in 2006,28 the value of total official

exports is below the value of total mirror: while this is the way it should be considering that exports are

FOB (free on board) and imports from Zimbabwe are CIF, i.e., include cost of insurance and freight, the

difference cannot be explained by CIF. It is rather unlikely that the cost of insurance and freight was so

high at 29 percent in 2006 and increasing to 35 percent in 2008 as the ratio of CIF to the value of

Zimbabwean imports was ‘only’ above 10 percent.29

Yet, none of these should discredit the official data on selected commodities exports (for their list see

Table 12 below) and suggest that they are not worth a serious analysis. To the contrary, there are

reasons to believe that the use of official disaggregated statistics will not produce unreliable results as

28 One wonders whether a sudden change in 2006 with officially reported exports suddenly falling well below mirror exports had anything to do with firms’ attempts not to reveal exports in order to avoid confiscation of a growing portion of foreign earnings through the surrender requirements. 29 See the earlier discussion of shipping costs in Section 2.2 on trade in services.

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distortions in official reporting seem to have been related to other products than those for which data in

unit values are available. Consider the following: First, data on selected commodities were not the

source of grossly overvalued exports: note that as the quality of export reporting was improving, the

share of these commodities in total exports was increasing from 21 percent in 2000 to 70‐71 percent in

2006‐08 (Table 11). This indicates that exports of other products were overvalued to a much larger

extent. Put differently, other exports ‘were downsized’ rather than those of selected commodities.

Table 11: Exports of selected commodities and total exports as reported by Zimbabwe’s authorities and importers of Zimbabwe’s products in 2000‐08 (in current prices)

2000 2001 2002 2003 2004 2005 2006 2007 2008

Total exports of selected commodities*/ 1,305 1,158 945 946 1,173 1,065 1,222 1,297 1,161

Share in total exports 21% 24% 26% 27% 34% 37% 71% 71% 70%

Total exports 6,354 4,809 3,641 3,461 3,478 2,860 1,721 1,819 1,657

Total mirror exports 1,855 1,809 1,728 1,867 1,924 1,974 2,227 2,414 2,230

Ratio of exports of selected commodities to total mirror exports 70% 64% 55% 51% 61% 54% 55% 54% 52%

*/ Table 2 lists the commodities covered by this analysis.

Source: Reserve Bank of Zimbabwe and UN COMTRADE database.

Second, the ratio of exports of selected commodities to total mirror exports was relatively stable in

2001‐08 indicating again that official reporting of exports of selected commodities was decent. Note

also that the surge in the share of selected commodities exports in total exports from 37 percent in 2005

to 71 percent in 2006 coincided with the first year that official exports were not over‐reported: yet, the

ratio of selected commodities exports to mirror exports remained unchanged at around 55 percent. This

indicates an improvement in the quality of reporting.

Last but not least, another piece of evidence suggests there are no substantial differences in exports of

some of them, i.e., those for which finding an equivalent in mirror statistics is relatively straightforward

(e.g., cut flowers, raw sugar, tobacco), as reported in Reserve Bank’s statistics and foreign trade data.

The official data point to a significant contraction in volumes of exports of both agricultural and mining

products, albeit with two exceptions. One exception stands out: exports of PMG (platinum group

metals) skyrocketed in 2003‐08 increasing more than tenfold in 2003 alone (Table 12). This was the only

bright spot in an otherwise grim picture: the result of Impala Platinum, South Africa, taking over Zimplat

mines from BGP Delta, an Australian mining company, and turning them into profitability. Cotton Lint

was another exception, albeit with a caveat: exports in 2005‐08 were below the levels of 114 million

tons recorded in 2000 and 2004 (Table 12).

Otherwise, there were significant decreases in quantities exported across the board. The largest decline

was in registered exports of gold: volumes shipped abroad in 2008 stood at just 13 percent of exports in

2000. The contraction was particularly acute in 2005‐08 with entry into force of the law granting the

Reserve Bank of Zimbabwe exclusive rights to export gold which remained in effect until the

introduction of the multi‐currency system in early 2009. Since this amounted to 100 percent surrender

of hard currency earnings in return for (what became largely worthless) domestic currency, gold output

sharply declined. Hence, except for PGM exports, mining was not spared from the significant contraction

in exported quantities exacerbating the effects of a collapse in domestic agricultural production:

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volumes of agricultural exports in 2008 were between 34 percent (flowers) and 49 percent (raw sugar)

of those in 2000. Exports of more processed refined sugar also contracted more strongly than exports of

raw sugar in 2008: they stood at 35 percent of their level in 2000 as compared to 49 percent (see Table

12).

Table 12: Major Zimbabwe’s exports in terms of natural units in 2000‐08

2000 2001 2002 2003 2004 2005 2006 2007 2008 Index 2007, 2003=100

Index 2008 2000=100

Flue‐cured tobacco (mlns tons) 177 195 141 102 69 64 67 73 71 72 40

Sugar raw (000 tons) 150 86 59 69 79 62 82 41 74 60 49

Sugar refined (000 tons) 101 95 107 50 61 46 61 48 35 96 35

Flowers (in 000 tons) 18 22 23 20 15 13 10 11 6 55 34

Gold ('000 ounces) 778 827 513 417 672 429 335 226 105 54 13

Platinum Group Metals (PGM) 21 36 12 128 369 436 536 574 574 448 2720

Nickel (000 tonnes) 9.0 6.3 4.9 7.3 7.4 6.6 6.9 6.5 4.2 89 47 High Carbon Ferro Chrome ('000 tons) 245 219 293 264 248 245 191 152 82 58 33 Cotton Lint ('000 tons) 114 80 52 48 114 95 98 94 95 196 83

Source: Reserve Bank of Zimbabwe.

Fortunately for Zimbabwean exporters, the prices of most commodities were moving up in 2000‐08,

albeit at different rates depending on the product. Except for flowers and cotton lint, the prices of other

exports tended to grow over the period. Prices of refined sugar were lower in 2002‐05 than in 2000‐01:

they rebounded in 2006‐07. So did the prices of chrome, albeit with a caveat: the prices rebounded

earlier in 2004. Prices of tobacco were flat throughout the whole period in 2000‐08. So were the prices

of cut flowers in 2001‐08. The strongest upward movement in prices was for gold and high carbon ferro

chrome. Volumes of exports for these commodities, however, declined rather dramatically: exports of

gold stood in 2008 at 13 percent of their level in 2000 and ferro chrome at 33 percent (see Table 13).

The most volatile prices were for nickel, which fell in 2001‐02 below their level in 2000, but

subsequently increased spectacularly in 2003‐07 before contracting by almost one‐half in 2008 thereby

significantly contributing to the contraction in total exports that year, which, in turn, was also

exacerbated by the fall in the volume of nickel exported (Table 13).

Table 13: Prices of major Zimbabwe’s exports in 2000‐08 (in US dollars per unit)

2000 2001 2002 2003 2004 2005 2006 2007 2008 Index 2008, 2000=100

Flue‐cured tobacco ($/kg) 3.050 3.000 3.030 3.120 3.250 3.170 3.070 3.180 3.240 106

Sugar raw ($/kg) 0.347 0.350 0.456 0.544 0.417 0.427 0.508 0.503 0.614 177

Sugar refined ($/kg) 0.431 0.420 0.346 0.348 0.341 0.367 0.644 0.650 0.670 155

Flowers ($/kg) 4.540 3.600 3.780 3.780 3.600 3.780 3.780 3.780 3.500 77

Gold ($000/1000 ounces) 0.278 0.273 0.311 0.365 0.391 0.445 0.601 0.680 0.897 323

PGM ($000/1000 ounces) 0.541 0.492 0.540 0.603 0.473 0.532 0.581 0.600 0.828 153

Nickel ($ per kg)) 8.700 5.587 6.480 9.386 12.927 14.500 23.144 34.974 18.575 214

High Carbon Ferro Chrome ($ '000/ton) 0.500 0.300 0.400 0.500 0.748 0.641 0.614 0.933 0.990 198

Cotton Lint ($/kg) 1.400 1.000 1.000 1.400 1.070 1.010 1.100 1.100 1.200 86

Source: Reserve Bank of Zimbabwe.

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To what extent did increases in world prices compensate for the contraction in exported values of

selected commodities? In order to answer this question, we calculate cumulative changes in prices and

quantities exported separately over 2001‐08 and the phase of “mirror” export rebound in 2003‐07. The

last column of Table 14 is the sum of cumulative changes of prices and quantities: zero indicates that

falling/increasing prices equal to increasing/falling quantities, whereas negative values indicate that

either prices or quantities drove exports down.

Table 14: Cumulative annual change in prices and quantities exported in 2001‐08 and 2003‐07 (in percent)

Cumulative change in prices Cumulative change in quantities Total change

2001‐08 2003‐07 2001‐08 2003‐07 2001‐08 2003‐07

Flue‐cured tobacco 6% 5% ‐74% ‐53% ‐68% ‐48%

Sugar raw 70% 16% ‐1% ‐8% 68% 8%

Sugar refined 66% 83% ‐64% ‐44% 1% 39%

Flowers ‐23% 0% ‐82% ‐64% ‐105% ‐64%

Gold 131% 86% ‐133% ‐48% ‐3% 38%

Platinum Group Metals 54% 15% 1241% 1240% 1295% 1255%

Nickel 139% 205% ‐49% 38% 89% 244%

High Carbon Ferro Chrome 107% 108% ‐83% ‐60% 25% 48%

Cotton Lint 0% 20% 48% 112% 49% 132%

Source: Own calculations based on the data from Reserve Bank of Zimbabwe.

Two observations can be derived from examining data in Table 14. First, prices tended to grow while

quantities of exports were contracting. As mentioned earlier, except for cut flowers, prices of all other

commodities increased.30 In terms of quantities exported, except for PGM and cotton lint, all other

exports had negative growth rates in 2001‐08. Exports of nickel increased but only in 2003‐07.

Second, the improvement in prices neutralized the fall in exported quantities of most commodities and

positively contributed to the increase in the value of exports in the case of all commodities except for

flue‐cured tobacco and cut flowers. For the whole period 2001‐08, one should also include gold whose

exports collapsed in 2008 due to the state taking them over. The largest increase in 2003‐07 was for two

commodities—PGM and nickel—whose both prices and quantities exported displayed strong growth.

Since the composition of exports has also been changing, the data in Table 14 do not allow us to

estimate the aggregate impact of changes in prices and quantities on total exports of these

commodities. As the first step to address this question, we calculate the values of exports of these

commodities using (a) constant prices and (b) constant quantities.31 Table 15 presents the results.

The values of exports in Table 15 at the diagonal are actual values of exports, i.e., quantities are

expressed in prices for the same year. Values in a row record the values of an export basket in

successive years in constant prices. For instance, the value in the row “in 2004” and in column “2007” is

the product of 2007 quantities multiplied by respective export prices in 2004. Put differently, as one

moves across the rows, successive changes in values are the result of changes in the volumes of exports

30 Cut flowers experienced a cumulative decline in prices of 23 percent, almost exclusively due to a 21 percent contraction in 2001. The price of cotton lint displayed huge volatility with annual contractions of 29 and 24 percent and increase of 40 percent in 2003. 31 In more formal terms, we calculated for each year the values of exports according to the formula ∑(pIt*qit) where pi and qi stand for price and quantity of a good i, and t for years.

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in successive years expressed in terms of prices in the base year. In other words, the first row contains

information about exports in 2000‐08 in 2000 prices. Symmetrically, the entries in a column represent

values for quantities exported in the base year using prices in each year over the period 2000‐08. For

instance, the first column provides information about the values of exports in 2000 quantities valued in

prices in successive years. Hence, were the 2000 export basket reproduced in 2007, the value of exports

in this year would be US$1.982 billion rather than the actual US$1.297 billion and their value in 2007

prices would be 52 percent higher than in 2000 prices (see the last row). The data in the last row and

column are similar to Lespeyres and Paasche indexes, i.e., they summarize the impact of prices and

volumes on exports in 2007 expressed in terms of either volumes or values in a base year (the value on

the diagonal).32 Corresponding indexes were calculated for 2007, because this was the last year of the

moderate rebound phase of Zimbabwe’s total exports.

Table 15: Total values of exports of selected commodities expressed in constant quantities and prices in 2000‐08 (in millions of US dollars)

Column: Rows: exports in successive years in base prices

Base volume in current prices 2000 2001 2002 2003 2004 2005 2006 2007 2008

Index 2007 100=t i

in 2000 1,305 1,291 1,012 895 1,067 962 980 946 833 73

in 2001 1,151 1,158 885 768 909 815 840 814 728 70

in 2002 1,231 1,231 945 833 992 890 912 876 780 93

in 2003 1,400 1,375 1,056 946 1,157 1,034 1,056 1,007 893 106

in 2004 1,472 1,452 1,147 1,016 1,173 1,039 1,030 970 823 83

in 2005 1,490 1,472 1,144 1,024 1,208 1,065 1,063 1,002 852 94

in 2006 1,716 1,673 1,284 1,165 1,415 1,224 1,222 1,135 948 93

in 2007 1,982 1,905 1,492 1,382 1,650 1,429 1,408 1,297 1,051 100

in 2008 2,058 2,026 1,559 1,411 1,794 1,545 1,522 1,396 1,161 ….

Index 2007 100=t i 152 164 158 146 141 134 115 100 …

Notes: (1) For a list of products covered, see Table14; (2) index is a ratio of the value in 2007 to that in the diagonal of the table; (3) in bold are diagonal values of exports in current prices and quantities. Source: own calculations based on the data provided by the Reserve Bank of Zimbabwe.

The scope of the overall decline in export volumes was large and progressing every year. As can be seen

from the last row ‘in 2008’ showing the values of quantities exported in successive years over 2000‐08 in

2008 prices, except in 2004, the values were decreasing. Had Zimbabwe exported the same basket in

terms of quantities in 2008 as in 2000, its exports earnings would have been US$2.058 billion rather

than US$1.161 billion or 77 percent higher. Had the exports prices been the same in 2008 as in 2001, the

value of these exports would have been US$728 million or 37 percent less than in current prices. Indeed,

except in 2003, the value of exports in 2008 prices expressed in quantities of a base year was

significantly higher than in the preceding year: in terms of 2003, it was 21 percent less than for the 2004

32 The data in the last column can be thought of as the equivalents of the Laspeyres index: the ratios of the value of exports in 2007 expressed in prices for each year over the period 2000‐08 to the value of exports in quantities and prices of the base year or ∑(pIt0*qit1)/∑( p It0*qit0) where pIt0 is the price of good i in base period, qit1 is quantity of good i in period 1 or 2008, and pIt0 and qit0 are prices and quantities in base periods. The Laspeyres index captures the change in quantities. The data in the last row “Index 2007 100=ti” are equivalents of the Paasche index with the volume in a given (base) year expressed in prices in successive years or ∑(p It1*q it0)/∑( p It0*q it0). It denotes the impact of change in exports prices.

41 | P a g e

bundle. Yet, the value of 2003 exports in 2008 prices would be 1 percent higher than 2007 exports in

2008 prices. The 2000 exports bundle in 2008 prices would generate export earnings 47 percent above

the 2007 export bundle. In relation to actual 2008 exports, these earnings would be 77 percent. In a

nutshell, except for exports in 2008, any earlier export bundle would generate higher export earnings

than in the ‘peak’ year in 2007 (for more details, see Annex Table 3).

Since products covered in this analysis account for the bulk of Zimbabwe’s total exports, it is safe to

conclude that higher world prices rather than increased exported quantities drove total exports during

the modest rebound phase of 2003‐07. The rebound in real terms was minimal, if at all. Quantities of

these commodities exported in the trough years 2002‐03, which witnessed the largest fall in the value of

these exports, would yield higher export earnings than those accrued in the peak year of 2007.

Considering that firms operating in natural resource extractive industries might have been somewhat

immune to deficiencies in the overall quality of the business environment as they tend to be

geographically concentrated and depend less on local supplies, this finding comes as somewhat of a

surprise. It appears that extractive industries were not entirely spared from the reach of economic

policies.

2.5. Changes in Zimbabwe’s direction of trade: a shift in exports from the EU towards Southern African markets Zimbabwe’s exports to neighboring countries—SACU, Mozambique and Zambia—weakened the size of

contraction of export contraction between 1998 and 2002 and contributed to their rebound in 2003‐07.

Redirection of exports from the EU to neighboring countries, mainly to South Africa, has been significant

and taken place at least since 1990, i.e., well before the turbulent 2000s. While we do not have

information on neighbor‐destined exports until the mid‐1990s (Botswana until 2000), the share of

exports going to regional markets increased during both the contraction and moderate rebound phases.

It went up from the peak of the growth phase in 1997 from 13 percent to 16 percent in 1998, when total

exports fell 15 percent, and further increased in the last year of the contraction phase to 22 percent

indicating a cushioning effect of import demand in neighboring countries. Their export share further

expanded during the moderate rebound phase in 2003‐07.

The redirection of Zimbabwe’s exports has been unidirectional: the major lever of change was

expanding exports to South Africa and shrinking exports to the EU. While the average annual growth

rate of total exports in 2001‐08 was an unimpressive 2.5 percent (LSG rate over 2000‐08 of 3.6 percent

was slightly higher), Zimbabwe’s South Africa‐destined exports recorded an average growth rate of 22

percent. In contrast, exports to the EU were falling an average of 5‐6 percent per year. The share of the

EU in Zimbabwe’s total exports contracted 18 percentage points and the share of South Africa increased

24 percentage points over the same period from an average of 14 percent to 37 percent indicating a

significance increase in the reliance on a single export market (Table 16). Note also that the share of

exports to the rest of the world in total exports also fell from 32 percent to 27 percent in this period.

The change in the geographical pattern of Zimbabwe’s imports has been less pronounced, yet displaying

striking similarities with those of exports. For starters, although the increase in the share of South Africa

in Zimbabwe’s total imports in the 2000s was less pronounced, its share is much higher as almost three‐

42 | P a g e

quarters of imports originate there (Table 16). Second, the increase in South Africa’s share in imports

was almost the same as the fall in the share from the EU. Third, amongst major exporters to Zimbabwe,

only China has succeeded in increasing its presence in Zimbabwe’s market.

Table 16: Direction of trade in 2000‐08 (in millions of US dollars and percent)

Shares (in percent) Index 2008 Value Growth rates

Exports Avg.

2000‐02 Avg.

2003‐08 2008 Avg.00‐02=100 2008

LSG 2000‐08

Average annual 2001‐08

SACU, of which 14.3 30.9 37.4 260.9 834 18.7 17.1

South Africa 10.3 27.7 34.0 330.0 759 22.2 21.8

Botswana 3.6 2.1 2.1 57.4 46 ‐3.5 4.0

Mozambique 0.6 0.7 0.7 118.3 15 9.2 18.4

Zambia 4.9 6.7 4.8 98.1 107 4.6 14.9

Malawi 2.1 2.5 1.7 84.1 38 3.1 9.2

EU‐27 38.9 25.2 21.3 54.9 476 ‐5.6 ‐5.2

China 7.0 7.2 6.6 94.4 148 3.0 5.8

Rest of the world 32.2 26.8 27.4 85.1 611 0.7 ‐0.1

TOTAL 100 100 100 100 2,230 3.6 2.5

Memorandum: Neighboring countries

19.4 37.2 41.6 214 928 15.7 15.3

Imports

Shares (in percent) Index 2008 Value Growth rates

Avg. 2000‐02

Avg. 2003‐08 2008

Avg.00‐02=100 2008

LSG

2000‐08

Average annual

2002‐08

SACU, of which 60.5 67.9 71.3 118 1,911 12.6 16.3

South Africa 53.0 54.3 63.0 119 1,689 11.1 16.0

Botswana 6.4 9.5 8.0 125 215 18.5 22.9

Mozambique 4.1 2.6 3.0 74 81 6.7 18.1

Zambia 4.1 2.6 2.4 58 64 23.0 53.8

Malawi 0.6 1.4 0.8 151 23 26.9 82.2

EU‐27 16.1 9.1 7.2 44 192 ‐1.5 0.0

China 2.6 5.6 5.0 193 133 25.8 42.7

Rest of the world 12.1 10.9 10.3 86 277 3.8 9.2

TOTAL 100 100 100 100 2,680 10.7 12.9

Memorandum: Neighboring countries

67.6 68.9 76.5 113 2,050 12.3 15.7

Notes: Neighboring countries include Botswana, Mozambique, South Africa and Zambia Source: Derived from trade statistics reported to the UN COMTRADE by Zimbabwe’s trading partners.

The increase in overall geographical concentration of Zimbabwe’s exports has been also accompanied by

an increase in the concentration of its exports to neighboring countries. The share of South Africa in

Zimbabwe’s exports to its neighbors—Botswana, Mozambique, South Africa and Zambia—increased

from an average of 53 percent in 2000‐02 to 82 percent in 2007‐08. Although a number of other SADC

countries are highly export‐dependent on South Africa, Zimbabwe stands out. While the share of South

Africa in the total exports of Mozambique, Zambia and Malawi was between 10 percent and 15 percent,

it amounts to around 30 percent for Zimbabwe’s exports. Zimbabwe has become more dependent on

43 | P a g e

the South African market than most SACU members are: its share is only lower than that of Swaziland

which exports around three‐quarters of its goods to there.33

While large year‐on‐year variations in the annual values of its exports to Mozambique and Zambia

characterize Zimbabwe’s sales to these markets, commercial transactions with both South Africa and

Botswana appear to have been more stable. For instance, a sudden fall in the value of exports by 36

percent in 2003 was preceded by a 74 percent increase and followed by annual growth rates of 0.9

percent, 63 percent, 55 percent and another contraction of 48 percent in 2004‐07. Similar variability was

in exports to Zambia with the rates ranging between 109 percent in 2003 and minus 39 percent in 2004.

On the other hand, rates of South Africa‐oriented exports ranged between minus 11 percent in 2008

and 72 percent in 2003.

The shift in the geographical pattern of Zimbabwe’s exports was not triggered by expanding exports to

its major external markets. Neither was it triggered by a surge in exports to all of its neighbors as

exports increased only to South Africa. The shares of other neighboring countries in both exports and

imports were falling so was the share of the EU: the EU was taking almost half of Zimbabwe’s total

exports in 1994‐2000 and accounted on average for 24 percent of Zimbabwe’s imports. By 2008, these

shares fell to 21 percent for exports and 7 percent for imports (Table 16 above).

EU‐oriented exports have been the main casualty in the shift of Zimbabwe’s trade towards neighboring

markets, which occurred largely in 2001‐08. Exports to the EU fell rapidly from around US$1 billion in

1997 to US$476 million in 2008 while rest of the world‐oriented exports were stagnant and ranged

between US$650 million and US$800 million in 1997‐2008, and those to neighboring countries increased

from an average of US$313 million in 1994‐1999 to US$355 million in 2000‐02 and then began rapidly

expanding (Figure 6). Except in 2007 when they increased 7 percent over 2006, EU‐destined exports

continued falling at an average annual rate of 8 percent per year, whereas exports to neighbors grew at

an average rate of 16 percent per year over 2004‐07.

Figure 6: Exports to neighboring countries, EU‐27 and ROW in 1997‐2008 (in millions of current US dollars)

Source: Partners’ trade data reported to the UN COMTRADE database.

33 South Africa takes about 10 percent of Botswana’s total exports and 20 percent of Lesotho’s exports (IMF Directions of Trade Statistics).

0

200

400

600

800

1,000

1,200

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

ROW Exports

Exports to EU27

Exports to neighboring countries

44 | P a g e

The turning point in Zimbabwe’s transition to a new geographic pattern of trade was in 2003, when the

value of its exports to neighboring countries increased 53 percent overtaking its exports to the EU,

which contracted 9 percent in that year (Figure 6). This was in marked contrast to developments in

1994‐2002: exports to neighbors grew during this period at an LSG rate of 1 percent; total exports at 0.4

percent; and exports to the EU fell at 4 percent (Table 17).

Table 17: Exports to neighboring countries, EU‐27 and ROW in 1997‐2008 (in millions of current US dollars and percent)

1994 1997 2002 2003 2004 2007 2008 LSG 1994‐

2002 LSG 2002‐

2008 Index 2008 2002=100

Exports to EU27 706 1,018 631 574 564 531 476 ‐1.6 ‐4.0 75 Exports to ‘neighbors’ 303 278 388 593 634 1,053 956 1.0 15.3 247

ROW Exports 598 799 709 700 730 830 798 2.2 2.7 112

Total exports 1,607 2,095 1,728 1,867 1,927 2,414 2,230 0.4 5.1 129

Source: As in Figure 6.

The largest change occurred in 2002‐2008; the pace of contraction accelerated to 4 percent, while

exports to neighbors expanded at a LSG rate of 15.3 percent. Although the value of ‘neighbors‐destined’

exports fell 9 percent in 2008, this contraction wiped out the annual increase of 9 percent in 2007.

Consequently, the value of neighbor‐oriented exports in 2008 was almost 2.5 times higher than in 2002,

whereas EU‐destined exports stood at 75 percent of their value in 2002.

The shift towards South Africa and other neighboring countries cannot be explained solely in terms of

the redirection of Zimbabwe’s exports away from EU markets. Annual increases in neighbor‐destined

exports over 2003‐06 in terms of value were larger each year than the annual falls in EU‐destined

exports: in aggregate, the former increased US$578 million whereas the total contraction for the latter

was US$136 million. In 2007 exports to both markets increased: to neighbors by US$87 million and

US$35 million to the EU followed by contraction in 2008 by US$96 million and US$55 million

respectively. In all, the value of total exports was 29 percent higher in 2008 than in 2002 (Table 17

above).

2.6. Zimbabwe’s export performance in regional markets Hence, regional exports were the only bright spot in an otherwise grim picture of Zimbabwe’s foreign

trade performance. An interesting question is about Zimbabwe’s performance in these markets. Some

general insights can be derived from comparing the changes in total imports of neighboring countries

with the growth in imports from Zimbabwe. This is a very general measure of competitiveness that does

not take into account developments in individual markets and changes in relative prices. Yet, it sheds

some light on the responsiveness of export sectors to opportunities offered in adjacent markets within

easy reach, at least in terms of logistics.

Based on the data in Table 18, the answer is unequivocal: Zimbabwe’s exporters increased their

presence in the largest and most important market in the region ‐ South Africa ‐ whereas they were

outperformed in other regional markets. South African imports from Zimbabwe expanded at an

impressive LSG growth rate of 24.5 percent in 2000‐08, albeit with a caveat. The caveat is that the

45 | P a g e

contraction in imports in 2008 resulted in a fall of Zimbabwe’s share in total South African imports from

1.1 percent in 2007 to 0.9 percent. This share is below its levels in 2004‐07 and 1994‐96.34

Table 18: Zimbabwe’s export performance in neighboring countries in 2000‐08 (in percent)

Average annual rates in 2001‐08

LSG rates in 2000‐08 Share of Zimbabwe in total imports

Index, (d)=100

Memo: Share in total

(a) (b) (a) (b) 2004 2005 2006 2007 2008 (c)= 100 exports, 2008

Botswana 15.7 4.0 8.1 ‐4.3 1.58 1.54 1.56 1.25 0.91 32.6 2.1

Mozambique 17.7 18.4 15.7 10.8 0.47 0.65 0.84 0.41 0.38 54.9 0.7

South Africa 16.7 21.8 18.0 24.5 0.90 0.89 1.00 1.07 0.87 143.7 34.0

Zambia 24.9 14.9 22.2 7.4 5.78 4.30 5.72 2.79 2.12 29.3 4.8

Notes: (a) total imports; (b) imports from Zimbabwe; (c) average share in 2000-01; (d) average share of Zimbabwe in total imports in 2007-08. Source: Derived from trade statistics reported to the UN COMTRADE by Zimbabwe’s trading partners.

Zimbabwe has lost market share in other neighboring countries, as well. The average share in 2007‐08

stood well below its average in 2000‐01 in Botswana’s imports at 33 percent of an earlier average,

Zambia’s imports at 29 percent, and Mozambique’s imports at 55 percent. Moreover, volatility in

market shares suggests randomness in commercial transactions, which does not augur well for the

future expansion or even sustainability of Zimbabwe’s exports to these destinations.

2.7. Concluding comment Zimbabwe’s foreign trade performance has been lackluster even against regional standards, albeit much

better when cast against its poor overall economic growth performance record. Imports were much less

affected by the collapsing economy than exports of goods. Thanks to increased tourism, exports of

services dramatically expanded, although Zimbabwe remains a net services importer mainly because of

high transportation costs associated with bringing goods in and out of the country.

Zimbabwe clearly failed to take advantage of the boom in commodity trade in 2002‐07. Total exports

continued falling through 2000‐02 and rebounded only in 2003‐07 thanks to increasing exports prices.

Growth performance was not impressive: their value reached the 1999 level only in 2004 and their value

exceeded the earlier record level reached in 1997 only in 2006 with the value of total exports only 6

percent higher; US$2.2 billion as compared with US$2.1 billion. It appears that the increase was solely

the result of improved terms of trade for commodity exporters during this period: except for cut flowers

and cotton lint, the prices for other commodities exported significantly increased in the 2000s.

The depth of contraction can be illustrated as follows: assuming Zimbabwe’s exports of basic

commodities were the same in terms of quantities as in 2000 and that their share in total exports was

the same as in 2000, the value of its total exports would be 30 percent higher than they were in 2008,

that is, US$2.9 billion rather than US$2.2 billion. In terms of volume, exports in 2008 were 36 percent

below their level in 2000.

The contraction in exports of major commodities in terms of quantities over 2000‐08, raises concerns

about prospects for the country’s future export performance. While world trade contracted and

34 The average in this period was 1.12 percent. It subsequently fell to 0.63 percent in 1997: the average for 1997‐02, i.e., before the surge in 2003, was 0.7 percent.

46 | P a g e

commodity prices fell during this period, the fall in the share of Zimbabwe in South African imports may

suggest a more serious problem in competitiveness of Zimbabwe’s exports. The next section seeks to

answer this question by taking a closer look at the evolution of Zimbabwe’s export basket in terms of

factor intensities and degree of processing.

47 | P a g e

3. Drivers of Zimbabwe’s trade performance: evolving patterns of specialization

Zimbabwean businesses operated in a highly unfriendly environment in 2000‐08. In addition to rampant

inflation and damage inflicted on the agricultural sector by the land reform program, certainty about the

government’s disregard for private property rights and sanctity of contracts has created a highly

unstable business environment hostile to domestic and foreign investments alike. An examination of

foreign trade performance offers important insights on how the economy coped with policy‐induced

adversities. Its strength derives also from the fact that the quality of domestic statistics can be checked

by ‘mirror’ statistics, i.e., data collected by Zimbabwe’s trading partners. Domestic developments

viewed through the lens of foreign trade performance allow for the identification of sectors that

survived and those that did not. More importantly, they also offer some glimpses at which sectors may

recover once the economy recovers and the business environment becomes friendlier. With the

restoration of macroeconomic and financial stability, the conditions for recovery have greatly improved,

although other barriers have to be removed in order put the economy on a path of sustainable

economic growth (see Chapter 4).

Thus, questions addressed in this chapter boil down to the following: How diversified or concentrated

has Zimbabwe’s exports become? What do the changes in exports depending on the degree of

processing and levels of technology embodied in exported products tell us about Zimbabwe’s industrial

capacities and its revealed comparative advantage? What characteristics do products, in which

Zimbabwe specializes, embody in terms of technology and production factor intensities? Which sectors

survived and which ones have disappeared from Zimbabwe’s export basket?

3.1. Diversity in exports has declined Zimbabwe’s exports have always been relatively highly concentrated with a few commodities generating

the bulk of export revenues. But the concentration of exports increased further in 1994‐2008 by most

measures, although the increase began to take place already in the late 1990s. One measure relates to

the share of top exporters in total exports: Table 19 tabulates the shares of the top five, ten, and twenty

four‐digit SITC sectors in total exports.35 These shares kept increasing for each turning point in the

export cycle. In 1994 the remaining 80 percent of four‐digit SITC sectors contributed 28 percent to total

exports; by 2007‐08 their contribution fell to 18‐19 percent (Table 19).

Other measures also point to the decline in diversification of Zimbabwe’s exports in 1994‐97, and

acceleration of this trend in 2002‐08. The number of SITC four‐digit products exports increased from 774

(out of 1018 items) in 1994 to 803 in 1997 and 859 in 2002. This points to an increase in diversification,

albeit with a caveat. The caveat is that most of these exports were negligible, as simultaneously the

number of products with the value of annual exports exceeding US$100,000 slightly fell from 377 in

1994 to 367 in 1997 and 351 in 2002. By the same token, the number of products with exports below

US$100 thousand increased from 397 in 1994 to 508 in 2002: by itself, this was a positive development

that, if sustained, could lead to a greater diversification. However, this trend was not sustained as both

35 For a list of top twenty four‐digit SITC products in Zimbabwe’s total exports in these years, see Annex Table 5 and 6.

48 | P a g e

the number of products exported at all and that with exports above US$100,000 fell in 2002‐08. Hence,

by these two measures, the 2000s witnessed a strong tendency towards concentration of exports.

Table 19: Various indicators of concentration in 1994, 1997, 2002, 2007 and 2008 (in percent and numbers)

Four‐digits SITC sectors 1994 1997 2002 2007 2008 Index 2008 1994=100

TOP FIVE (in percent) in total exports 45 55 52 61 60 134

TOP TEN (in percent) in total exports 60 69 65 72 72 120

TOP TWENTY (in percent) in total exports 72 80 75 82 81 113

REMAINING 998 SECTORS (in percent) in total exports 28 20 25 18 19 67

Memorandum:

Number of sectors involved in exports 774 803 859 791 746 96 Number of sectors exporting more or equal to US$100,000 377 367 351 296 270 72 Values of Herfindahl‐Hirschman index 666 950 1,188 927 783 111

Source: Derived from trade statistics reported to the UN COMTRADE by Zimbabwe’s trading partners.

Yet, another measure of concentration—the Herfindahl‐Hirschman Index (HHI)36points in the other

direction, i.e., towards diversification in 2002‐08. During both export expansion in 1994‐97 and

contraction in 1998‐2002, the values of the HHI kept increasing indicating an increase in the

concentration of exports but decreased between 2002‐08 suggesting diversification. Despite the decline

in diversification in terms of shares of dominant products and the range of products exported, the

values of the HHI suggest an increase in diversification.

What is then the final verdict? In order to answer this question, Table 20 gives information on the

average share of the top ten exports in total exports during each phase of export development and the

values of HHI during these phases not only for total exports but also for Zimbabwe’s exports to its two

major export markets: South Africa and the European Union. The increase in average shares of the top

ten exports is less pronounced as the averages appear to moderate an upward trend shown for

individual years. Furthermore, the number of sectors with exports above US$1 million fell.37 Thus, both

these measures point to the increase in the degree of concentration of Zimbabwe’s exports.

So do the values of HHI increase, although only for exports to South Africa and not to the European

Union. Zimbabwean exports to South Africa have undergone a dramatic change towards greater

concentration. The values of the HHI increased from a very low level of 18000, indicating reliance on a

few crop exports, to 1,426 in 2003‐07 and 2,208 in 2008. The latter indicates a high level of

concentration. In contrast, EU‐oriented exports have remained moderately concentrated, although the

trend has been towards higher levels of concentration. The average value of HHI slightly increased

36 The Herfindahl index (HI) is a measure of concentration equal to the sum of the squared shares of exports of products in total exports. It assumes values ranging from zero to 10,000: zero when shares are equal and 10,000 if only one product is exported. Values between 1,000 and 1,800 are considered as depicting moderate levels of concentration. 37 The number of these products was steadily falling from 140 in 1994‐97 to 133 in 2003‐07 and 114 in 2008: expressed in terms of the total number of four‐digit product lines of 1018, it fell from 14 percent to 13 percent and 11 percent. At a first glance, this might strike one as a small contraction. But this is not so. Consider that the US dollar significantly depreciated during this time: assuming, for illustrative purpose, that the 2008 US dollar equals $0.75, the number of product lines in 1994‐97 would go from 140 to 165.

49 | P a g e

during the export retrenchment phase in 1998‐02, fell during the expansion phase in 2003‐07 but—as

was the case for South Africa—significantly increased in 2008. Since the values of HHI of both South

Africa‐ and EU‐destined exports were significantly higher than their respective averages in 2003‐07, this

suggests that hyperinflation undercut the competitiveness of a large number of firms in 2006‐08. It is

also interesting to note that within sectors such as steel, the degree of concentration of exports

significantly increased (Annex Table 7).

Table 20: Shares of top ten in total exports and values of Herfindahl‐Hirschman index of total exports and of exports to South Africa and European Union: four‐digit SITC items

1994‐97 Average 1998‐02 2003‐07 2008

Index 2008 1994‐97=100

Share of top 10 in total (in percent) 62 63 65 72 118

Values of HHI for exports to South Africa 180 567 1,937 2,208 1229

Values of HHI for exports to European Union 1,109 1,426 1,051 1,415 128

Memorandum:

Number of products with exports above $1 million 140 138 133 114 81


In all, one might conclude that over the past decade: (a) Zimbabwe exported very similar products but

often in lower quantities and (b) its export basket has shrunk and the level of concentration has

increased. The dramatic increase in the concentration of Zimbabwe’s exports to South Africa has

coincided with lackluster performance in most markets. Considering the proximity and intimate

knowledge of the South African market by most Zimbabwean firms, this is clearly a sign of a contracting

export base because of de‐industrialization and higher costs of doing business.

3.2. The degree of processing embodied in exports and imports An examination of the composition of trade in terms of end‐use product categories sheds light on the

changes in domestic demand for various goods as well as in export composition depending on the

extent of their processing. For instance, an increase in imports of machinery usually points to an ongoing

industrial restructuring effort. In a similar vein, an increase in automobiles and parts may be related to

the emergence of firms specializing in production of parts or automobiles. In contrast to machinery, this

would call for an in‐depth investigation of imports. Furthermore, the increase in the combined shares of

foods and feeds and industrial raw materials merely indicates that processed goods play a growing role

in a country’s trade.

How have Zimbabwe’s exports performed according to these criteria? As a first step in answering this

question, it is interesting to compare developments in trade during the two phases of export growth in

1994‐97 and 2003‐07 (Table 21). Note, first, that except for automobiles and parts and textiles and

clothing, exports of other product groups recorded relatively strong growth. As discussed earlier, the

decline of the clothing and textile sectors did not start in the 2000s but was a continuation of a trend

already observed throughout the 1990s. Leaving aside fuels, the product group that experienced the

strongest growth was iron and steel followed by agricultural foods and feeds. In marked contrast, the

phase of modest rebound in 2003‐07 characterized a greater dispersion in export growth rates and a

larger number of end‐use products fell in terms of value.

50 | P a g e

But there were other more telling contrasts between the two expansion phases. The most glaring

contrast is a steep contraction in exports of foods and feeds and acceleration in the growth of industrial

raw materials during the second phase. The average growth rate in exports of foods and feeds changed

by 20 points: it moved from a positive growth rate of 11 percent to a negative growth rate of 9 percent

that was already preceded by falling exports in 1998‐02. Exports of industrial raw materials, which grew

at an LSG rate of 3.2 percent in 1994‐97 exploded to 31 percent in 2002‐07 emerging as the single most

important driver transforming Zimbabwean exports. With exports of foods and feeds falling and

industrial raw materials expanding, the shares of other end‐use product groups have remained relatively

unchanged.

Table 21: Developments in Zimbabwe’s exports in terms of end‐use product categories

Least Square Growth rate in Annual Average share in Share in

Exports 1994‐97 1997‐02 2002‐07 2008 1994‐97 1997‐02 2002‐07 2008

Agricultural Food & Feeds 11.4 ‐1.8 ‐9.4 ‐0.6 57.6 61.0 40.5 33.4 Industrial Raw Materials 3.2 ‐1.4 31.1 ‐26.8 12.8 12.2 32.5 40.1 Iron and steel 17.7 ‐8.9 11.4 42.1 10.4 9.2 10.1 14.7 Machinery, excluding auto 9.8 ‐4.2 ‐2.4 ‐23.4 2.1 1.7 2.2 1.5 Automobiles & Parts ‐2.6 6.7 18.4 ‐52.5 0.4 0.3 0.6 0.3 Textiles & Clothing ‐15.2 ‐4.1 ‐5.0 ‐37.1 5.2 3.5 2.0 1.2 Consumer Goods 14.4 ‐4.1 3.9 ‐9.0 10.3 11.1 10.9 7.7 Fuels 32.2 ‐17.6 ‐5.1 86.9 1.1 1.0 1.3 1.0

Total 9.9 ‐2.9 6.3 ‐11.0 100 100 100 100

Note: (1) The end-use categories are defined as Agricultural Food & Feeds (SITC 0+1+2+4-27-28); Industrial Raw Materials (SITC 27+28+68);Iron and Steel (SITC 67); Machinery, excluding automobiles (SITC 7-78), Automobiles & Parts (SITC 78), Other Consumer Goods (SITC 5+6+8+9-67-68); Fuels (SITC 3); and All Goods (0 to 9): (2) The data does not include exports of aircraft etc parts (SITC 7929) valued at US$91 million in 2008 attributable to an error as there are no indications of any significant production of aircraft parts in earlier trade data and other available information. Source: Based on world's reporting to UN COMTRADE Statistics.

But the relative stability in the commodity composition of Zimbabwe’s exports of other product groups

(i.e. excluding industrial raw materials and agricultural food and feeds) falls well short of capturing the

extent to which Zimbabwe’s integration into global markets has changed since the peak of exports

expansion in 1997. The most notable change is that the degree of import coverage by exports declined

and imports of foods and feeds exploded. Although the level of processing embodied in exports, as

captured by changes in the weight of foods and feeds together with industrial raw materials,38 has not

changed over the last decade, the level of processing embodied in Zimbabwe’s imports has fallen (Table

22).

More disturbingly, however, the balance of trade, although still in surplus, in traditional inputs has

dramatically deteriorated as a result of a three‐fold increase of these types of imports in terms of value

between 2002 and 2008. Although Zimbabwe is a net exporter of traditional inputs, exports of

agricultural foods and feeds as a proportion of the imports in these products fell from 530 percent in

2002 to 116 percent whereas exports of industrial raw materials in terms of their imports increased

38 It increased during the commodity boom in 2002‐07 and slightly contracted in 2008. The aggregate share of foods and feeds and industrial raw materials, however, was even slightly lower than in 2008: 72 percent versus 74 percent.

51 | P a g e

from 346 percent to 437 percent. However, this was only around half the value of this indicator in a

peak year 1997 as compared with 2007.

Table 22: Developments in Zimbabwe’s trade by end‐use product categories in selected years over 1997‐2008 (in millions of US dollars and percent)

1997 2002 2007 2008 Index 2007 1997 2002 2007 2008

in millions of US dollars 1997=100 Composition of exports (in %)

Agricultural Food & Feeds 1,248 1,044 707 703 57 60.6 61.8 29.9 33.4

Industrial Raw Materials 239 233 1,152 843 482 11.6 13.8 48.8 40.1

Iron and steel 224 128 217 308 97 10.9 7.5 9.2 14.7

Machinery, excluding autos 44 37 42 32 95 2.1 2.2 1.8 1.5

Automobiles & Parts 6 9 15 7 264 0.3 0.5 0.6 0.3

Textiles & Clothing 71 52 40 25 57 3.4 3.1 1.7 1.2

Consumer Goods 202 175 177 161 88 9.8 10.4 7.5 7.7

Fuels 25 13 12 22 47 1.2 0.8 0.5 1.0

Total 2,059 1,691 2,361 2,101 115 100.0 100.0 100 100

(exports in percent of imports) Composition of imports (in %)

Agricultural Food & Feeds 693 530 203 116 17 8.7 17.2 15.3 26.2

Industrial Raw Materials 803 346 323 437 54 1.4 5.9 15.7 8.4

Iron and steel 321 470 377 569 177 3.4 2.4 2.5 2.3

Machinery, excluding autos 7 17 8 6 95 32.1 19.0 23.4 22.2

Automobiles & Parts 2 6 7 3 141 13.9 13.1 8.9 11.1

Textiles & Clothing 57 90 85 51 88 5.9 5.0 2.1 2.2

Consumer Goods 29 46 27 29 101 33.6 33.3 28.3 23.8

Fuels 132 28 13 25 19 0.9 4.1 3.8 3.8

Total 99 148 104 95 96 100 100.0 100 100

Note: (1) The end‐use categories are defined as Agricultural Food & Feeds (SITC 0+1+2+4‐27‐28); Industrial Raw Materials (SITC

27+28+68);Iron and Steel (SITC 67); Machinery, excluding automobiles (SITC 7‐78), Automobiles & Parts (SITC 78), Other

Consumer Goods (SITC 5+6+8+9‐67‐68); Fuels (SITC 3); and All Goods (0 to 9): (2) The data does not include exports of aircraft

etc parts (SITC 7929) valued at US$91 million in 2008 attributable to an error as there no indications of any significant

production of aircraft parts in earlier trade data and other available information.

Source: Based on world's reporting to UN COMTRADE Statistics.

Figure 7: Developments in trade balances of traditional inputs and Zimbabwe’s total trade balance in 1994‐08 (n millions of US dollars)

Source: as in Table 22.

‐400

‐200

0

200

400

600

800

1,000

1,200

1994 1997 2001 2002 2003 2004 2005 2006 2007 2008

Trade balance

Agricultural Food & FeedsIndustrial Raw MaterialsIron and steel

52 | P a g e

The combination of falling exports and rising imports of foods and feeds has been responsible for the

contraction in the surplus of traditional inputs in Zimbabwe’s trade. Despite strong growth performance

in net exports of industrial raw materials, the contraction in net exports of foods and feeds was steep.

The surplus in trade of agricultural foods and feeds fell from US$1.1 billion in 1997 to US$ 99 million in

2008, whereas aggregate surpluses in industrial raw materials and iron and steel increased from US$364

million in 1997 to US$ 995 million in 2007 and fell in 2008 to US$905 million (Figure 7 above).

Another indication of slow growth in the industrial base has been developments in imports of capital

equipment and industrial raw materials. Although the latter grew at an impressive average rate of 38

percent per year in 2004‐07, this does not appear to be the result of growing domestic production of

more processed goods but rather high prices for primary commodities during this period. Consider that

the average rate of exports during this period was 34 percent. Moreover, the average rates including the

contraction of both exports and imports in 2008 were 22 percent for exports and 21 percent for imports.

But there is no similar ambiguity if another indicator of industrial development (i.e. imports of capital

equipment) is taken into account. The share of imports of machinery in total imports fell from an

average of 32 percent in 1994‐97 to 28 percent in 1998‐2001 and 21 percent in 2002‐08.

The shift in the composition of imports towards agricultural products and away from consumer goods

points to the rapidly deteriorating standards of living and growing pauperization of society over this

period. The share of agricultural products in total imports has dramatically expanded since 1997. It

increased from 9 percent in 1997 to 17 percent in 2002 and 26 percent in 2008. Simultaneously, the

combined share of cars, clothing and other consumer goods in imports fell from 53 percent in 2006 to

37 percent in 2008. The average in 1994‐2002 was 51 percent with a very small dispersion of annual

data.

Table 23: Direction of Zimbabwe’s exports by end‐use to South Africa, European Union and rest of the world in 1997 and 2008 (in percent)

1997 2008 Index 2008 1997 2008 Index 2008 1997 2008 Index 2008

Share of S. Africa 2002=100 Share of EU 2002=100 Share of ROW 2002=100

Agricultural Food & Feeds 11 12 182 52 27 60 37 60 126

Industrial Raw Materials 7 71 247 26 11 47 67 18 37

Iron and steel 2 2 76 57 50 134 41 48 80

Machinery, excluding autos 35 50 333 51 3 54 14 46 59

Automobiles & Parts 77 7 52 8 1 7 15 92 122

Textiles & Clothing 14 30 994 79 23 53 7 46 88

Consumer Goods 38 14 71 56 14 56 6 72 130

Fuels 32 43 84 24 0 0 44 57 118

Total 13 36 317 50 22 58 37 42 83

Source: Based on world's reporting to UN COMTRADE Statistics.

Major markets for Zimbabwe’s exports by‐end use product categories changed between 1997 and 2008:

driven by declining exports to the EU. While around 80 percent of exports of textiles and clothing were

shipped to the EU in 1997, only 23 percent were sold there in 2008 (Table 23 above). Since the value of

these exports contracted around 70 percent, other markets absorbed only a small fraction of the lost

sales to the EU. The EU, however, accounted for 50 percent of iron and steel exports in 2008, only 7

percentage points below the 1997 level. On the other hand, South Africa emerged as the major market

53 | P a g e

for industrial raw materials: its share increased from seven percent in 1997 to 71 percent in 2008.

Except for three product groups—food and feeds, consumer goods, and fuels, whose combined exports

accounted for 43 percent of the total in 2008—South Africa and the EU take more than half of other

exports.

The preceding discussion leads to the following observations: First, the level of processing embodied in

Zimbabwe’s export basket has remained unchanged since 1994. The share of primary inputs has

remained at slightly below three‐quarters of total exports independent of their levels. Second, exports

of food and feeds, iron and steel and consumer goods were the main drivers of export growth during

the growth phase in 1994‐97. The picture changed during the period of recovery in exports in 2003‐2007

in two important respects: first, food and feeds contracted, and second, consumer goods ceased to be a

driver. Industrial raw materials topped them all. Third, except for iron and steel, positive net exports

across all end‐use product categories have been falling. Not surprisingly, the largest decline has been in

food and feeds and industrial raw materials. Finally, the shift in imports from consumer goods to food

products is an indication of declining standards of living and a declining surplus in agricultural output, as

discussed below

3.3. Agriculture and agroprocessing: contraction of net exports Since agricultural output significantly contracted in response to land reform, interesting questions worth

exploring in more detail concern the impact this has had on foreign trade performance of raw foods and

agricultural products in 1997‐2008 and product groups in which Zimbabwe ceased to be a net exporter.

In order to address these issues, we extract trade data, as reported by Zimbabwe’s trading partners,

grouped through the filter of agricultural products in terms of SITC items developed in a paper by Ng

and Aksoy (2008). They distinguish between four broad categories: the first category is called “raw food”

and it includes meats and dairy, grains, and fruits and vegetables; the second category, referred to as

“cash crops,” includes tropical foodstuffs, feeds, oil seeds and tobacco; other food including processed

food and seafood; and agricultural raw materials or non‐food products. Table 24 presents net exports of

these products in 1997‐2008. Exports of all these products still exceeded their imports in 2008, although

the surplus, (i.e. net exports) had kept falling since 2001. The contraction was particularly acute in 2006‐

08, when they fell from US$482 million to US$150 million. We do not have data for 2009, but it seems

that net exports somewhat rebounded mainly thanks to an increase in exports of tobacco, Zimbabwe’s

largest exportable among agricultural products.39

While, with the exception of seafood, net exports in 2005‐08 were lower than in 1997‐2001, some fared

better than others. The least affected were agricultural raw materials. The value of their total net

exports was on average only around 20 percent lower than in 1997‐2001 as compared to a 50 percent

contraction in exports of cash crops (mainly tobacco). In terms of magnitude, by far the largest change

was in net exports of raw food (mainly maize): the pendulum swung from an average of US$99 million of

net exports in 1997‐2001 to net imports of US$ 166 million on average in 2005‐08. Net exports moved to

negative territory in the third year into the land reform program in 2002.

39 According to the data from the Reserve Bank of Zimbabwe, the value of these exports increased from US$229

million in 2008 to projected US$301 million in 2009.

54 | P a g e

Table 24: Net exports of raw food and agricultural products in 1997‐2008 (in current millions of US dollars)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Meats and Dairy Products, of which 40.8 38.2 41.4 46.0 32.1 11.6 11.4 9.4 6.5 11.2 25.7 4.9

Beef, fresh, chilled or frozen 35.7 28.0 29.4 30.5 19.5 1.0 1.8 0.0 0.0 0.0 0.1 ‐0.1

Grains and Cereals, of which 60 ‐18 ‐31 2 3 ‐88 ‐99 ‐102 ‐161 ‐92 ‐165 ‐385

Wheat and meslin ‐6 1 8 5 ‐1 ‐4 ‐5 ‐9 0 ‐6 ‐9 ‐21Maize (corn), unmilled 70 ‐15 ‐37 3 5 ‐82 ‐87 ‐85 ‐154 ‐77 ‐150 ‐354

Vegetables and Fruits, of which 49 52 62 55 60 55 56 27 47 42 38 21

Vegetables, fresh, chilled or frozen 21 23 26 22 18 18 18 ‐3 11 13 ‐3 ‐7Fruits, citrus etc. 23 24 30 28 38 34 34 29 33 26 39 24

Tropical Products, of which 91 121 98 88 89 77 74 101 90 91 49 68

Sugars, beet and cane, raw, solid 35 57 48 42 55 40 36 66 62 67 34 55Coffee, green, roasted or sub 37 34 23 15 10 10 8 10 8 7 4 3Tea and mate 8 10 11 20 17 15 17 16 15 14 8 8Spices 12 20 16 12 7 12 13 9 5 3 2 3

Feeds, Oilseeds and Tobacco, of which 647 487 640 540 598 613 520 368 246 189 254 292

Tobacco, unmanufactured; tobacco refuse 652 485 637 531 587 615 527 369 257 190 256 272 Oil seeds and oleaginous fruits ‐5 0 2 8 10 ‐2 ‐7 ‐1 ‐11 ‐1 ‐2 20

Processed Food, of which 2 ‐10 ‐10 12 40 12 19 18 ‐76 31 ‐10 ‐79

Meat & edible offals, prep. & preserved 8 8 4 3 2 1 3 5 4 4 3 1 Milk & cream, preserved, concentrated 2 0 0 5 4 3 0 0 ‐1 4 2 ‐1 Meals and flour of wheat, other cereal preps. nes 7 ‐4 ‐4 6 16 ‐9 5 ‐8 ‐102 ‐5 ‐43 ‐62 Refined sugars and other products 2 0 1 2 5 5 5 14 14 15 20 15Bran, oil cake, meal fodder and other food wastes 1 3 4 1 5 2 ‐1 0 ‐1 ‐5 ‐2 1 Misc. edible products and preparation ‐4 ‐3 2 0 1 1 ‐4 ‐8 ‐5 1 ‐3 ‐11 Non alcoholic beverages nes 0 0 0 ‐2 ‐3 0 0 ‐1 0 0 ‐1 ‐4Alcoholic beverages ‐3 ‐2 ‐3 ‐1 ‐2 ‐2 ‐1 ‐1 ‐2 ‐2 ‐2 ‐13Tobacco manufactured 6 ‐2 ‐10 ‐2 4 10 19 25 30 28 33 21Animal/vegetable oils and fats, processed ‐9 ‐6 ‐7 ‐6 1 ‐3 ‐11 ‐13 ‐15 ‐14 ‐19 ‐22

Seafood, of which ‐8 4 3 2 9 10 12 12 10 11 16 18

Fish, fresh (live or dead), chilled, frozen ‐5 1 0 1 3 1 2 4 0 0 4 5 Fish, dried, salted or in brine ; smoked ‐4 0 ‐1 ‐1 ‐1 ‐1 0 ‐2 ‐1 ‐1 0 0 Fish, crustaceans and molluscs, prep. 1 3 4 6 6 8 8 10 10 12 13 13

Agricultural Raw Materials, of which 259 246 245 295 293 234 124 313 255 199 202 210

Hides, skins and furskins, raw 6 5 4 7 6 7 7 8 10 12 11 16Cork, wood, pulp and waste paper 11 5 5 9 3 7 ‐103 17 21 23 20 18

of which: softwood (2482) 13 10 10 11 8 8 10 17 19 20 18 15Textile fibres, silk, cotton, jute etc. 137 119 113 141 149 89 86 185 140 110 110 116of which: raw cotton, excl linters 146 126 117 146 152 92 89 190 145 113 114 117Crude animal and vegetable materials 56 62 64 73 69 67 69 53 45 30 34 32

of which cut flowers 58 62 62 68 68 67 69 55 44 30 34 30

Total above 1,140 920 1,047 1,041 1,123 926 717 748 416 482 411 150

Sources: Partners’ statistics reported to the UN COMTRADE based on taxonomy of agricultural products in Ng, Francis and M. Ataman Aksoy. 2008. "Who are the net food importing countries?" Policy Research Working Paper 4457, World Bank, January.

While output has fallen across all raw food sectors, the largest contributor to the contraction in net

exports of raw food was maize. In the 1994‐2001 period imports of maize exceeded their exports twice

55 | P a g e

in 1998‐99. In most years until 2002, Zimbabwe was a traditional net exporter of this crop. The situation

changed beginning in 2002: when Zimbabwe’s imports started to exceed its exports each year with the

gap reaching the record level of US$354 million in 2008. Excluding maize, Zimbabwe is a net exporter of

raw food, although net exports have fallen from US$63 million in 2002 to US$55 million in 2007 and

US$5 million in 2008. Furthermore, excluding maize total net exports of raw food and agricultural

products in 2008 would amount to $448 million rather than US$150 million.

The processed food sector, whose importance stems not only from its contribution to foreign currency

earnings but also to employment creation, appears to have somehow withstood adversities of the

economic environment. The value of exports of processed food was higher in 2005‐07 than in the peak

years in 1995‐06. Although net exports were negative in 2007‐08, the sector overall recorded a positive

growth with an annual average LSG rate of 8.7 percent over 1997‐2008. The strongest growth, LSG rates

above 20 percent per year, was experienced in manufactured tobacco, refined sugars and other

products, other sugar syrups, artificial fruits and vegetable juices. The overall position of this sector was

negatively affected by the expansion of imports of cereal preparations, meals and flour of wheat.

Excluding these products, the sector was a positive net exporter with an average of US$23 million per

year in the 2000s except in 2008 (minus US$17 million). Although their contribution to foreign exchange

earnings pale in comparison to revenue derived from tobacco and agricultural raw materials whose total

net exports averaged around US$600 million a year in 2000‐08, the importance of processed goods has

to be measured in terms of their employment effect.40

In all, the smallest contraction was in net exports of “agricultural raw materials” followed by “cash

crops” (mainly tobacco). Zimbabwe became a net importer of both “other food”—almost exclusively

because of huge imports of meals and flour of wheat and other cereal preparations—and “raw food”

due to the fall in output of maize. Relative to the average in 1997‐01, the largest contraction in net

exports was in “other food.”

3.4. Factor and technology content of foreign trade and revealed comparative advantage Changes in the pattern of trade in goods reflect differences in comparative advantage as determined by

different factor endowments. A country tends to export those goods, which use its factors in relative

abundance. Exploring a full causal chain linking factor endowments, comparative advantage and trade

patterns is not relevant for this discussion. The general question here concerns an assessment of broad

changes in relative factor intensities and technological content as revealed by Zimbabwe’s total exports.

Natural resource‐based products have driven Zimbabwe’s export dynamics: two peak points of

expansion phases represented the peak share of resource‐intensive exports in total exports in each cycle

except in 2007. Indeed, their growth was the fastest during periods of expansion and their contraction

brought down the value of total trade. Their share in total exports has been growing since 1994, peaked

at 88 percentage points in 1997 fell to 83 percent in 2003, and climbed to 91 percent in 2007 and grew

further to 92 percent in 2008. Although net exports of natural resource‐based products remain high, as

40 These amounts were below the levels achieved in the 1990s, except for net exports of skins and fur skins and soft wood.

56 | P a g e

the value of these exports was more than twice that of imports, the trend is unidirectional: exports in

terms of imports fell from the average of 510 percent in 1994‐97 to 164 percent in 2008 (Table 25).

The narrowing of the gap between Zimbabwe’s South Africa‐ and EU‐destined exports in terms of factor

intensities also underlies a growing reliance on natural resources. While the share of natural resources

in EU‐oriented exports was on average 23 percentage points larger than in Zimbabwe’s exports to South

Africa in 1994‐97, the difference fell to an average of 10 percentage points in 2002‐07. By 2008, the

difference dropped to 3.3 percentage points, and two export baskets have almost fully converged (Table

25).

Table 25: Change in factor content of Zimbabwe’s trade in goods in 1994‐97, 1997‐2003 and 2002‐07

LSG rate in Annual Average share in total exports Share in

Exports 1994‐97 1997‐02 2002‐07 2008 1994‐97 1997‐02 2002‐07 2008

Natural Resources 11.0 ‐2.9 7.6 ‐6.7 83.8 85.7 85.9 92.0

Unskilled labor ‐13.0 ‐1.1 ‐4.3 ‐19.3 7.5 5.6 4.5 2.7

Capital intensive 1.8 0.8 ‐4.0 ‐13.1 3.0 3.1 3.2 2.1

Skilled labor 1.7 3.0 ‐2.9 ‐21.4 5.6 5.6 6.4 3.2

Imports

Natural Resources 14.0 4.1 17.4 21.5 14.6 24.0 38.0 47.0

Unskilled labor 18.1 ‐14.2 ‐0.6 0.7 8.1 8.1 6.0 3.7

Capital intensive 10.8 ‐18.7 15.4 ‐16.5 44.0 42.2 32.7 28.5

Skilled labor 9.6 ‐15.4 11.4 15.2 33.3 25.7 23.3 20.8

Memorandum: Exports in percent of imports Absolute difference: S. Africa and EU

1994‐97 1997‐02 2002‐07 2008 1994‐97 1997‐02 2002‐07 2008

Natural Resources 510 441 224 164 ‐22.9 ‐21.7 ‐10.1 ‐3.3

Unskilled labor 82 84 80 60 6.4 6.5 4.9 1.6

Capital intensive 6 9 10 6 5.3 5.4 0.7 0.6

Skilled labor 15 26 26 13 11.2 9.8 4.5 1.1

Source: Based on partners data from UN COMTRADE Statistics.

The rise to prominence of natural resource intensive exports in Zimbabwe’s export bundle has not been

the result of different rates of expansion of products with different factor endowments but, rather,

shrinking exports in other categories including those of unskilled‐labor intensive products. The latter

development is particularly worrisome considering that Zimbabwe has a large pool of unemployed

labor. Paradoxically, exports of these products experienced the second largest decline: the negative LSG

rate of 4.3 percent was larger than the pace of decline of capital intensive exports of 4.0 percent but

lower than that of skilled labor intensive products. However, exports of skilled labor intensive products

recorded the largest decline in 2008. Their share in total exports fell from an average of 6.4 percent in

2002‐07 to just 3.2 percent in 2008. Developments in Zimbabwe’s exports have contributed to the

increase in unemployment, as exports of labor‐intensive products stagnated or contracted.

Zimbabwe’s revealed comparative advantage (RCA)41 in world markets has been increasingly

concentrated in products with low level of processing and high natural resource content. Since the

41 The RCA is the ratio of the share of a given product in BH’s total exports to the share of that same product in the world’s total imports. The RCA with a value that exceeds unity suggests a strong specialization in the product (Balassa, 1965).

57 | P a g e

classification used above to identify exports in terms of their factor content does not distinguish

between levels of technology and assigns most agricultural products to resource‐based products,42 a

better filter to account for the dominance of natural resource‐based products is the simple classification

developed by Landesman and Stehrer (2003). It distinguishes among three broad categories of

production activities: (1) Low technology and labor intensive activities, (2) resource intensive activities,

and (3) medium‐ to high‐technology production activities. Low technology and labor intensive activities

include, among others, agricultural foods and feeds, some animal and vegetable oils, simple

manufactured goods, textiles and clothing. Resource intensive activities, accounting now for around

two‐thirds of Zimbabwe’s total exports, cover such sectors as mining, steel and iron, chemical industries,

and simple industrial products based on intensive use of natural resources (e.g., wood materials,

cement, alloys, etc). Medium to high‐technology intensive products include machinery and transport

equipment as well as some miscellaneous manufactures such as medical furniture parts or instruments.

The long term picture that emerges from examining the development of exports in terms of technology

content can be summarized as follows: Zimbabwe’s exports of medium‐ to high‐technology products, in

terms of value, were flat in 1994‐2008; exports of low technology and labor intensive products fell in

1997‐2008; whereas those of resource intensive products increased dramatically in 2002‐07.

Zimbabwe’s exports over 1997‐2008 switched from a dominance of products characterized by low‐

technology labor intensive activities to resource intensive ones while exports of medium‐ to high‐

technology products stagnated. Their value varied between US$70 million in 2008 and US$112 million in

1994‐2008. In 2004, resource intensive exports exceeded low‐tech labor intensive exports (Figure 8).

Zimbabwe’s major exports include nickel, ferro alloys, tobacco, raw cotton, cement, precious metal

scrap, cut flowers, and citrus fruits. These products account for the bulk (around 70 percent) of

Zimbabwe’s total exports. They fall within two groups of industrial activities: resource intensive and low

technology labor intensive products. The major product in the latter group is tobacco, which accounted

for around 50 percent of these exports in 2002‐08. Nickel ores and nickel alloys emerged as Zimbabwe’s

major exports in the 2000s (Table 26). Their aggregate share in resource intensive exports rose from 22

percent in 2002 to 60 percent in 2007 and then fell to 49 percent in 2008 almost exclusively due to the

fall in their world prices over this period (see Section 2.4).

42 The goodness of results obtained hinges critically on the quality of a classification used to examine export baskets over time by factor mix. The choice is always controversial. There are woeful difficulties to define and measure factor intensity, and trade theorists have long wrestled with it. Special problems emerge when a classification aims to capture “quality” of factors involved (Winters 1997). Some definitions of the groups of goods by factor intensity are overlapping and non‐exhaustive. Definitions used here do not suffer from these shortcomings‐‐all industries are taken into account and an industry appears only in one classification; and the classification distinguishes among four types of factors. Since some industries are intensive in terms of more than one factor, the results may be distorted. But even assuming that the initial classification captures adequately factor proportions at a given point of time, with the passage of time it may provide a distorted picture. Some industries may become more capital‐intensive or less active in technological terms.

58 | P a g e

Figure 8: Exports of low‐technology labor intensive products, resource intensive and medium to high‐tech products in 1994‐2008 (in millions of US dollars)

Source: Own estimates based on data from the UN COMTRADE database

Table 26: Exports in terms of technology intensities in 1997 and 2002‐08 (in millions of US dollars and percent)

1997 2002 2003 2004 2005 2006 2007 2008

Low‐tech, labor intensive 1,240 1,007 934 822 708 685 667 638

of which: tobacco (121) 692 627 544 400 284 235 290 297

Resource intensive 732 604 805 1,010 1,141 1,387 1,633 1,416

of which: nickel ores (28) 4 55 132 181 221 343 436 479

nickel alloys (68) 117 79 137 158 227 340 537 219

Medium to High‐tech 106 101 112 73 108 112 82 71

Total reported 2,078 1,712 1,851 1,904 1,956 2,185 2,381 2,125

(in percent)

Low‐tech, labor intensive 60 59 50 43 36 31 28 30

of which: tobacco (121) 56 62 58 49 40 34 43 47

Resource intensive 35 35 43 53 58 63 69 67

of which: nickel ores (28) 1 9 16 18 19 25 27 34

nickel alloys (68) 16 13 17 16 20 24 33 15

Medium to High‐tech 5 6 6 4 5 5 3 3


In contrast, the value of exports of medium to high technology intensive products was stuck between

US$70 million (in 2001) and US$112 million (2006) and their degree of concentration was lower than in

other product categories. Ceramic plumbing (8122), automotive parts (7812), electro‐thermic

equipment (7758) and wood furniture (8215) were major exportables in 2008. These five three‐digit

SITC sectors contributed 42 percent to total exports of medium to high technology intensive in 2008. By

this measure, the level of concentration was 63 percent in low technology labor intensive products and

79 percent in a resource intensive group.

The combination of falling exports of low‐tech labor intensive products and expanding exports of

resource intensive products in 2002‐07 has been responsible for a dramatic shift in technology content

of Zimbabwe’s exports. The contraction of exports of low‐tech labor intensive products in terms of value

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Low‐tech, labor intensive

Resource intensive

Medium to High‐tech

59 | P a g e

since 1997 has been nothing short of dramatic. They have been consistently falling since 1997: in 2008

they stood at 51 percent of their peak value in 1997. The surge of resource intensive products coincided

with the commodity boom of 2003‐07. Indeed, the share of resource intensive products in total exports

increased from 35 percent in 2002 to 44 percent in 2003 and 58 percent in 2006. It stood at 67 percent

of total exports in 2008, while the share of low‐tech labor intensive fell from an average of 60 percent in

1994‐97 to 30 percent in 2008 (Table 27). Although resource intensive exports grew fastest during the

growth phase in 1994‐97, exports of other product groups also experienced a strong growth. During the

next two phases, resource intensive exports contracted the least in 1998‐2002 and grew the fastest in

2003‐07 whereas exports of other products experienced negative growth.

Table 27: Dynamics of Zimbabwe’s trade in terms of technology and factor intensities in 1994‐97, 1998‐2002, 2003‐07, and 2008 (in percent and millions of dollars)

Least Square Growth rate Annual Average share in Share in

Exports 1994‐97 1997‐2002 2002‐07 2008 1994‐97 1998‐2002 2002‐07 2008

Low‐tech, labor intensive 8.2 ‐3.1 ‐9.0 ‐4.3 60.0 58.8 37.8 30.0

Resource intensive 12.2 ‐2.4 19.2 ‐13.3 34.6 36.5 57.4 66.7

Medium to High‐tech int. 9.3 ‐3.3 ‐1.8 ‐14.4 5.4 4.7 4.8 3.3

Imports

Low‐tech, labor intensive 21.1 ‐6.5 8.3 69.5 10.7 15.4 19.8 28.4

Resource intensive 10.6 ‐6.3 17.4 ‐25.4 36.1 42.4 47.1 35.2

Medium to High‐tech int. 10.1 ‐22.3 11.2 4.3 53.2 42.2 33.1 36.4

Memorandum: Exports in percent of imports Trade Balance (US$ millions)

1994‐97 1997‐02 2002‐07 2008 1994‐97 1997‐02 2002‐07 2008

Low‐tech, labor intensive 533 532 238 97 883 848 418 ‐19

Resource intensive 89 117 144 173 ‐92 91 343 600

Medium to High‐tech int. 9 16 17 8 ‐960 ‐507 ‐491 ‐774

Source: Own estimates based on data from the UN COMTRADE database

Developments in imports coverage by exports by technology, natural resource and labor intensities paint a familiar picture: net exports of both high‐ and medium‐ technology intensive products and low technology labor intensive products continued to fall in 2006‐08 while those of resource intensive products kept increasing. The collapse of net exports of low technology intensive products, mainly of agricultural products, resulted in the deficit in the balance of trade in these products of US$19 million in 2008.

3.5. Victims and survivors: new and vanishing specializations This section takes a broad look at the change in the composition of Zimbabwe’s exports at the level of

four‐digit SITC sectors. In order to eliminate single, random commercial transactions, we average the

exports data for three periods identified by the earlier examination of export dynamics: the 1994‐07

expansion; contraction in 1998‐2002; and modest rebound in 2003‐07. Average exports of four‐digit

SITC in terms of value in each period can be then compared with each other or from a vantage point in a

selected year.

The broad picture that emerges from this analysis can be summarized by the following three

observations:

The range of four‐digit sectors involved in exports significantly declined in 2003‐08;

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The losses were more widespread in term of the number of product lines and their values of

exports more uniformly distributed while increases in the value of exports were limited to a

smaller number of product lines;

Survivors included exporters of minerals and other low‐processed raw materials, which

registered modest gains in terms of value, whereas victims included exports of agricultural

products and those of unskilled labor intensive clothing.

Zimbabwean firms turned inward or went out of business in the 2000s. As a result, Zimbabwe’s export

basket became less diversified in terms of the number of four‐digit SITC sectors especially in 2005‐08.

During this period, the number of sectors that were not involved in exports (the value of exports equal

zero) dramatically expanded indicating either a shift to the domestic market or exit from production

altogether. Out of a total of 1,018 four‐digit SITC sectors, 49 sectors were not involved in exports in

1994‐97, this number dropped to 31 in 1998‐2003, and increased to an average of 63 in 2003‐07. But,

the average conceals developments in 2007 when the number of zero‐exported products increased to

227 and in 2008 their number further increased to 272 sectors with zero‐exports up from 159 in 2002.

Some further insights can be derived from the differences between exports of four‐digit SITC items in

2008 and their average values in 1994‐07, 1998‐2002 and 2003‐07. Although these differences are in

current dollars, i.e. they do not take into account changes triggered simply by falling or rising prices,

they identify sectors that experienced the largest changes in exports in 2008 vis‐à‐vis averages for

earlier periods. Table 28 provides information on the number of four‐digit SITC sectors with exports

higher (survivors) or lower (victims) in 2008 than in a previous phase; the share of top ten in total gains

or losses; and the top five four‐digit SITC items with the largest positive or negative differences in the

values of exports in 2008 and respective phases.

Three observations can be derived from eyeballing the data in Table 28. First, the gains appear to have

been highly concentrated, i.e. limited to around ten four‐digit SITC sectors. The 2008 export basket,

when set against averages during the three periods, shows little change in terms of numbers of sectors

that expanded their exports and their share in total gains. Note that the number of sectors referred to

as survivors varies between 205 and 212, while the share of the top ten in the total increase of exports

varies between 80 percent and 85 percent.

Second, producers of minerals and their products have displayed the largest resistance to economic

adversities while exporters of agricultural products were the main victims, albeit there were some

exceptions also among manufactured exporters. Except for raw cotton, Portland cement and oil seed,

mineral exporters figured among the top five export survivors with nickel, both ores and mattes, topping

the list in each case. New minerals became available for exports in the 2000s: nickels (SITC 284) top

them all. The value of these exports never exceeded US$10 million before 2002 when their value

reached US$55 million and grew each year to reach US$479 million in 2008 accounting for 22 percent of

total exports. Other examples, admittedly much less spectacular than nickel, include copper (both ores

and refined), diamonds, and common salt. There also some examples of emerging manufacturing

exports: exports of ceramic plumbing fixtures (SITC 8122), which over 1994‐2007 only once reached

US$90,000 in 1994, rose to US$11 million and so did exports of steel structures and acyclic mono‐

hydrogen alcohols. Among agricultural products, two sectors deserve mention: soya beans, whose

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exports collapsed in 2001‐07, rebounded in 2008 to US$12 million; and oil seeds, whose exports soared

from an of average US$50,000 in 1994‐2007 to US$12 million in 2008 placing this sector among the top

five survivors (see Table 28).

Table 28: Victims and survivors in 2008 against the average in 1994‐97, 1998‐2002 and 2003‐07 (in millions of US dollars and four‐digit SITC product lines)

2008 vs.1994‐97 2008 vs. 1998‐2002 2008 vs. 2003‐07

# of sectors

Loss/ Gain

# of sectors Loss/ Gain .

# of sectors

Loss/ Gain

Survivors 212 1,150 Survivors 205 1,160 Survivors 219 586

top ten 10 925 top ten 10 942 top ten 10 500

share in total gain 10 80% share in total gain 10 81% share in total gain 10 85%

Losers 766 ‐767 Losers 790 ‐739 Losers 744 ‐427

top ten losers 10 ‐447 top ten losers 10 ‐456 top ten losers 10 ‐200

share in total loss 10 58% share in total loss 10 62% share in total loss 10 47%

top five survivors

Nickel mattes/sinters (2842) 240 Nickel mattes/sinters (2482) 242 Nickel mattes/sinters (2482) 168

Nickel ores/concentrates (2841) 234 Nickel ores (2841) 223 Other ferro alloys (6715) 122

Other ferro alloys (6715) 125 Other ferro alloys (6715) 156 Nickel ores (2841) 48 Nickel/alloys unwrought (6831) 110 Nickel/alloys unwrought

(6831) 133 Prec. metal waste (2892) 17

Raw cotton, excl linters (2631) 32 Portland etc cements (6612) 28 Oil seed/etc (2239) 12

top five losers

Tobacco stripped/stemmed (1212)

‐135 Tobacco stripped (1212)

‐215 Nickel/alloys unwrought (6831 ‐61

Tobacco, not stripped (1211) ‐85 Tobacco, not stripped (1211) ‐60 Tobacco stripped/stemmed (1212)

‐43

Asbestos (2784) ‐49 Cut flowers/foliage (2927) ‐35 Asbestos (2784) ‐20

Maize ex sweet corn nes (0449) ‐38 Asbestos (2784) ‐31 Cut flowers/foliage (2927) ‐16

Beef, fresh/chilled (0111) ‐37 Gold non‐monetary (9710)

‐26 Raw cotton, excl linters (2631) ‐14

Memorandum:

difference in total exports 383 421 159


On the other hand, exports of agricultural products overshadowed other sectors in terms of contraction

but almost exclusively when exports in 2008 are compared with averages during the phase of export

growth in 1994‐97 with the exception of tobacco (both stripped and not stripped). Tobacco was the

major victim accounting for 29 percent, 37 percent and 10 percent of losses in 2008 calculated against

average exports in 1994‐97, 1998‐2002 and 2003‐07, respectively. Maize and beef were among big

“absentees” in 2008 exports when cast against exports in 1994‐97 but not against those in 1998‐2002 as

they became so miniscule that they failed to qualify as big losers when their exports in 2008 are

compared to exports in the subsequent two phases. But cut flowers did: and they took a hit in relation

to their exports during both the contraction and the moderate rebound phase.43

As for manufactured goods, there were plenty of losers, i.e. whose exports either completely

disappeared or were less than 50 percent in 2008 of their peaks in 1994‐2007. Exports of furniture (SITC

8215) peaked in 2005 and then fell precipitously. So did exports of precious metals and jewels (SITC

8973), footwear (SITC 8514) and industrial washing dryers (SITC 7452). Although exports of clothing, 43 Exports of cut flowers were affected not only by the fall in volumes but also by flat world prices in the 2000s (see Table 11 in Section 2.4 of this report).

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mainly those of mens/boys trousers (SITC 8414), also dramatically declined from US$23 million in 1994

to US$7 million in 2008, their collapse cannot be attributed to an unfriendly economic environment in

2000‐08 but rather the result of much earlier declines in competitiveness due to increasing labor costs

and increased competition from large Asian producers. Exports of clothing (SITC 84) have declined in all

phases: they fell from US$52 million in 1994 to US$39 million in 1997, US$29 million in 2002 and US$13

million in 2008. Third, the number of sectors that experienced contraction by far exceeded those that

registered increases in their exports. Moreover, since this number displays a relatively low variation

(with the number of declining sectors ranging between 790 in 1998‐2002 and 744 in 2003‐07) this

suggests a consistent pattern of export contraction. In other words, some sectors were exporting less

and less of the same products.

Returning to an earlier question whether the fall in the number of sectors suggests an increase in

specialization and greater involvement in global division of labor, the answer is unambiguously negative.

The developments in Zimbabwe’s exports in 2003‐08 point to a significant retrenchment in export

activities caused either by external developments or by domestic policies or both. The exit of firms from

export activities and fall in exports of around 70 percent of all four‐digit SITC products more than offset

expanding exports by the remaining sectors of the economy. Hence, the fall in the number of products

in Zimbabwe’s export basket was an indication of a shrinking export base in 2003‐08.

3.6. Revealed comparative advantage: predictable shifts from agriculture to extractive sectors Despite a weak overall export performance in 1998‐2008, some of Zimbabwe’s firms still succeeded to

increase their presence in world markets. As can be expected from the previous discussion, the loss of

external markets was the most serious for agricultural products. But other sectors, including both low‐

technology labor‐intensive and medium‐ to high‐technology intensive products, have also lost their

competitive edge.

Yet, the total number of three‐digit SITC sectors with revealed comparative advantage (RCA) above unity

did not change between 1997 and 2008: in both years there were altogether 42 product groups. But the

composition did change reflecting developments in Zimbabwe’s exports with the number of resource

intensive products increasing and the number of both low technology, unskilled labor‐intensive and

medium‐ to high‐technology intensive products slightly falling.

Although the number of three‐digit SITC sectors with comparative advantage in world markets for low

technology, labor intensive products only slightly fell from 21 to 20, there was a change in their

composition (Table 29). Ten out of 22 product groups had comparative advantage in both 1997 and

2008. New comers in 2008 i.e. 12 product groups, were exporterd in both 1997 and 2008. Products that

had RCA exceeding unity in 1997 but not in 2008 were such food products as maize, meat, wheat, and

cereal. Other products included gold, cotton, tea and charcoal. Products that gained comparative

advantage in 2008 included among others eggs, confectionery sugar, oil seeds, textile yarn, animal

feeds, and phenols.

Although driven by the same products, the expansion in natural resource exports in 2001‐2008 triggered

an increase in the number of sectors with revealed comparative advantage from 20 in 1997 to 22 in

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2008. Among 22 sectors in 2008, there were 13 products that made the list in both years (Table 30).

Exports of nickel and raw cotton were also the largest in this category: combined accounting for 58

percent of resource intensive exports in 2008.

Table 29: Low technology labor intensive products with the values of RCA exceeding unity in 1997 and 2008

Products (SITC. Rev. 3) 1997 2008

121 Tobacco, raw and wastes 224 121 Tobacco, raw and wastes 202

075 Spices 17 061 Sugar/mollasses/honey 21

044 Maize except sweet corn. 17 211 Hide/skin (ex fur) raw 18

245 Fuel wood/wood charcoal 10 074 Tea and mate 11

074 Tea and mate 8 122 Tobacco, manufactured 7

061 Sugar/mollasses/honey 7 025 Eggs, albumin 7

011 Beef, fresh/chilled/frozen 7 075 Spices 5

046 Flour/meal wheat/meslin 6 611 Leather 3

071 Coffee/coffee substitute 5 057 Fruit/nuts, fresh/dried 2

971 Gold non‐monetary ex ore 4 062 Sugar confectionery 2

017 Meat/offal preserved 4 222 Oil seeds etc ‐ soft oil 2

091 Margarine/shortening 4 651 Textile yarn 1

054 Vegetables, fresh/chilled/frozen 3 091 Margarine/shortening 1

611 Leather 3 054 Vegetables, fresh/chilled/frozen 1

211 Hide/skin (ex fur) raw 3 017 Meat/offal preserved n.e.s 1

652 Cotton fabrics, woven 2 081 Animal feed ex unml cer. 1

057 Fruit/nuts, fresh/dried 2 841 Men’s/boys wear, woven 1

841 Men’s/boys wear, woven 2 059 Fruit/vegetable juices 1

122 Tobacco, manufactured 1 512 Alcohols/phenols/derivatives 1

048 Cereal etc flour/starch 1

Note: Products marked in bold had values of RCA exceeding unity in both 1997 and 2008. Those marked in italics had comparative advantage in 1997 but not in 2008 Source: Own calculations based on partners’ data reported to the UN COMTRADE database.

Table 30: Resource intensive products with values of RCA exceeding unity in 1997 and 2008

Products (SITC. Rev. 3) 1997 Products (SITC. Rev. 3) 2008

683 Nickel 53 284 Nickel ores/concentrates/etc 251

671 Pig iron etc. ferro alloy 46 683 Nickel 69

263 Cotton 35 263 Cotton 67

325 Coke/semi‐coke/retort c 24 671 Pig iron etc. ferro alloy 37

278 Other crude minerals 18 223 Oil seeds‐not soft oil 34

532 Dyeing/tanning extracts 15 273 Stone/sand/gravel 21

292 Crude vegetable materials 10 532 Dyeing/tanning extracts 15

289 Precious metal ore/conc. 9 661 Lime/cement/const. materials 9

284 Nickel ores/concentrates/etc 4 289 Precious metal ore/conc. 9

273 Stone/sand/gravel 4 278 Other crude minerals 8

689 Misc non‐ferrous base metal 3 292 Crude vegetable materials 8

288 Non‐manufactured base metal waste 3 325 Coke/semi‐coke/retort coke 7

223 Oil seeds‐not soft oil 2 283 Copper ores/concentrates 4

693 Wire prod exc. Install. electrical 2 248 Wood simply worked 3

635 Wood manufactures. 2 287 Base metal ore/concentrates 3

248 Wood simply worked 2 261 Silk 3

277 Natural abrasives 1 642 Cut paper/board/articles 1

697 Base metal household equipments 1 247 Wood in rough/squared 1

345 Coal gas/water gas/etc 1 682 Copper 1

678 Iron/steel wire 1 691 Iron/steel/alum structures 1

667 Pearls/precious stones 1

697 Base metal household equipment 1

Note: Products marked in bold had values of RCA exceeding unity in both 1997 and 2008.Bold italics denote products with RCA exceeding unity in 1997 but not in 2008 Source: Own calculations based on partners’ data reported to the UN COMTRADE database

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The decrease in the diversity of exports in terms of a number of exported products with the value of RCA

exceeding unity has been the result of Zimbabwe’s export performance in two of its most important

markets ‐ South Africa and European Union. In both, diversification has decreased and the profile of

specialization shifted away from low technology, labor intensive products. The number of low‐tech labor

intensive sectors that outperformed other suppliers, as measured by the RCA’s equivalent, the ESI

(export specialization index),44 has contracted in both markets indicating a loss of competitiveness

(Table 31).

The change in the specialization profile of Zimbabwean exports to the EU and South Africa reflects

transformation in its export basket in terms of concentration and commodity composition. The

contraction in the number of products with ESI above unity comes as no surprise in light of the earlier

discussion on export concentration (see section 2 of this chapter). In 1997, Zimbabwe had 70 three‐digit

SITC product groups with the values of ESI exceeding unity, including 30 representing low‐tech labor

intensive activities and ten representing medium‐ and high‐technology intensive activities. In 2008, the

number of products enjoying specialization advantage dropped to 29 product groups in 2008 (Table 31).

All products enjoying specialization advantage dramatically fell across each group with the largest

decline of medium‐ to high‐ tech intensive products. The number of three‐digit SITC items with ESI

above unity was smaller in EU markets and did not change significantly, although its composition did in a

predictable manner. The number of low‐tech, labor intensive products fell while that of resource

intensive products increased.

Table 31: Export specialization in South African and EU markets in 1997, 2002 and 2007‐08: number of SITC three‐digit products with values of ESI exceeding unity in terms of technology, natural resource and labor content

South Africa European Union

1997 2002 2007 2008 1997 2002 2007 2008

Low‐tech labor intensive 33 31 18 15 21 15 15 14

Resource intensive 27 20 17 13 9 11 14 12

Medium and high tech intensive 10 5 2 1 0 0 0 0

Total 70 56 37 29 30 26 29 26

Source: Own estimates based on partners’ data from the UN COMTRADE database

Zimbabwe’s revealed export specialization in both the EU and South African markets has become

increasingly similar, focusing on resource intensive products. This appears to have been the result of

Zimbabwe’s South African‐destined export basket converging towards the composition of Zimbabwe’s

exports to the EU. Considering the proximity of South African markets and their knowledge among

Zimbabwe’s exporters, this may point to internal supply constraints rather than the disappearance of

sales opportunities in South Africa.

44 The export specialization index (ESij) for a product j of country i, is specified here as follows: ESij = (xij/Xi) /(mj/M),

where: xij is country i’s exports of product j to South Africa or the EU; Xi = j xij is country i’s total exports to South Africa or the EU; Mj = j xij is South Africa’s or EU’s total ‘external’ imports of a product j; M = i j xij is South Africa’s or EU’s total external imports. A value for this index below unity indicates a comparative disadvantage. If the index takes a value greater than unity, the country is considered to have a "revealed" comparative advantage in the product. In this particular case, Zimbabwe has a revealed comparative advantage in a product if its export of that item as a share of its total exports exceeds South Africa or the EU imports of the item as a share of South Africa or EU total imports.

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Falling exports of both agricultural and manufactured products have driven the changes in patterns of

Zimbabwe’s revealed comparative advantage in world markets and export specialization in EU and

South African markets. As we have seen, the largest decline was in exports of agricultural foods and

feeds. The share of food and live animals in Zimbabwe’s total exports fell from 15 percent in 1997 to 14

percent in 2002 and 9 percent in 2008. The value of their exports fell 34 percent from US$251 million to

US$165 million. It stood in 2008 at 49 percent of its peak value in 1994 during the 1994‐2008 phase of

exports expansion. Products of this group recorded also the largest change in terms of lost revealed

comparative advantage.

Food and live animals products is the only category of agricultural products whose values of RCA fell

below unity indicating a loss of international specialization in 2002‐08. The number of three‐digit SITC

food and live animals items with values of RCA exceeding unity fell from 21 in 2000 to 11 in 2008. So did

their exports, which fell from US$189 million in 1997 to US$32 million in 2002 and 9 million in 2008

(Table 32). The largest contributor to the contraction of exports of this group was maize (SITC 044),

whose exports in current prices fell from US$71 million in 1997 to less than US$1 million in 2008. It

accounted for 40 percent of the difference between exports in 1997 and 2008 of these products. The

second largest ‘losers’ were live animals (SITC 001) and beef (SITC 011): their aggregate contribution to

the difference between 1997 and 2008 amounted roughly to another 40 percent.

Table 32: Agricultural ‘losers:’ values of RCA and exports in 1997, 2002‐2008 (in millions of US dollars)

Values of RCA indices

SITC Products 1997 2002 2003 2004 2005 2006 2007 2008 Int.

001 Live animals except fish 0.6 1.0 0.4 0.5 0.3 1.1 0.8 0.7 LTL

011 Beef, fresh/chilled/frozen 6.8 0.3 0.4 0.0 0.0 0.0 0.0 0.0 LTL

044 Maize except sweet corn. 16.8 2.3 0.4 0.1 0.1 0.0 0.1 0.0 LTL

045 Cereal grains 0.3 1.6 0.4 0.4 0.9 0.1 0.2 0.2 LTL

046 Flour/meal wheat 5.8 0.2 3.6 0.1 0.0 0.0 0.0 0.0 LTL

047 Cereal meal/flour 0.1 0.3 0.1 0.2 0.1 0.0 0.1 0.0 LTL

048 Cereal etc flour/starch 1.1 3.3 4.4 2.0 1.8 1.4 1.2 0.7 LTL

056 Vegetable root/tuber prep/pres 0.4 2.3 2.4 2.5 0.7 0.5 0.4 0.2 LTL

058 Fruit preserved/fruit preparations 0.4 0.6 0.6 0.6 0.5 0.7 0.4 0.3 LTL

071 Coffee/coffee substitute 5.4 4.1 3.2 3.9 2.8 2.0 1.1 0.9 LTL

Exports (millions of US dollars)

SITC Products 1997 2002 2003 2004 2005 2006 2007 2008 Int.

001 Live animals except fish 33.5 2.9 1.3 1.0 0.6 2.9 0.0 0.0 LTL

011 Beef, fresh/chilled/frozen 35.7 1.0 1.8 0.1 0.0 0.0 0.0 0.0 LTL

044 Maize except sweet corn. 71.4 6.7 1.3 0.4 0.2 0.0 0.2 0.2 LTL

045 Cereal grains 0.2 0.7 0.2 0.1 0.3 0.0 0.1 0.1 LTL

046 Flour/meal wheat 3.8 0.1 1.3 0.0 0.0 0.0 0.0 0.0 LTL

047 Cereal meal/flour, nes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 LTL

048 Cereal etc flour/starch 5.8 14.2 21.3 9.3 8.5 6.9 6.9 3.9 LTL

056 Vegetable root/tuber prep/pres 1.7 6.6 7.3 7.5 2.1 1.6 1.2 0.7 LTL

058 Fruit preserved/fruit preparations 0.5 0.5 0.6 0.7 0.6 1.0 0.5 0.2 LTL

071 Coffee/coffee substitute 36.7 9.8 8.6 10.0 8.5 6.7 4.4 3.6 LTL

Total above 188.9 42.3 43.7 29.1 20.8 19.2 13.1 8.7

Share in exports of food and live animals 63.2 20.0 21.1 13.0 10.2 9.5 7.0 5.3

Share in total exports 9.0 2.5 2.3 1.5 1.0 0.9 0.6 0.4


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The contraction of these exports has had significant negative impacts on employment and poverty

reduction, as all of these products represent low technology, labor intensive activities andcreate

employment opportunities in poor rural areas.

The loss of Zimbabwe’s competitive edge has not been restricted to the agricultural sector but has also

occurred in manufacturing activities. Several manufacturing sectors have ceased exporting, either partly

or totally, over the last fifteen years. This list of ‘losers’ includes a variety of sectors ranging from

chemicals, iron and steel, miscellaneous manufactured products and agricultural equipment. Leaving

aside the loss of comparative advantage in world markets, they share another rather surprising feature:

except for three product groups, all others represent resource intensive activities. Three exceptions are

manufacturing activities falling within the medium‐ to high‐technology intensive groups (see Table 33).

Table 33: Exports and values of RCA of three‐digit SITC manufactured products that lost comparative advantage in world markets in 1997‐08 and their technology and factor content

SITC Products 1997 2002 2003 2004 2005 2006 2007 2008 Intensities

554 Soaps/cleansers/polishes 0.84 1.94 3.08 1.69 0.98 0.49 0.16 0.11 RI

635 Wood manufactures 1.99 1.56 1.54 1.40 1.00 0.96 0.73 0.71 RI

672 Primary/prods iron/steel 0.48 2.98 2.18 3.25 1.02 0.19 0.00 0.01 RI

676 Iron/steel bars/rods/etc 0.64 0.32 0.78 1.30 1.07 0.81 0.45 0.35 RI

677 Iron/steel railway materials 0.06 0.01 0.09 0.05 0.04 0.19 0.26 0.00 RI

678 Iron/steel wire 1.08 3.84 6.72 4.92 2.12 0.58 0.40 0.23 RI

693 Wire prod excl. installations electrical 2.05 3.14 6.32 3.78 3.07 1.35 0.73 0.24 RI

721 Agric machine ex tractors 0.48 0.88 1.44 1.15 1.08 0.69 0.71 0.96 MH

821 Furniture/stuff furnishing 0.83 0.75 0.94 0.81 1.36 0.74 0.45 0.40 MH

897 Jewellery 4.08 4.45 1.90 1.04 0.55 0.60 0.43 0.23 MH

1997 2002 2003 2004 2005 2006 2007 2008

(in millions of US dollars)

554 Soaps/cleansers/polishes 4.9 9.8 16.3 12.8 5.1 4.8 2.4 1.9 RI

635 Wood manufactures 9.0 6.0 6.3 5.7 3.8 4.1 3.3 2.6 RI

693 Wire prod excl. installations electrical 3.7 3.9 8.7 5.9 5.0 2.6 1.6 0.5 RI

721 Agriculture machines excl. tractors 2.2 2.9 5.2 4.2 4.0 2.8 3.3 4.7 MH

821 Furniture/stuff furnishing 15.2 13.8 18.9 16.3 26.5 15.8 10.7 7.8 MH

897 Jewellery 26.2 27.3 12.3 6.8 3.7 4.6 3.6 1.7 MH

Total above 61.2 63.8 67.8 51.6 48.1 34.7 25.0 19.1

Share in manufactured exports 21% 22% 20% 19% 14% 10% 8% 8%

Iron and steel products (in millions of US dollars)

672 Primary/prods iron/steel 3.0 11.3 10.9 21.2 7.1 2.5 1.5 1.8 RI

676 Iron/steel bars/rods/etc 1.3 1.4 3.4 7.8 5.7 7.8 5.2 5.0 RI

677 Iron/steel railway materials 0.0 0.0 0.0 0.0 0.0 0.1 0.2 0.0 RI

678 Iron/steel wire 1.7 4.3 8.2 7.2 3.1 0.9 0.7 0.4 RI

Total above 6.0 17.0 22.5 36.2 16.0 11.3 7.6 7.2

Share in exports of iron and steel 3% 13% 15% 17% 7% 5% 4% 3%


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In contrast to products from other sectors of the economy where the loss of comparative advantage was

associated with falling exports of the sector as a whole,45 the iron and steel sector stands apart as a

success story. The weak export performance and the loss of comparative advantage have been limited

to selected products. Exports of other products of this sector have more than offset the contraction in

sales of steel products listed separately in Table 33. Since 2003, Zimbabwe’s exports of iron and steel

(SITC. 67), taking advantage of the boom in prices in world markets, have been growing fast, albeit

erratically. They leaped 46 percent in 2004 and 42 percent in 2008 and contracted 4 percent in 2007: in

other years, annual growth rates were between 14 percent in 2003 and 2 percent in 2006. With exports

worth of US$308 million in 2008, the share of iron and steel products in total Zimbabwe’s increased

from 8 percent in 2003 to 15 percent in 2008.

But developments in exports of iron and steel are not an unambiguous success story. It has been driven

exclusively by foreign sales of other ferro alloys (SITC. 6715). Their share in total exports of iron and

steel products increased from 82 percent in 2003 to 97 percent in 2007 and 98 percent in 2008 (Annex

Table 7). This spectacular rise was not only the result of an increase in exports, although their value

almost tripled (2.6 times) in 2008 over 2003. This was also the result of falling exports of other iron and

steel products: their aggregate value fell from US$38 million in 2004 to US$31 million in 2006 and US$7

and US$6 million in 2007 and 2008, respectively. The number of subsectors with exports exceeding US$1

million fell from seven in 2004‐05 to four in 2006 and two in 2007‐08.

While, without an up‐to‐date industry‐oriented study, it would be difficult to draw any definite

conclusions about broader implications of this increasing reliance on a single product, these

developments raise concerns about the future sustainability of the iron and steel sector in Zimbabwe.

They may imply growing obsoleteness and falling competitiveness of many steel plants starved of

investment and access to modern technologies. Whatever the explanation, this is an another indication

of the growing concentration of Zimbabwe’s exports.

The case of products whose values of RCA exceeded unity in the 2000s is not only less ambivalent but

their aggregate values of exports are considerably lower than those of ferro alloys.

Yet, these products are of interest as they may point to a future evolution of Zimbabwe’s exports

basket. There are 16 triple‐digit SITC product groups, which represent specializations developed in 1997‐

2008 and retained in 2008. Data on these exports and their technological content are tabulated in Table

34. Several observations can be derived from eyeballing the data. First, while there is significant

variation in rates of growth of individual product groups in 2002‐08, total exports in this group have

grown very rapidly since 2002: their LSG growth rate was significantly larger than that of total exports

with their share in total exports having had more than doubled since 2002 and almost tripling since

1997. There are two exceptions: textile yarn (SITC 651) and pearls and precious stones (SITC 667).

Despite a sluggish growth performance, they retained comparative advantage as the share of world

imports of these products in total world imports fell more than their respective shares in Zimbabwe’s

total exports.

45 The decline of exports of furniture furnishing (SITC. 821), and associated loss of comparative advantage, was experienced by all other major products of this sector. Exports of furniture (SITC. 82) peaked in 2005 at US$23 million and fell to US$11 million in 2007 and US$8 million in 2008 (partners’ data in the UN COMTRADE database).

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Second, these new entrants with values of RCA indices above unity do not necessarily signal any serious

reshuffling in the composition of Zimbabwe’s exports. The largest increase in exports was recorded by

medium‐ to high‐technology intensive products, albeit from a very low level and those relying on

resource intensive activities continue to tower over other product groups. This is a rather surprising

development, which resulted from a sudden surge in exports of ceramic plumbing heating fixture (SITC

8122) from US$14 thousand in 2007 to US$11.4 million in 2008. Considering that sales of these products

averaged US$50 thousand over 1994‐2007 and only once exceeded US$100 thousand in 2001

(US$112,000), its exports in 2008 were either a statistical error or some new investments. Neither did

statistical services of South Africa nor customs in the EU report imports of SITC 812 products over 1994‐

2008. The latter reported imports of non‐electric boilers (8121) to the tune of US$2 million in 1999 but

nothing in other years. South Africa reported these imports only in 2001 and 2006 worth US$13.5

thousand and US$4.1 thousand respectively. Hence, it seems to be a statistical misinformation as no

new investments have been made in this industry. If this was indeed the case, then resource intensive

exports had the best performance: their share in ‘rising’ exports increased from 51 percent to 67

percent and that of low technology labor intensive products fell from 49 percent to 33 percent in 2002‐

08.

Table 34: Exports of three‐digit SITC sectors that acquired revealed comparative advantage in 2007‐08 (in millions of US dollars in 1997 and 2002‐08)

SITC 1997 2002 2003 2004 2005 2006 2007 2008 LSG 02‐08

Tech cont.

025 Eggs in shell 0.4 2.1 2.3 3.4 3.9 3.6 20.6 3.4 21.3 LTL

059 Fruit/vegetable juices 0.3 0.8 0.4 0.4 0.8 2.9 2.7 2.3 31.7 LTL

062 Sugar confectionery 0.6 2.9 2.2 3.0 3.6 4.2 4.1 2.2 2.7 LTL

081 Animal feed 4.6 4.8 2.0 4.0 4.1 2.2 5.7 8.7 11.7 LTL

222 Oil seeds etc ‐ soft oil 5.6 1.1 0.3 0.9 1.4 1.1 1.0 13.1 37.2 LTL

247 Wood in rough/squared 2.4 2.6 1.9 1.6 1.7 2.2 2.9 3.1 6.2 RI

261 Silk 0.0 0.0 0.0 0.01 0.0 0.0 0.0 0.2 21.9 RI

283 Copper ores/concentrates 1.2 9.2 3.4 11.2 12.1 33.0 26.9 23.2 28.7 RI

287 Base metal ore/concentrates 1.3 3.5 0.5 0.6 0.5 0.7 11.8 14.6 38.9 RI

512 Alcohols/phenols/derivatives 0.8 4.5 4.5 3.2 6.6 6.4 9.4 7.5 13.3 RI

642 Cut paper/board/articles 3.0 4.7 9.8 5.9 9.0 10.4 8.1 10.2 9.9 RI

651 Textile yarn 12.6 15.0 12.1 16.3 11.1 15.1 13.4 8.5 ‐5.7 LTL

667 Pearls/precious stones 1.1 0.3 0.9 0.1 0.8 1.1 0.2 0.1 ‐15.7 LTL

682 Copper 12.3 1.8 2.0 5.6 29.2 44.3 51.4 21.2 56.7 RI

691 Iron/steel/aluminum structures 0.3 2.2 1.9 2.1 2.2 3.5 3.7 8.1 21.1 RI

812 Sanitary/plumb/heating fixtures 0.1 0.1 0.2 0.0 0.0 0.0 0.0 11.4 47.8 MHT

TOTAL ABOVE 47 55 44 58 87 131 162 138 21.9 Share in total exports 2.2 3.2 2.4 3.1 4.4 6.0 6.8 6.5


Third, despite a weak growth of low technology, labor intensive products, the level of processing

embodied in ‘newly’ specialized products appears to have increased. The share of traditional inputs fell

from 76 percent in 2002 to 65 percent in 2007 and 67 percent in 2008. The largest exports of low

technology labor intensive products were in oil seeds: its exports increased from an average of around

US$1 million in 2002‐07 to US$13 million in 2008.

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3.7. Conclusion Zimbabwe’s exports were, on the one hand, “frozen in time” and, on the other hand, underwent huge

transformation as a result of the collapse of agricultural production and the lack of new investment

activity. They remained “frozen” only in terms of the degree of processing embodied in exports. With

exports of agricultural products falling and industrial raw materials expanding, the share of low

processed primary inputs—the total of agricultural and mineral exports—has remained largely

unchanged. So has the share of other end‐use product groups.

But on all other counts, almost a decade of economic decline has transformed Zimbabwe’s foreign trade

not only in terms of its geographic pattern but also in terms of its composition with significant

implications. On the import side, the level of processing embodied in this trade has fallen. The share of

resource‐ and unskilled labor‐intensive products has increased while imports of medium‐ to high‐

technology intensive products have fallen. So has the share of non‐agricultural consumer goods. Both

are indicative of falling standards of living and depressed investment activity. On the export side, the

shift from agricultural to mineral products has amounted to a shift from unskilled labor, low technology

intensive activities to capital and natural‐resource intensive activities significantly suppressing demand

for labor in the economy and contributing to unemployment.

To sum up, the main conclusions drawn from the empirical analysis may be summarized as follows:

First, the level of processing embodied in Zimbabwe’s exports has remained unchanged since

1994. The share of primary inputs has remained at slightly below three‐quarters of total exports

independent of their levels;

Second, exports of foods and feeds, iron and steel and consumer goods were the main levers of

export growth during the growth phase in 1994‐97 but the picture changed during the period of

export recovery in 2003‐2007 in two important respects: first, food and feeds contracted, and

second, consumer goods ceased to be a driver in terms of exports in current prices;

Third, except for iron and steel, positive net exports across all end‐use product categories have

been falling. Not surprisingly, the largest decline has been in food and feeds and industrial raw

materials.

Fourth, factor and technology content changed with resource activities raising to prominence at

the expense of falling exports of low‐tech, unskilled labor intensive products.

Fifth, the gamut of products exported to South Africa has narrowed and revealed comparative

advantage shifted away from labor intensive products.

Sixth, the shift away from agricultural products has been dramatic with negative impacts on

employment and poverty reduction.

In all, developments in foreign trade in the 2000s have also created a huge gap between Zimbabwe’s

endowment of skilled and disciplined labor and its revealed comparative advantage shifting towards

natural‐intensive minerals.

Yet, a detailed analysis of exports suggests that not all producers of labor‐intensive goods have been

wiped out. Against the background of lackluster export performance and falling diversification in export

offer, there are some bright spots rising hope Zimbabwe’s export offer may move more in line with its

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endowments with a large pool of cheap and relatively well skilled labor force. There are 16 triple‐digits

SITC product groups, which represent specializations developed in 1997‐2008 and retained in 2008.

While their aggregate exports remain relatively low, they contribute significantly to employment.

Whether they expand in years to come, it will hinge critically on improving business climate together

with foreign trade regime. The importance of the latter has become critical since the largest barrier to

foreign trade has been removed with the switch to “dollarization” and “randarization” of the economy

in early 2009. These are the issues addressed in the next chapter.

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4. Moving forward: how to revive exports? Zimbabwe’s foreign trade performance has been lackluster from the perspective of both its past

performance and that of its neighbors. This has not been the result of adverse external developments as

these were highly favorable 1994‐2008, so disappointing export performance has been exclusively

home‐grown. Exports, most negatively affected, were agricultural and simple industrial products.

Exports of these low technology, labor intensive products have been consistently declining since 1997.

They have been largely responsible for Zimbabwe’s disappointing overall exports performance. While

large mining and farming (tobacco) operations tend to be more immune to unfriendly business climates,

small scale agricultural and industrial activities are highly sensitive to ill‐designed economic policies and

falling quality of economic governance.

Their impact has been particularly visible in terms of Zimbabwe’s export performance in the South

African market. Consider the following: First, falling exports of small scale agricultural and industrial

products have shaped Zimbabwe’s export profile there. The number of products with comparative

advantage has dramatically contracted with the largest losses incurred by products characterized by

high to medium technology and low technology labor intensive intensities. Zimbabwe’s export basket

has become extremely concentrated exceeding the levels of concentration in Zimbabwe’s exports to the

EU. It has also become similar in terms of revealed profiles of export specialization increasingly limited

to a falling number of natural resource‐intensive products.

Second, South African‐destined export expansion has also revealed supply limits to Zimbabwe’s natural

resource‐intensive sectors. Except for industrial raw materials, the values of other exports to South

Africa in terms of end‐use in 2008 were either below their values in 1996 or less than US$1.5 million

above (steel and iron by US$1.4 million, fuels by US$1.3 million and machinery by US$0.9 million). The

value of exports of foods and feeds was US$50 million below the value in 1996. Despite the fall in

agricultural exports, the share of industrial raw materials intended for further processing increased to 92

percent in 2008 from 56 percent in 1996. Hence, minerals, iron and steel and other industrial raw

materials have been the levers of export expansion to this market.

Third, the expansion of South Africa‐destined exports appears to have been at the expense of exports to

the EU and have not led to an increased presence of Zimbabwean exporters in the world market. The

share of South Africa in total Zimbabwe exports increased from around 10 percent at the turn of the

century to 37 percent in 2008 while over the same period the share of the EU fell from 16 percent to 7

percent. Yet, the share of Zimbabwe in South African total imports contracted in 2008 to the level

preceding its South Africa export boom in 2001‐07. Zimbabwe has also failed to increase its export

presence relative to other suppliers in other neighboring markets as well as in the EU, its historically

largest market.

Zimbabwe’s foreign trade performance can be explained in terms of a contracting supply base as a result

of ill‐designed policies and political instabilities. Foreign trade policies and institutions have been largely

irrelevant to the outcome. Even the best policies would have failed to elicit a supply response in the

absence of a friendlier business climate and political instabilities. International experience demonstrates

that improvements in trade policy are only effective when supplemented by improvements in the

business environment. This should not suggest that barriers to foreign trade, as exemplified by very high

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transaction costs of conducting foreign trade operations in Zimbabwe, should not be addressed and

removed but indicates that their impact on foreign trade would be limited unless other barriers

restraining a supply response are also removed.

These comments notwithstanding, steps should be taken to streamline and lower the transaction costs

of foreign trade while simultaneously taking measures to remove barriers faced by the private sector in

moving towards higher levels of processing of domestically available natural resources and agricultural

foods and feeds.

Three sectors have traditionally underpinned Zimbabwe’s external performance: agriculture, mining,

and tourism. While developments in 1999‐2008 have undercut each of them, they are not completely

wiped out and some have survived in better shape than others. By the same token, the capacity to

recover also varies across them with mining probably being the easiest to revive. Agriculture and

industries based on agricultural inputs appear to have been the largest loser of all of them. Yet, with the

right policies in place, all can be rebuilt relatively quickly.

Reviving exports of labor intensive products is critical for Zimbabwe to enter a path of sustained

economic growth. The alternatives are high unemployment, poverty and a high level of aid dependence,

as sales of minerals, including diamonds, may not generate sufficiently large earnings to pay for rapidly

growing imports. The purpose of this chapter is to take stock of the issues to be addressed in the context

of the earlier findings of this study.

In contrast to a lot of other developing countries, Zimbabwe’s developmental challenges can be

addressed by measures that are relatively cost free in economic terms and could be implemented

quickly, provided the government is genuinely committed to a pro‐growth agenda. The potential for

growth derives not only from Zimbabwe’s rich endowments in natural resources, human capital and

geographic location but also the fact that the economy has been suppressed by government policies

neither external nor domestic physical constraints. Zimbabwe has several assets. Its labor force is

among the most educated in sub‐Saharan Africa and, as the experience of Zimbabwean emigration

shows, one of the most disciplined and hard working. Its natural environment is not only attractive to

tourists but also uniquely suited for agricultural production. Its fertile soil, water and climate are highly

favorable to agricultural production and once made Zimbabwe one of the largest net exporters of foods

and feeds in Africa. It is also amply endowed in mineral resources including recently discovered

diamonds. Despite being landlocked, it has access to high quality infrastructure in neighboring South

Africa. In a nutshell, Zimbabwe has a solid ‘hardware’ for economic development.

While in some sectors of the economy this potential can be relatively quickly activated by the removal of

policy‐induced barriers to economic activity, in other sectors—staved off capital investment for many

years—this will take time and will require foreign investment and technology. While we do not have

reliable data about capital formation, many indicators suggest that the level of investment has been

very low for the last decade or so. FDI inflows have been negligible: the total amount invested over

1999‐2008 amounted to US$389 million compared to US$4.5 billion in neighboring Zambia. Although

the FDI inflows more than doubled in 2009 from US$52 million a year earlier to US$105 million, they are

estimated to have fallen to US$85 million in 2010. Another indicator of the investment challenge is

imports of capital equipment excluding motor vehicles; their share in total imports of goods fell from an

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average of 32 percent in 1995‐98 to 22 percent in 2004‐08. While in 1995‐98 the value of these imports

into Zimbabwe was 2.8 times larger than into Zambia, in 2004‐08 these imports were 50 percent lower.

The remainder of this chapter briefly discusses the restoration of macroeconomic stability and its impact

on economic activities as well as implications for foreign trade policy. It also identifies measures that

could improve the business climate, increase investment and boost exports.

4.1. Restoration of macroeconomic stability: its initial impact and the challenge ahead Two events—the Global Political Agreement (GPA), signed on September 15, 2008, and the introduction

of a multi‐currency regime in April 2009—set the stage for the recovery of the Zimbabwean economy.

The former has provided a modicum of political stability, whereas the latter has restored

macroeconomic stability. Dropping the domestic currency was not a component of the reform package

except for getting rid of hyperinflation as well as the host of administrative measures earlier introduced

in futile attempts to combat it. Put differently, the quality of the business environment has improved

but only marginally as other barriers that put Zimbabwe at the bottom of several international rankings

have remained in place. There has been no improvement in its investment climate, despite the removal

of some constraints on current business activities (e.g. the removal of surrender requirement, foreign

exchange controls).

While too short a period of time (15 months at the time of this writing) has elapsed since the restoration

of macro‐stability to assess its longer term impact on investment and output, several improvements can

be easily identified. For starters, inflation fell from an astronomical 500 billion percent in 2008 to 3.6

percent year‐on‐year as of August 2010 and its immediate result has been a revival of economic growth.

Zimbabwe’s economy grew five percent in 2009 and the outlook for economic growth—with projected

GDP growth of 5.4 percent in 2010 ‐remains positive. Considering that inflation had not been below

double‐digit rates since the early 1990s and GDP had been falling every year since 1998, these are

remarkable accomplishments.

Second, thanks to restored macroeconomic stability and the removal of ‘anti‐hyperinflation’ measures,

chronic food and fuel shortages experienced in 2008 have completely disappeared. Zimbabwe has now

ceased to be supply constrained: it has become demand constrained as domestic markets have

extended their reach to products that previously were subject to direct government controls. The

removal of direct state controls over foreign exchange, prices of basic commodities and foreign trade

flows have removed perverse incentives and gone some way towards restoring domestic production and

exports, at least those that are less sensitive to the quality of business environment. The volumes of

exports of some minerals, both mining—platinum group metals, gold, nickel, and diamonds —and value‐

added activities such as high carbon ferro chrome, iron and steel products, and agricultural products are

projected to significantly increase in 2010 (Table 35).

The growth in volumes exported is projected to be quite substantial reaching very high levels for raw

sugar and gold. Due to rising prices, increases in the values of exports will be significantly higher than

increases in their physical volumes. The largest price effect will be for copper followed by cut flowers

and nickel. Among agricultural products, tobacco regained in 2010 its traditional top position in

Zimbabwe’s total exports of goods that it lost back in 2004, first to gold and then to platinum group

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metals products, as the volumes of gold exports fell in 2005‐08. The share of tobacco in total exports is

estimated to have reached 20 percent in 2010. In addition to tobacco that recorded strong growth

recently, other encouraging signs of recovery in the agricultural sector are increases in output of maize

and sugar but also indications of increases in the output of agro‐processing. While data for 2009 and

first two quarters of 2010 are still not fully available to assess developments following the switch to

dollars and rands, some food processing companies are reporting increases in sales and profits. The milk

processing firm, Daribord, has announced a 50 percent increase in sales and US$3.1 million profit for the

half‐year. This was made possible by a 30 percent increase of milk production. An impressive

achievement, although the 3.7 million liters per month now produced is still below the domestic

demand estimated at 5.5 million liters.46 In all, agriculture, which contributes 16 percent to GDP, is

expected to grow by almost 19 percent in 2010.47

Table 35: Projected exports of selected agricultural and non‐agricultural commodities in current prices and volumes in 2010 (in percent)

Projected growth in 2010 over 2009 Share in total

Volume Value exports

Flue‐cured tobacco 28% 32% 20%

Sugar raw 85% 90% 3%

Sugar refined ‐75% ‐83% 0%

Flowers 10% 20% 1%

Gold 59% 80% 14%

Platinum Group Metals (PGM) 3% 3% 19%

Diamonds 15% 25% 2%

Copper 5% 156% 1%

Nickel 11% 20% 2%

High Carbon Ferro Chrome 4% 6% 7%

Cotton Lint 0% 0% 9%

TOTAL EXPORTS n/a 21% 79%

Source: own calculations based on data provided by Reserve Bank of Zimbabwe, Harare, August 2010.

Yet, the recovery has so far fallen short of expectations considering both Zimbabwe’s developmental

potential and the depth of the economic contraction experienced over 1998‐2008. While the cumulative

GDP growth rate in 2009‐10 of slightly above 10 percent is impressive in itself, this has to be cast against

the cumulative contraction of 63 percent in terms of real GDP rates over 1999‐2008. Despite projected

export growth of 21 percent in 2010, exports of most major commodities in terms of volume are still

below the levels achieved in the past. Copper, cotton lint, together with platinum group metals and raw

sugar remain the only major products whose exports both in terms of value and volume exceeded in

2009 their respective levels in 2000. Exports of other traditional products were in 2010 around 70

percent below their volumes in 2000‐01 with nickel and flue‐cured tobacco 60 percent below their

respective volumes in these years. There are also signs that the recovery may be faltering as jobs are

being shed and productive capacity remains idle.

46 Madera, Bright. 2010. “Firms struggle to recapitalize.” The Herald Business, Harare, August 18 (B3) 47 According to Business Reporters Bloomberg 08/18/2010, quoted in The Herald, Harare, the agricultural output is expected to grow 20 percent in 2010 driven by tobacco whose production is estimated at around 115,000 tons. This is still more than 50 percent below the 2000 level but almost twice above the output in 2003.

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Indeed, as captured by export data, the contribution of labor intensive activities to total exports does

not appear to have increased following the restoration of macroeconomic stability. The major drivers of

export growth in 2010 remain tobacco and minerals. The share of products listed in Table 35 above is

estimated to be 79 percent in 2010 up from an average of 73 percent in 2006‐08. This means that the

share of other products fell from 27 percent to 21 percent during this period. There is some consolation

due to the fact that the increase of exports of labor‐intensive tobacco has, alone, driven this change: its

share increased from an average of 13 percent in 2006‐08 to 20 percent in 2010.

The key challenge therefore remains in reviving exports of other labor intensive manufactured goods as

well as exports of natural‐resource products. This is especially important not only for job creation but

also considering that the recovery has triggered increased imports while exports have been falling

behind resulting in growing deficits in the balance of trade. Although export earnings are projected to

increase to US$1.9 billion in 2010 from US$1.59 in 2009, imports are expected to grow even stronger

from US$3.2 billion in 2009 to US$3.9 billion in 2010. So the trade deficit is projected to grow 24 percent

in 2010 from US$1.6 billion to US$2 billion. Ultimately, sustaining expanding import demand calls for a

significant expansion of exports of goods and services.

Since there was little, if any, significant investments into the economy in 1999‐2008, expansion of

exports calls for a radical increase of investment, domestic and foreign alike. Contrary to expectations,

the restoration of macroeconomic stability in 2008 has so far had no impact on FDI inflows as the fears

of property confiscation under the Indigenization and Economic Empowerment Act of 2007 have likely

discouraged foreign investors from getting engaged into investment activities in Zimbabwe. Uncertainty

created by the Indigenization and Economic Empowerment Bill of 2007 remains an effective barrier to

both domestic and foreign investments.

Time works against any delay in modernizing industrial capacities. As was shown earlier, some export

capacities in agro‐business and the agricultural sector appear to have survived both hyperinflation and

the policy shift from wealth creation to wealth confiscation and redistribution in the 2000s. They appear

to have somehow withstood adversities of the economic environment. Although net exports have

dramatically fallen, exports still exceed imports and some capacities can be restored as they were likely

temporary victims of hyperinflation, the wrongheaded exchange rate policy, and other direct state

controls. Indeed, the largest decline took place in 2005‐08: surpluses were between US$800 and US$1.1

billion in 1994‐2002, fell to around US$0.7 billion in 2003‐04, about US$0.4 billion in 2005‐07, and

US$150 million in 2008. With the passage of time, some of these capacities still existing in the processed

food sector but may still be inadvertently wiped out. Considering high unemployment and the fact that

the importance of this sector stems not from its contribution to foreign currency earnings but to

employment creation, it would be a great loss to the country’s welfare if they did.

4.2. A new setting for foreign trade policy: implications of the multicurrency regime The restoration of macroeconomic stability that has come with the dumping of the domestic currency

has created new challenges for enhancing competitiveness of Zimbabwe’s products in international

markets. The increased exposition of domestic firms to competition from imports calls for an overhaul of

various regulations that unnecessarily increase transaction costs and reduce incentives to invest by

domestic and foreign firms alike. The hassle cost of doing business or investing in Zimbabwe towers over

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other impediments to expanding exports that is needed to put Zimbabwe back on a path of sustained

economic growth based on the best use of its unique endowment of natural resources and human

capital.

The introduction of the multi‐currency regime in April 2009 has drastically altered the parameters

underlying the conduct of foreign trade operations and the overall thrust of foreign trade policy simple

because getting rid of the Zimbabwean dollar has also automatically removed exchange controls as well

as put an end to confiscatory taxes on exports, that is, surrender requirement on export earnings.48

During the tumultuous years preceding the dumping of the Zimbabwean dollar, imports became

increasingly subject to control through non‐trade measures (IMF 2009). While duties and various border

charges might have raised the prices of imports, this was of little relevance for two reasons. First, with

constant devaluations of the Zimbabwean dollar, imports became more and more expensive. The

devalued currency provided protection unmatched by tariffs or NTBs: the Zimbabwean dollar (Z$)

quickly lost value throughout the 2000s. In May 2002, one US$ was equal to Z$350, by the end of July

US$1 would command Z$600 and on December 20, 2002, the exchange rate was Z$1,350. The pace

accelerated subsequently and in May 2007 the exchange rate reached Z$60 million (Sandawana 2008).

This alone created barriers to imports. Second, imports of many goods were indirectly controlled by the

state through the direct allocation of foreign exchange or offering preferential exchange rates for some

purchases abroad. In a nutshell, successive devaluations and foreign exchange controls made foreign

trade policy tools irrelevant in shaping flows of imports.

Yet, three things have not changed: the large share of customs revenues in total government revenues;

commitments related to participation in regional trade agreements; and continued instability of tariff

policy. They remain constant fixtures of Zimbabwe’s economic landscape. Taxes and border charges

collected by customs at the border still remain a very important source of government revenue.

Revenue from customs duties levied on imports amounted to US$132.8 million or 14.3 percent of

government revenue in January‐June 2010 down from 31.5 percent in the same period in 2009 (MoF

2010). The decline in the share was simply due to the surge in revenue from other taxes triggered by

economic recovery and improved collection. Hence, revenue considerations are likely to remain an

important factor in shaping future tariff policy.

The freedom in setting tariffs is restricted by bilateral PTAs (preferential trade agreements). Zimbabwe is

party to a host of PTAs of which the most comprehensive are the SADC Trade Protocol and the COMESA

free trade area. Before these went into effect, Zimbabwe also signed and implemented bilateral trade

agreements with Botswana, Malawi, Namibia, and South Africa (Gilson 2010). According to an official

Zimbabwe Government document (MoF 2010),49 goods originating from the COMESA and SADC

48 Although this was a commendable decision, it was flawed. Instead of two currencies, which is reminiscent of running concurrently gold and silver, one currency should have been chosen as an official means of payments. The introduction of two currencies creates problems if their respective exchange rates move in different directions vis‐à‐vis each other. The appreciation of a currency triggers hoarding of this currency. Weaker currency pushes stronger one from circulation. 49 “The Free Trade Area Protocols provide for duty free importation of goods from COMESA and SADC Member states, provided such goods meet the set criteria on the rules of origin” (MoF 2010, p. 172).

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Member States are imported duty free. Since preferential partners account for around three‐quarters of

Zimbabwe’s total imports, this implies that only one quarter of imports is subject to tariffs.

Yet, PTAs do not seem to be a binding constraint. First, in fact, not all imports originating in preferential

partners appear to enter Zimbabwe duty‐free as there are exemptions listed as sensitive products. The

list is extensive encompassing almost all sectors of the Zimbabwean economy that have been engaged in

exports. Sensitive products account for between 22 percent and 39 percent of total imports excluding

minerals, i.e., industrial raw materials.50 Their share in total imports has significantly decreased since

2002 when it was almost 40 percent. Their contraction reflects falling agricultural output as sensitive

products are mostly agricultural products (Table 36).

Table 36: Zimbabwe’s exports and imports of sensitive agricultural and non‐agricultural products in 2002‐09 (in percent)

Zimbabwe's imports (in percent)

2002 2003 2004 2005 2006 2007 2008 2009p

Agricultural products 54 48 47 79 48 50 60 81 Non‐agricultural products 46 52 53 21 52 50 40 19

Share in total imports 5 5 3 8 3 3 4 6

Zimbabwe's exports (in percent)

Agricultural products 95 97 97 96 95 98 98 99 Non‐agricultural products 5 3 3 4 5 2 2 1

Share in total exports excluding industrial raw materials 39 34 26 20 17 23 21 22

Note: ** 2009 data is very preliminary estimates due to some countries reported to UN COMTRADE System late or still missing values (at least 10% below at expected world level). Source: Based on mirror data from UN COMTRADE Statistics.

Second, even imports of non‐sensitive products originating from preferential trading partners do not

appear to be spared from tariffs even, in one case, exceeding a corresponding applied MFN tariff rate.

As of August 1, 2010, the government raised tariff rates on “selected finished products from the SADC

region” (MoF 2010, p. 174). While the preferential rates on five eight‐digit CN products were increased

from 0 percent to the MFN tariff rates on these goods ranging between 15 percent and 20 percent ad

valorem, the tariff rate on SADC‐originating imports of other food preparations (CN 2106. 9090) was set

at 10 percent whereas imports from MFN sources pay a tariff of 5 percent ad valorem. This is a unique

case of reverse discrimination going afoul.

Another element of Zimbabwe’s foreign trade regime is the lack of stability in its tariff policy. Tariff rates

are often changed: interestingly, changes go in both directions as some tariff rates are increased and

others reduced. Since the introduction of the multi‐currency regime, all customs duties in Zimbabwe are

now levied in foreign exchange only. Partly as a result of this, tariff rates have generally been reduced

across the board, although the Zimbabwean authorities have recently taken steps to re‐establish import

duties on the list of basic commodities for which revenue collection has suspended since 2008 under the

Short Term Emergency Recovery Program. Needless to add, some modicum of stability and

predictability of changes is important for investment and other business decisions.

50 Although one might ponder over the wisdom of protecting internationally competitive sectors, note that their share in total exports has been falling since at least 2002. This suggests the loss of competitiveness in activities in which Zimbabwean producers have comparative advantage. Hence, as a measure supporting reconstruction, it does not raise much concern.

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The adoption of US dollar or rand has had benefits and costs relating to foreign transactions. Benefits

include enhanced macroeconomic stability and lower country risk; lower transaction costs for firms;

elimination of exchange rate risk cancelling the related premium in domestic interest rates; and stronger

competition. The downside is the loss of the ability to use interest rates and the exchange rate for

macroeconomic stabilization purposes, which, in the case of an asymmetric shock can lead, all else

equal, to higher variability in output and employment. With the formal ‘dollarization’ of the economy,

trade policy is now the only line of protection for domestic producers as there is no resort to

devaluation or revaluation of the domestic currency. World prices are directly transferred into the

economy. A sharp appreciation of the US dollar against the currencies of Zimbabwe’s regional trading

partners may undercut competitiveness of Zimbabwean firms vis‐à‐vis other regional producers in

regional markets and make imports from local partners cheaper, possibly putting domestic industries

under stress.51 In response, these industries may lobby the government officials for protection from

competing imports. On the other hand, the effect of a falling US dollar may be offset by Zimbabwe’s

partners’ devaluing their currencies, although devaluations are unlikely to be introduced to erode the

competitiveness of Zimbabwean imports.

Hence, the adoption of the US dollar is likely to lead to a growth in foreign trade thanks to the

combination of lower transaction costs, disappearance of exchange rate risk, and increased price

transparency. But at the same time, it may lead to increased shopping for protection as a weak domestic

currency can no longer offer protection from competition from imports. This calls for considerable

improvements in Zimbabwe’s business climate to lower the cost of trade and increase competitiveness

rather than ad hoc trade policy interventions as exemplified by the recent introduction of a 15 percent

duty on exports of chrome ores and fines ostensibly designed to increase value added.52

In other words, the benefits of the multiple‐currency regime will not come by default. Moreover, their

attainment only marginally depends on foreign trade policy, although ad hoc protectionist measures

raising transaction costs may prevent their coming to fruition.

As for transactions costs, Zimbabwean firms face high formal barriers to doing business including those

associated with foreign trade that are not so much related to weak infrastructure but stem from

burdensome regulations.53 As such these could be quickly addressed and removed. Zimbabwe has one

of the highest hassle costs of doing business related to its regulations. In trading across borders,

Zimbabwe was ranked 167th out of 183 countries or 11 ranks below the average for its neighbors and its

ranking is the lowest among comparators in 2009. Since regional benchmarks are not very demanding in

terms of transaction costs associated with foreign trade activities, Zimbabwe’s performance offers

plenty of space for improvement.

51 The case in point is the loss of market share of Argentina’s exporter to those from Brazil, its preferential trading partner from Mercosur in the late 1990s and early 2000s: under the pressure of balance of payments crisis, Brazil devalued its currency whereas Argentina was on a currency board with the US dollar as an anchor, which strongly appreciated at the time. 52 This measure reflects negatively upon the quality of business environment: in countries where capital flows freely to the best use, this type of tax is not only counterproductive but also redundant, as the international experience amply demonstrates. 53 For a detailed discussion, see Appendix 2.

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Zimbabwe’s low ranking in terms of exploiting opportunities offered by foreign trade‐led economic

development stems not from its geographical location but self‐inflicted policy‐induced costs. Zimbabwe

has the third highest cost to import and to export in the world after Chad and Central African Republic.

While it would be tempting to associate these high costs with those associated with transportation,

exacerbated by the lack of direct access to cheaper maritime transport, being landlocked is only part of

the explanation as Botswana, Malawi, Rwanda and Zambia, which are also landlocked, have lower costs

of both imports and exports Both exporters and importers from Zimbabwe need significantly more time

to complete both export and import transactions: they also spend more money.

The barriers are therefore more policy rather than physically ‐induced. Bureaucratic procedures

consume more time than dealing with infrastructure‐imposed or technical constraints while the latter

account for most of the total transaction cost incurred by exporters and importers alike. Meeting

bureaucratic requirements accounts for the bulk of the time needed to complete both export and

import transactions.

Lower infrastructure‐related costs in Zambia than in Zimbabwe raise suspicion that they are under‐

stating the latter since Zambian exports often transit Zimbabwe. But this does not seem to be the case,

as shipments from Zambia can also go directly to ports in Mozambique by‐passing Zimbabwe altogether.

Furthermore, the cost of delivering shipments and getting them ready for shipping by sea for Malawi’s

firms is much lower than for firms in Zimbabwe: the cost of ports and terminal handling and inland

transportation is US$1,240 for Malawi as compared with US$2,800 and for imports it is US$2,140 against

US$4,349.54 In all, foreign trade transaction costs of Malawian firms are roughly half of what their

Zimbabwean counterparts have to pay (Appendix Table 10).

Hence, geography and infrastructure are not huge barriers to foreign trade but governance is and the

main reason why the Zimbabwean economy is unable to fully tap opportunities offered by global

markets. Within governance, the crucial issue is that the government lacks credibility in protecting

private property rights.

4.3. Expanding the export base calls for new investments but barriers persist Expanding exports seems to be one of the most pressing tasks if Zimbabwe is to avoid an aid‐

dependency trap and enter the path of sustained economic growth. Taking into account the swing in its

foreign trade balance in goods from historically a traditional surpluses (including surpluses on the

current account) to deficits beginning in 2006 and increasing each year over 2007‐10, the challenge

facing policy makers is to find ways of financing ‘excessive’ imports of goods and therefore current

account deficits.55 Leaving aside foreign borrowing, assistance and slashing imports, which would

undercut economic growth, this can be achieved by expansion of exports of goods and services as well

as by attracting FDI inflows. The latter, if not lured by special concessions and political deals, may boost

exports of both goods and services by supplying capital and know‐how.

54 This is also surprising that, as Gilson (2010) notes, trucks registered in Zimbabwe and in South Africa are allowed on a reciprocal basis to transport goods between two other countries even if the third country is used as a point of transit. 55 The Reserve Bank of Zimbabwe projects the current account deficit of US$1,363 million and of goods foreign trade of US$1,765 million in 2010. The corresponding deficits in 2009 were US$928 million and US$1,622 million.

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While in publications and discussions of Zimbabwe low capacity utilization is a dominant theme, the crux

of the matter is not excessive capacity but rather its absence. Lack of maintenance and investment has

resulted in a significant reduction in electricity generation capacity, collapse of water supply, and major

disruptions to railway services. The contraction in the volumes of exports of capital‐intensive mineral

products points to many mines being undercapitalized. Judging also by the significant decrease in

diversity of Zimbabwe’s exports as measured, among others, by the number of exported goods

exceeding US$1 million, many firms have either disappeared or limited their sales to domestic markets.

So it is clear that without infusion of new investment Zimbabwe’s exports capacity will simply not be

rebuilt.

Yet, some sectors probably can rebound even without significant investments or improvements in the

business climate. As was argued earlier (see Section 3.3), some export capacity in agro‐business or the

agricultural sector appear to have survived adverse economic policies. Agro‐business still appears to be

alive: several developments point also to the potential for sustained growth. Although net exports have

dramatically fallen, exports still exceed imports and some capacities can be restored as they were likely

temporary victims of hyperinflation, wrongheaded exchange rate policy, and other direct state controls.

Indeed, the largest decline took place in 2005‐08: surpluses were between US$800 million and US$1.1

billion in 1994‐2002, fell to around US$0.7 billion in 2003‐04, about US$0.4 billion in 2005‐07, and just

US$150 million in 2008. Preliminary estimates suggest that they increased in 2009. Although significantly

depressed, some investments have still taken place in Zimbabwe’s mining and industrial sector offering

hope for a relatively quick rebound. Furthermore, diamonds, whose extraction does not require

significant capital outlays, from the Marange field could reportedly generate output worth U$1.7 billion

a year.56 If this happens and the Kimberley Process requirements are satisfied, this would almost double

the value of projected total exports and close the deficit in goods trade in 2010. This would be mixed

news as it would reduce pressures for economic reforms which are indispensable to increased

employment and sustained economic growth.

Similarly, a significant increase in tobacco output could also be achieved without large investments.

While the policy of confiscation of commercial farms “… is likely the main reason that maize production

fell by three‐quarters” (Clemens and Moss 2005) in 2000‐04, other factors also contributed to the

contraction. These include inflation and monopolistic powers of the state‐run Grain Marketing Board

designated as the sole buyer and distributor of meat and wheat as well as a price‐setter in Zimbabwe.

With prices of all other goods increasing faster than prices set by the Grain Marketing Board,

profitability of growing maize fell and farmers shifted to crops that were not subject to state price

controls. Hence, production of maize should expand now macroeconomic stability has been restored.

Indeed, this has already happened as exports increased 28 percent in terms of volume and 32 percent in

2010 (see Table 35 above in Section 4.1): the amounts involved are still, however, almost 60 percent

below the 2001 level indicating a large scope for improvement.

But other industries as well as mining need much more substantive capital outlays in order to address

years of neglect and under‐investment. Those firms that have survived the economic chaos of 2000‐08

are in desperate need of modernization. But barriers to achieve this goal are significant. For starters,

56 See http://www.bbc.co.uk/news/business‐10945366 accessed on August 11, 2010.

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despite some improvements and greater political stability, Zimbabwe remains one of the worst

countries in the world in terms of the quality of economic governance and hassle cost of doing business.

While large firms may find ways to navigate murky waters of doing business there small firms—critical

to reducing persistently high unemployment rates—experience many more difficulties. As compared to

its neighbors, Zimbabwe’s taxation regime stands out as being particularly oppressive (for a detailed

discussion, see Appendix 3): while this may be of little relevance to mining companies, although it often

is,57 it is potentially a huge barrier to small businesses often engaged in low‐technology, labor‐intensive

activities. But this should not suggest that a reform should be confined to the taxation regime. What is

badly needed is an overhaul of the existing economic regime and policies.

Second, the single largest obstacle to economic recovery is the Indigenization and Economic

Empowerment Act of 2007, whose administrative implementation framework, i.e., Indigenization and

Economic Empowerment regulations, were issued in 2010. They identify sectors where only ‘formerly

disadvantaged Zimbabwean citizens” are allowed to operate and those where they have to have equity

in both existing and future commercial and industrial establishments. As chairman of Zimplats, which—

with US$1 billion invested over 2002‐10—is by far the largest foreign investor in Zimbabwe,

emphatically stated in his expose to shareholders:

“The Indigenization and Economic Empowerment Regulations that provide the administrative framework

for the implementation of the Indigenization and Economic Empowerment Act were gazetted during the

year. As shareholders are aware, this act seeks to ensure that all companies operating in Zimbabwe are

majority owned by local Zimbabweans. It is important for me to highlight that your board understands the

need for and fully supports the meaningful involvement of Zimbabweans in the country’s economy. It is

however our firm belief that at this time, Zimbabwe’s greatest need is for increased levels of foreign

direct investment to create more employment in the country. We therefore urge the authorities to

implement this law in a way that does not compromise Zimbabwe’s desire to be seen as a preferred

investment destination.” (Zimplats 2010, p. 5).

The Act, among other actions, is responsible for the government’s lack of credibility among investors,

foreign and domestic alike. With investors remaining skeptical about the evolution of the political

situation since the coalition government took office in February 2009, it should come as no surprise that

FDI inflows remain negligble. As Zimplats’ annual report diplomatically asserts, “international investors

and the donor community whose support is critical for the country’s economic recovery remain skeptical

of the political processes that have been underway for the past 18 months, as evidenced by the lack of

funds flow” (Zimplats, p. 6),

But the Indigenization and Economic Empowerment Act not only effectively keeps foreign investors at

bay, it also discourages expansion of domestic firms and leads to capital flight and transfers of profits

abroad. Uncertainty about ownership status pushes firms to reduce their operations in Zimbabwe to a

minimum.

Uncertainty created by the Indigenization and Economic Empowerment Bill together with capital

scarcity bodes ill for the prospect of re‐industrialization of the Zimbabwean economy. Businesses

complain that real interest rates even on short‐term loans running at double‐digit levels raise the bar of

57 See Zimplats 2010

82 | P a g e

profitability extremely high. Furthermore, longer‐term loans are almost impossible to secure. The

combination of the absence of collateral and lax enforcement of private property rights by the judicial

system appears to be one of major reasons for the high cost of capital there.

=Expanding the exportbase calls for new investments. But as long as the investment climate is not

overhauled, these investments will not come. And without them, the prospects for a significant increase

in exports are doomed to failure.

4.3. Conclusion While a decade of economic chaos has exacted a heavy toll on Zimbabwe’s industries, the problem is

that policy changes introduced so far have done little to address major weaknesses in the business

climate and remove the threat of confiscation of foreign‐owned firms (or more precisely firms not

owned by formerly ‘disadvantaged people’) by the state. It seems that the government has not taken

advantage of the window of opportunity created by the decision to move to a multiple currency regime

and overhaul its economic regime.58 Instead, the reform package was confined to the removal of

regulations introduced earlier as part of government effort to combat hyperinflation through such

administrative measures as price controls and foreign currency surrender requirements.

The absence of measures that would make the investment environment friendlier to private business

activities will continue hampering the recovery. Except for the removal of some direct price controls, no

steps have been taken to improve the notoriously poor business climate. In contrast to, for instance,

Poland’s stabilization‐cum‐ transformation program from central planning, which included measures

such as liberalizing foreign trade (suspension of import duties together with the removal of other

measures raising the cost of imports and exports) and other regulations relevant to the cost of doing

business, Zimbabwe’s decision to replace its domestic currency with US dollars and the South African

rand was not part of an in‐depth structural reform program that would address weaknesses in its

investment and business climate. Other policy measures that accompanied the abandoning the

domestic currency included price liberalization and discontinuation of the foreign exchange surrender

requirements. Poland’s measures went further and deeper. Exposition of domestic producers to

competition from imports, easy access to imported products and services, and the creation of an

attractive investment climate for domestic and foreign direct investment were all critical to a powerful

supply response and Poland’s entry on the path to sustainable economic growth. These ingredients are

still missing in Zimbabwe’s economic regime, as vividly illustrated by the shift in the composition of

exports towards “big‐items,” whose production has been relatively immune, albeit not completely, to

weaknesses in the business environment.

Reviving private business activity and the concomitant recovery of exports of both goods and services

through measures including the removal of administrative barriers to conducting business operations

and investment, improving government’s capacity to enforce contracts and private property rights and

targeted interventions to increase competitiveness should be a top priority for the government. This

58 Even this decision was flawed, as one currency should have been chosen as an official means of payments. The introduction of two currencies creates problems if their respective exchange rates move in different directions vis‐à‐vis each other. The appreciation of a currency triggers hoarding of this currency. Weaker currency pushes stronger one from circulation.

83 | P a g e

calls for the development of a comprehensive program of economic reforms that would address all

aspects of Zimbabwe’s economic policy regime. Without significantly reducing the regulatory hassle and

fiscal burden of conducting business in Zimbabwe, the revival of labor‐intensive exports will be

impossible. But this is not only needed for job creation but also to alleviate the very real risk that the

country will become even more dependent on foreign aid and continue under‐performing relative to its

significant potential.

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References

ADB 2009: Africa Competitiveness Report, African Development Bank.

Arvis, Jean‐François, Gaël Raballand, and Jean‐François Marteau. 2010. “The Cost of Being Landlocked: Logistics Costs and Supply Chain Reliability,” Directions in Development: Trade, World Bank, Washington D.C.

Baumol, W.J., R.E. Litan and C.E. Schramm. 2007. Good Capitalism, Bad Capitalism and the Economics of Growth and Prosperity. Yale University Press, New Haven and London.

Balassa, Bela. 1965. "Trade Liberalization and 'Revealed' Comparative Advantage," Manchester School 33, pp. 99‐123.

Clemens, Michael and Todd Moss. 2005. “Costs and Causes of Zimbabwe’s Crisis,” CDG Notes, Center for Global Development, Washington D.C.

Collier, Paul. 2007. The Bottom Billion. Why the Poorest Countries Are Failing and What Can Be Done About It, Oxford University Press, Oxford, New York.

Djankov, Simeon, Caroline Freund and Cong S. Pham. 2008. “Trading on Time.” Review of Economics and Statistics, November.

Gilson, Ian. 2010, “Deepening Regional Integration to Eliminate the Fragmented Goods Market in Southern Africa,” mimeo, World Bank, Washington D.C.

IMF 2009: “Zimbabwe: 2009 Article IV Consultation—Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Zimbabwe.” IMF Country Report No. 09/139, International Monetary Fund, Washington D.C., May.

Implast 2009: Mineral Resource and Mineral Reserve Statement 2009, Impala, Rustenburg.

Kaufmann D., A. Kraay, and M. Mastruzzi. 2007. Governance Matters VI: Governance Indicators for 1996‐2007 at http://info.worldbank.org/governance/wgi2007/

Landesmann, M. and R. Stehrer. 2003. “Structural Patterns of East‐West European Integration: Strong and Weak Gershenkron Effects,” in WIIW Structural Report 2003 on Central and Eastern Europe, Vol. 1, The Vienna Institute for International Economic Studies, Vienna.

MoF 2010: The 2010 Mid‐Year Fiscal Policy Review, presented by the Minister of Finance, Hon. T. Biti, Harare, July.

Muñoz, Sònia. 2006. “Zimbabwe’s Export Performance: The Impact of the Parallel Market and Governance Factors.” IMF Working Paper WP/06/28, African Department, International Monetary Fund, Washington DC, January.

Ng, Francis and M. Ataman Aksoy. 2008. "Who are the net food importing countries?" Policy Research Working Paper 4457, World Bank, January.

Power, Samatha. 2003. “How to Kill a Country: Turning a breadbasket into a basket case in ten easy steps—the Robert Mugabe way,” Atlantic Monthly, December.

Raballand, Gaël, Charles Kunaka, and Bo Giersing. 2008. “The Impact of Regional Liberalization and Harmonization in Road Transport Services: A Focus on Zambia and Lessons for Landlocked Countries.” Policy Research Working Paper 4482. World Bank, Africa Transport Department, Africa Sustainable Development Division, January.

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Richardson, Craig. 2005. “How the Loss of Property Rights Caused Zimbabwe's Collapse,” Economic Development Bulletin No. 4, CATO Institute, Washington DC, November 14.

Rotberg, Robert I. and Rachel M. Gisselquist. 2009. Strengthening African Governance: Index of African Governance, Results and Rankings 2009, Cambridge, MA.

Sandawana. 2007. Africae Sandawana 2002—2007, The Sandawana Column, The New Zanj Publishing House, Second Edition, Harare

Stone, J. I. 2001. Infrastructure Development in Landlocked and Transit Developing Countries: Foreign Aid, Private Investment and the Transport Cost Burden of Landlocked Developing Countries. UNCTAD/LDC/112. Geneva: UNCTAD.

Weiner, Dan, Sam Moyo, Barry Munslow, and Phil O’Keefe. 1985. “Land Use and Agricultural Productivity in Zimbabwe,” The Journal of Modern African Studies 23.2., 251‐85.

Winters, L Alan. 1997. ‘The Economics of “Catching up” Revisited’, The Vienna Institute for Comparative Economic Studies, Reprint Series, No. 168, June.

WB 2010: “Note on foreign trade reporting in Zimbabwe: surprisingly decent quality of import statistics,” World Bank, mimeo, April 2010.

WB 2009: Global Economic Prospects 2009, World Bank, Washington D.C.

WEF 2009: Global Competitiveness Report, 2008‐09, Michael E. Porter and Klaus Schwab, eds., The World Economic Forum, Geneva, Switzerland.

Wood, A., and K. Jordan, 2000, “Why Does Zimbabwe Export Manufactures and Uganda Not? Econometrics Meets History,” Journal of Development Studies, Vol. 37, Number 2.

Zimplats 2010: Zimplats Holdings Limited Annual Report 2010, Harare, 2010; accessed on October 23, 2010, available at http://www.zimplats.com/pdf/Ar2010.pdf

ZTA 2008: Tourism trends and statistics annual report. Zimbabwe Tourism Authority, Harare, Zimbabwe.

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Appendix Tables

Appendix Table 1: Imports according to various sources in selected years over 1994‐2008 (in US$

millions and percent) .................................................................................................................................. 90

Appendix Table 2: Mirror imports in percent of official imports: totals and in trade with Zimbabwe in

2000‐08 ....................................................................................................................................................... 91

Appendix Table 3: Exports in official and mirror statistics in 2001‐02 and 2004‐08 (in millions of US

dollars and percent) .................................................................................................................................... 94

Appendix Table 4: Exports in percent of mirror exports in total trade and bilateral trade with Zimbabwe

of Zimbabwe’s major export markets in 2000‐ 08 ...................................................................................... 95

Appendix Table 5: Difference between official and mirror statistics in percent in 2002‐08 ...................... 96

Appendix Table 6: Directions of imports according to official and partners’ imports statistics in 2000‐08

(in percent) .................................................................................................................................................. 97

Appendix Table 7: Trading across borders against overall ease of doing business in Zimbabwe and other

comparator countries in 2010 .................................................................................................................... 99

Appendix Table 8: Formal cost of foreign trading in Zimbabwe and selected SADC countries in 2010 (in

days and US dollars) .................................................................................................................................. 100

Appendix Table 9: Policy and infrastructure‐induced costs of trading across borders in Zimbabwe and its

neighbors in 2010 (in days and US dollars) ............................................................................................... 101

Appendix Table 10: Elements of the cost of cross border trading in Zimbabwe as compared with Malawi

in 2010 ...................................................................................................................................................... 101

Appendix Table 11: Fiscal and administrative burden of paying taxes and contributions in Zimbabwe and

neighboring countries in 2010 .................................................................................................................. 104

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Appendix 1: Note on foreign trade reporting in Zimbabwe INTRODUCTION

The objectives of this note is to perform a standard assessment of foreign trade statistics based on the

data collected by the Customs administration and those collected by Zimbabwe’s trading partners’

statistics (mirror trade statistics). This note shows that Zimbabwe’s authorities have been up to the task

monitoring and reporting across border imports flows while exports have been rather sloppily caught in

respective national statistics.

This finding is quite surprising considering high levels of the incidence of corruption and low level of the

quality of economic governance as perceived by foreign investors and analysts. Countries ranked low in

surveys of Transparency International or the World Bank’s quality of governance usually hugely under‐

report both exports and imports. A decent degree of congruence of official imports/exports and

partners’ exports (mirror imports/mirror exports) to Zimbabwe suggest that smuggling and tax or duty

evasion at the border is rather limited with one caveat. The portion of trade going through unofficial

channels would neither be recorded in a country of origin nor in an importing country. We have no

estimates of this unofficial trade.

The following two observations concerning the use of national trade statistics in analytical work can be

derived from this analysis: First, official imports statistics do not raise any substantive concerns that

would make their use inappropriate. Second, as for analysis of export performance especially in the

2000s, mirror statistics provide much better approximation of developments in the real world.

For these reasons, mirror statistics provide better insights into composition and dynamics of Zimbabwe’s

trade. Furthermore, the quality of foreign trade reporting of Zimbabwe’s major trading partners—SACU

and the EU—is as good as it can get.

MIRROR STATISTICS: CONCEPTUAL REMARKS

Mirror statistics, i.e., those derived from statistics of foreign trading partners, provide a useful check on

the quality of foreign trade statistics of a country. Since most countries, except for the US,59 report

exports as FOB (free on board) and imports as CIF (cost, insurance, freight), a perfect match between

officially reported imports and imports derived from partners’ exports, thereafter referred to as mirror

imports, is not possible, as it would imply that freight and insurance are costless. Therefore, one would

expect that the value of official imports should be significantly larger (smaller) than that of mirror

imports (exports). For landlocked countries with imports concentrated in bulky primary commodities,

the difference may be huge amounting even to 50‐60 percent. But there are other reasons contributing

to the impossibility of a perfect match between country’s official statistics and mirror statistics.

59 Total exports in the United States are valued free alongside, or FAS. FAS figures provide valuation of exports at the port of exportation and thus exclude charges for loading onto the vessel, the transportation itself, insurance, unloading, and foreign transportation. FAS is similar to FOB valuation of exports (see J.M. Donnelly, U.S.‐World Merchandise Trade Data: 1948‐2006, CRS Report for Congress, Washington D.C, February, 2007, available at http://fpc.state.gov/documents/organization/81946.pdf.

88 | P a g e

Officially disclosed import data may differ from imports into a country derived from partners’ exports

for various reasons related, among others, to differences in conventions (including or not including cost

of delivery), smuggling, under‐invoicing or misclassification, differences in exchange rates, extra‐

budgetary arrangements for collecting customs revenues.60 Other source of differences relate to the fact

that exports tend to be less thoroughly monitored than imports for fiscal reasons and that there are

inherent difficulties in identifying re‐export or entrepôt activity. Re‐exports by small traders, in

particular, may be difficult to capture in official statistics. Last but not least, the quality of statistical

services of some trading partner may be lacking; not to mention that some of them may choose not to

publish foreign trade data.

These caveats, however, completely lose their relevance if mirror imports systematically exceed the

officially reported data. This is usually a strong indication of convoluted regulations governing access to

domestic markets leading illegal activities such as smuggling, reverse discrimination or preferential

margins (differences between MFN applied tariff rates and preferential tariff rates) implied by free trade

agreements, misclassification of goods and under‐invoicing of imports, albeit with a caveat. Liberal

arrangements for imports for personal use may also lead to under‐reporting as customs simply do not

register them. Furthermore, some governments use customs to collect revenue, which, although

controlled by central authorities, is not part of the official state budget. Whatever the immediate

reasons are behind negative discrepancies between official imports and mirror ones, they always

indicate dramatic departures from the best international practice.

Assuming that most trading partners disclose their foreign trade statistics (submit them to the UN

COMTRADE database), the total value of their exports to a country (also referred to as mirror imports)

should be lower than the total value of a country’s reported imports (from these countries) by an

equivalent of CIF. Ideally official imports (OM) should exceed mirror imports (MM) by transportation

cost or OM = MM + CIF. The discrepancies between OM and MM (mirror trade gaps) provide

information about the quality of foreign trade statistics collected by Customs. There are two cases:

If the value MM > OM or the ratio of MM/OM*100 > 100, the difference (or the ratio) between the value of mirror imports and official imports, defined as a mirror trade gap, amounts to the minimum value of imports that go unreported into a country. It points to illegal activities at the border: under‐valuation of imports to evade payments of duties and other charges or simply smuggling operations.

If the value MM < OM and the ratio is lower than 100 by at least, as a rule of thumb, 10 percent, than there is no systemic problem at the Custom, The ratio is more than 10 percent lower for OECD economies as well as, among others, China and India.

Similar criterion can be used to assess the quality of exports statistics: official exports (XO) should be

lower than the value of reported imports or mirror exports (XM) by the value of CIF. Here, however, one

of the sources of discrepancies may be unrelated to the quality of monitoring goods outflows from a

60 For a detailed analysis of mirror trade statistics, see Zarubin, G and Bartlomiej Kaminski, “The Limits of Mirror Statistics of Foreign Trade” in M. Belkindas and O. Ivanova, eds., Foreign Trade Statistics in the USSR and Successor States, Studies of Economies in Transition 18, The World Bank, Washington DC, 1995.

89 | P a g e

country: this may simply reflect underreporting in partner countries. For this and other reasons,61

mirror export statistics do not provide as strong indication of the quality of reporting of exports as an

analysis of imports data does.

These stipulations notwithstanding, under‐reporting of exports is relatively common in many developing

countries. By the same token, an assessment of the extent to which official statistics do not capture

them is important for foreign trade performance analysis.

In addition to the COMTRADE database, another source of statistics on foreign trade is the IMF DOT

(direction of trade) database. These statistics rely on both national reporting and reconciliation of them

against statistics available from other countries. In consequence, the final data are closely aligned, albeit

not identical as not all countries report foreign trade data to the UN, with mirror statistics that can be

derived from the COMTRADE database.

IMPORTS: IMPRESSIVE ACCURACY

The statistics shown below compare imports totals drawn from statistics Zimbabwe reported to UN

COMTRADE with corresponding mirror imports, i.e., exports to Zimbabwe reported by Zimbabwe’s

trading partners, on the one hand, import statistics published in the most recent Direction of Trade

Annual with those derived from export statistics of countries exporting to Zimbabwe. The picture that

emerges from this statistics is that there is no systemic problem with the quality of official import

statistics as deviations do not point to positive trade gaps consistent over time, although there are some

indications of under‐reporting in recent years.

The differences between official and IMF statistics do point to any systematic problems with official

reporting. The discrepancies between the IMF and COMTRADE import totals have been moving from

positive to negative territory. Their total over 1999‐2008 amounted to US$90 million suggesting that

differences have tended to offset each other over time. By the IMF statistics benchmark, imports appear

to have been under‐reported only in 1996‐97, 2006, and 2008 (Appendix Table 1). But they were ‘over‐

reported’ in 2002‐04 and 2007.

Turning to mirror import statistics, i.e., based on exports into Zimbabwe reported by countries to the

UN, and set against the IMF data the pattern appears to be consistent with adequate trade reporting.

Since imports in the IMF statistics include CIF, one would expect they would be 10‐20 percent higher

than mirror FOB imports reported in the UN COMTRADE. But except in 2005, 2006 and 2007 when IMF

imports were either 20 percent above mirror imports (in 2006 or 6 percent in 2005 and 2007, the

difference was much in other years. The average for 2001‐08 was 32 percent indicating that mirror

imports were under‐reported. What explains this gap? We shall return to this question once Zimbabwe’s

official imports are tested against mirror imports.

61 Conversely, official exports should be lower than their respective imports, i.e., mirror exports, reported in partners’ statistics. However, since governments have no fiscal stake in exports, as most countries do not levy charges on them, customs services are not vitally interested in verification of exports invoices and precisely reporting them. They are relevant only for economic analysis but do not shed light on the quality of border controls of an exporting country.

90 | P a g e

Appendix Figure 1: Imports into Zimbabwe in current prices according to various sources in 1990‐2008 (in millions of US dollars)

Source: IMF DOT and UN COMTRADE databases and Central Statistical Office, Harare, for 2000 and 2003 when no data were reported to the UN

In fact, more pertinent to our analysis is an assessment of mirror trade gaps between official imports

and mirror imports derived from the UN COMTRADE statistics. Surprisingly for a country at a low level of

the GDP per capita, official imports have consistently exceeded the values of mirror imports indicating a

rather impressive absence of positive trade gaps associated with under‐reporting. Trade gap was

negative in every year over 1992‐2008, although it has been declining since 2004. The reasons for its

contraction are not clear.

Appendix Table 1: Imports according to various sources in selected years over 1994‐2008 (in US$ millions and percent)

1994 1995 1996 1997 1999 2001 2002 2004 2005 2006 2007 2008

(IMF) 2,241 2,726 4,124 3,278 2,127 1,718 2,326 2,153 2,072 2,812 2,681 3,457

(UN) 2,241 2,659 2,813 3,092 2,126 1,715 2,467 2,204 2,072 2,577 3,442 2,832

Difference 1 ‐68 ‐1,310 ‐186 ‐1 ‐3 141 51 1 ‐236 761 ‐625

Difference (in percent) 0 ‐3 ‐47 ‐6 0 0 6 2 0 ‐9 22 ‐27

Mirror (UN MM) 1,486 2,220 2,290 2,146 1,651 1,160 1,227 1,702 1,954 2,348 2,526 2,680

Difference: IMF‐UN MM 755 507 1,833 1,132 476 558 1,099 451 117 465 155 777

Difference IMF vs. UN

MM in percent 51 23 80 53 29 48 90 27 6 20 6 29

UN Ratio: MM to MO 66 83 81 69 78 68 50 77 94 91 73 95

Notes: (IMF) – imports data derived from the IMF DOT; UN stands for exports reported to the COMTRADE database; MM – mirror imports (exports to Zimbabwe reported by its trading partners; Source: IMF DOT and UN COMTRADE databases.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1990 1991 1992 1993 1994 1995 1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Mirror imports

Official imports

IMF imports

91 | P a g e

One possible explanation is the improvement in the quality of statistics of trading partners that has led

to the extension of coverage of Zimbabwe‐directed exports.62 However, a closer look at the origins of

imports suggests that this would be an unlikely explanation as reliable reporters (EU‐27, South African

Customs Union, US, China, Mozambique and Zambia) accounted on average in 2004‐08 for 76 percent of

total official imports and 91 percent of Zimbabwe’s total mirror imports (Appendix Table 2).

Appendix Table 2: Mirror imports in percent of official imports: totals and in trade with Zimbabwe in 2000‐08

Average

2000 2001 2002 2003 2004 2005 2006 2007 2008 2004‐08

SACU total 80 83 79 81 77 89 91 85 85 85

SACU ZWE N/AV 83 57 N/AV 84 324 121 80 96 141

Zambia total 117 83 98 57 58 58 118 67 64 73

Zambia ZWE 114 74 N/AV 120 97 118 74 103 102 114

Mozambique total 95 85 86 97 93 81 93 77 92 87

Mozambique ZWE N/AV 41 120 N/AV 67 22 38 59 100 57

EU 27 total 85 83 81 82 80 84 83 82 84 83

EU 27 ZWE N/AV 102 41 N/AV 95 106 80 69 88 87

China total 61 62 65 69 71 74 76 79 83 77

China ZWE 91 88 88 88 84 85 86 83 79 83

USA total 96 97 96 96 97 99 101 101 103 100

USA ZWE N/AV 65 57 N/AV 114 152 20 85 82 91

Memorandum: .

Share of the above in ZWE

total imports N/AV 71 80 N/AV 76 45 86 82 92 76

Share of the above in ZWE

mirror imports 96 92 91 89 90 94 92 88 93 91

Mirror imports in % of ZWE

imports from the above N/AV 126 65 N/AV 96 87 58 68 103 86

Notes: ZWE stands for Zimbabwe; N/AV—not available; SACU (Southern African Customs Union) includes the following states: Botswana, Lesotho, Namibia, South Africa and Swaziland. Source: Derived from data in UN COMTRADE database.

The quality of their statistics does not leave much to be desired as the data tabulated in Appendix Table

2 show at least in terms of their respective total world imports. The ratios of mirror imports to official

imports for total trade are stable and below 100. The United States is an exception mainly because of

unique practice of not including CIF in total values of imports. So is Zambia but only in two years—2000

and 2006. But the values of this ratio often exceed 100 percent in trade with Zimbabwe indicating

Zimbabwe’s under‐reporting of imports.

Except for trade with SACU, other discrepancies can be explained by reporting in different years than in

exporter countries or rather commonplace technical issues always distorting trade statistics.63 SACU’s

62 Note that while there are often strong incentives to under‐report and under‐value the value of imports, there are rarely any incentives to distort exports data. Hence, even in countries where there is significant under‐reporting of imports, export statistics tend to have better coverage. 63 As convincingly demonstrated in an empirical study of trade statistics worldwide, no full conformity can be achieved even with statistics of highly developed countries. See Jerzy Rozanski and Alexander Yeats (1994). ‘On the

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Zimbabwe‐oriented exports of US$1.4 billion in 2005 and US$1.7 billion in 2006 exceeded Zimbabwe’s

official imports from SACU by US$935 million and US$300 million in these years. Since in other years

there were no under‐ or over‐reporting, it is not clear what triggered these differences. Other cases can

be easily explained: for instance, imports from the US were underreported to the tune of US$6 million

and US$15 million in 2004 and 2005 in Zimbabwe’s statistics but in 2006 the value of these imports was

“over‐reported” by almost US$200 million. On the other hand, a seesaw pattern of the values of trade

gaps with Zambia reflects technical issues related to timing and currency conversions rather than to

systemic weaknesses in border controls.

Another possible explanation of the significant increase in the ratio of mirror imports to official imports

since 2005 may have something to do with the contraction of transportation costs of imports due to the

increased share of neighboring countries in total imports. Indeed, the shift in geographical patterns of

imports towards neighboring countries, which has been most likely accompanied by the decline in

transportation costs, has been huge. The share of Zimbabwe’s adjacent countries—Botswana,

Mozambique, South Africa, and Zambia—significantly increased from an average of 43 percent in 1995‐

99 to 63 percent in 2006‐07 and surged to 75 percent in 2008. Simultaneously, the share of the EU fell

from an average of around 23 percent in 1995‐99 to an average of 8 percent in 2004‐08.64 It is obvious

that the cost of transport from neighbors is a fraction of the cost of bringing the same goods from

Western Europe.

It appears that the bulk of exports recorded in respective countries of origin have been also caught and

reported by Zimbabwe’s customs administration. Although the ratio of mirror imports to official imports

has been moving towards the value of 100 percent, it has never exceeded this level. There is one

exception: the value of mirror imports in trade with neighbors (SACU plus Mozambique and Zambia) and

other major trading partners identified in Appendix Table 2 (EU‐27, China, and USA) exceeded that of

official imports in 2008 indicating underreporting. However, there may be some other indications of

some imports not reported but the quantities involved remain very low.

Overall, the conclusion relevant for the use of official import statistics is that they provide surprisingly

good information about actual flows except for some years, which can be easily identified. In contrast to

trade statistics in many developing countries, there are no indications of imports moving across borders

without being reported to the authorities including statistical services.

EXPORTS: PUZZLING OVER‐REPORTING IN THE 2000S

Against the background of a good coverage of imports’ reporting in Zimbabwe’s official statistics, data

on exports strike one as rather sloppy and greatly inaccurate especially over the last decade. Figure 2

presents the time profiles of exports in terms of value as reported in official statistics, the IMF DOT

database and the UN COMTRADE database as derived from world imports from Zimbabwe, i.e.,

Zimbabwe’s mirror exports. In contrast to mirror exports, which have been characterized by low

dispersion along the long‐term trend, IMF and official exports data have displayed strong volatility since

(in) accuracy of economic observations: An assessment of trends in the reliability of international trade statistics’, Journal of Development Economics, 44(1), pp.103‐130. 64 Based on data reported by Zimbabwe to the UN COMTRADE database.

93 | P a g e

2000. In 1990‐99, three export statistics were moving in tandem: an average difference between the

IMF and official data was one percent and that between the latter and mirror statistics amounted to 5

percent. In 2000‐08, the IMF estimates and official data have been moving at different rates and in

opposite directions: according to one set exports were falling and according to the other they were

raising in all years except in 2000‐01 and 2008. While the average rate of growth of IMF exports of 6.9

percent in 1991‐1997 was the same as that of official exports and both below the average of 10 percent

for mirror exports,65 in 2000‐08, IMF and official exports grew at different rates with the IMF data

yielding an average rate of growth of 18 percent and the official data an average rate of 32 percent.

While mirror data also displayed volatility, the average rate of growth of 2 percent was dramatically

lower than for other statistics.66

Appendix Figure 2: Exports in terms of value according to various sources in 1990‐2008 (in millions of US dollars)

Source: IMF DOT and UN COMTRADE databases.

However, the most surprising is an enormous surge in official exports in 2006 not reflected in other

statistics: the value of exports of US$6.5 billion reported in 2006 is clearly out of line begging an

explanation.67 While this would go beyond the format of this note, let us note that this is a statistical

fantasy as exports would amount to 173 percent of the GDP, which was US$3.7 billion in 2006,68 up from

41 percent in 2005 and trade surplus of US$3,851 million would amount to 103 percent of the GDP. That

would be the only time that the balance of trade in goods had surplus over 1990‐2008. Furthermore,

Zimbabwe’s exports to Zambia would be an equivalent of 47 percent of their total imports up from 4

percent a year earlier in 2005.

65 Since no official data on exports in 1998 are available, it is impossible to calculate growth rates in 1998 and 1999. 66 Coefficient of variation (ratio of standard deviation to the average) was high: 4.2 for the official data and 4.0 for the IMF statistics. The value of coefficient of variation of mirror exports was also high but at 3.8 significantly smaller than for the IMF and official data. 67 As African countries tend to under‐report exports (see Francis Ng and Alexander Yeats, “Kenya: Export prospects and problems,” Africa Region: Working Paper Series No. 90, World Bank, Washington DC, October 2005), this is rather an unusual development. 68 GDP in current dollars extracted from the World Bank WDI database.

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1990

1991

1992

1993

1994

1995

1996

1997

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

EXPORTS OFFICIAL

IMF EXPORTS

MIRROR EXPORTS

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Some further insights can be derived from the data tabulated in Appendix Table 3 comparing 1994 to

2008 export totals drawn from statistics that Zimbabwe reported to UN COMTRADE with corresponding

export statistics in the IMF DOT database, on the one hand, and partner’s data on imports from

Zimbabwe, i.e., mirror exports. As noted above, the IMF data present four different pictures depending

on the period: rather precise reporting in 1992‐99; huge under‐reporting in 2000‐01; over‐reporting in

2002‐07; and under‐reporting in 2008. In 1992‐99 exports reported by Zimbabwe to UN COMTRADE

were almost fully in line with the IMF DOT statistics running on average at 98 percent of the IMF’s

estimates. In 2000‐01 this ratio dropped to 59 percent and 54 percent with the total aggregate under‐

reported exports amounting to US$2.4 billion. The 2002‐07 witnessed a switch in the opposing direction:

exports were hugely over‐reported especially in 2006 by US$5.5 billion or 6.8 times the value of exports

estimated in the IMF DOT statistics. The value of official exports increased in 2006 almost five‐fold over

its level in 2005 (Appendix Table 3). In 2007, official exports were around 30 percent above the IMF’s

estimate. In 2008, the pendulum went in the opposite direction: as the value of IMF exports increased

almost three times and official exports fell to 51 percent of its level in 2007, the value of non‐reported

exports reached US$701 million or 71 percent of the IMF’s DOT estimate.

Appendix Table 3: Exports in official and mirror statistics in 2001‐02 and 2004‐08 (in millions of US dollars and percent)

1994 1995 1996 1997 1999 2000 2001 2002 2004 2005 2006 2007 2008

Exports IMF 1,971 1,901 2,242 2,146 1,908 3,283 2,222 2,009 1,769 1,395 941 2,506 2,400

Exports UN (XO) 1,967 1,846 2,122 2,128 1,887 1,925 1,207 2,327 1,926 1,394 6,427 3,308 1,694

Difference: IMF‐UN ‐4 ‐55 ‐120 ‐18 ‐20 ‐1,358 ‐1,015 318 158 ‐1 5,487 803 ‐706

UN in % of IMF 100 97 95 99 99 59 54 116 109 100 683 132 71

Mirror exports UN

(XM) 1,607 1,712 1,986 2,095 1,778 1,855 1,809 1,728 1,924 1,974 2,227 2,414 2,222

Difference: XO – XM 361 134 136 32 109 70 ‐602 599 2 ‐581 4,201 895 ‐528

Official exports in %

of mirror exports 122 108 107 102 106 104 67 135 100 71 289 137 76

Source: Derived from trade statistics reported to the UN COMTRADE and IMF DOT databases. No official exports data available for 2003.

Before turning to an examination of the data on mirror exports against official exports, the point to be

borne in mind is that, as noted earlier, mirror exports should be higher than exports reported by

Zimbabwe by the cost of transport and insurance since imports include CIF. It is generally assumed that

this adds about 10 percent of the value of shipments. For a landlocked country, the cost of

transportation may be even higher. Except for 2001, 2005 and 2008, official exports exceeded mirror

exports: the difference, however, varied rather significantly especially in the 2000s. There was huge

underreporting of exports in 2005 and 2008 and enormous over‐reporting in 2006.

Since distortions in mirror export statistics heavily depend on the quality of statistical reporting in

partner countries, their examination shed some extra light on their reliability in assessing official data.

The reliability of mirror export data is larger if official exports are 10‐15 percentage points below mirror

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exports. By this measure, mirror data appear to reflect adequately exports data of SACU and

Mozambique but not of Zambia and the EU (Appendix Table 4).69

Appendix Table 4: Exports in percent of mirror exports in total trade and bilateral trade with Zimbabwe of Zimbabwe’s major export markets in 2000‐ 08

Average

2000 2001 2002 2003 2004 2005 2006 2007 2008 2004‐08

SACU total 84 76 68 79 78 80 79 79 76 79

SACU ZWE 143 62 192 N/AV 126 108 186 158 106 137

Zambia total 140 146 128 128 103 72 136 131 155 120

Zambia ZWE 121 12 222 N/AV 58 70 938 111 65 249

Mozambique total 95 85 86 97 93 81 93 77 92 87

Mozambique ZWE 511 43 465 N/AV 205 252 1,519 3,468 271 1,143

EU 27 total 101 103 106 106 108 108 108 108 112 109

EU 27 ZWE 59 74 87 . 73 47 310 103 79 122

Memorandum:

share of the above in

official exports 49 58 59 N/AV 59 70 77 78 81 73

share of the above in

mirror exports 58 59 59 63 62 61 66 66 64 64

Source: Derived from trade statistics reported to the UN COMTRADE.

But the quality of reporting looks different in their trade with Zimbabwe. Zimbabwe has tended to over‐

report its exports to all its major trading partners with the exception of the EU in 2000‐05 and 2008 and

pervasive corruption in these countries cannot explain it. The extent of over‐reporting was particularly

high in trade with Zambia in 2006 and Mozambique in 2000 and 2001‐2008 with sky‐high levels having

been reached in 2006‐07. Zimbabwe’s exports to Mozambique were 35 times higher than its imports

from Zimbabwe in 2007.

In all, the quality of exports statistics significantly deteriorated in the 2000s. Mirror exports were around

US$0.6 billion higher than official exports in 2005 and 2008 but US$4.2 billion and US$0.9 billion lower in

2006 and 2007 respectively. While under‐reporting of imports by its trading partners may be responsible

for some portion of Zimbabwe’s ‘excess exports,’ the differences between IMF and mirror statistics

suggest this has not been a significant factor. .

OFFICIAL AND MIRROR STATISTICS: IMPLICATIONS FOR DYNAMICS

While both sets of statistics capture similar overall trends in the development of Zimbabwe’s trade in

2000s, there are differences in pace of scope of reported change over 2002‐08. Several observations can

be derived from Appendix Table 5 comparing official data with corresponding data reported in statistics

of Zimbabwe’s trading partners. First, geographical concentration of imports is lower according to

official than mirror imports statistics, albeit two sets have been converging. Official statistics appear to

have been consistently understating imports from SACU, Zambia, and the European Union. But the gap

69 Since the EU is unlikely to under‐report exports, this rather suggests that products imported from the EU enter illegally or are subject of under‐invoicing in some countries. The same cannot be said about Zambia: one suspects that exports have been under‐reported.

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significantly declined by 2008 (see Appendix Table 5). The average shares of imports from these partners

over 2002‐08 were significantly lower than their respective shares in total mirror imports: for instance,

the share of SACU in Zimbabwe’s total imports was 55 percent and 66 percent in mirror imports but in

2008 both were very close to each other (70 percent and 71 percent).

Appendix Table 5: Difference between official and mirror statistics in percent in 2002‐08

Imports Exports

Shares Average, 2002‐08 2008 Average, 2002‐08 2008

SACU, of which ‐27.0 ‐1.8 15.9 28.4

South Africa ‐19.3 ‐1.5 14.2 18.9

Botswana ‐53.2 ‐5.9 35.5 77.6

Mozambique 36.5 ‐5.2 82.7 71.9

Zambia ‐23.4 ‐9.3 23.9 ‐16.0

EU‐27 ‐5.2 7.4 ‐16.6 3.6

Value of trade Average, 2002‐08 2008 Average, 2002‐08 2008

World 23.5 5.4 21.7 ‐31.7

SACU, of which 3.7 3.6 26.1 4.0

South Africa 10.4 4.0 24.5 ‐6.8

Botswana ‐9.4 ‐0.2 54.5 70.6

Mozambique 54.5 0.4 89.7 63.1

Zambia 10.4 ‐3.5 62.9 ‐52.7

EU‐27 23.9 12.4 6.3 ‐27.0

Dynamic

Least Square

Growth, 2001‐08

Avg. growth

rates 2004‐08

Least Square

Growth, 2001‐08

Avg. growth

rates 2004‐08

World ‐56.0 ‐74.0 58.0 87.4

SACU, of which ‐20.3 63.6 33.0 ‐21.8

South Africa ‐29.2 61.9 17.8 ‐91.1

Botswana 39.2 40.4 102.8 104.2

Mozambique ‐8.9 77.1 84.5 92.9

Zambia 3.9 ‐49.4 96.3 98.1

EU‐27 136.2 74.5 742.3 106.8

Source: Derived from trade statistics reported to the UN COMTRADE by Zimbabwe and its foreign trading partners.

So were their respective rates of growth. Total mirror imports grew much faster than official imports

with the largest discrepancy for imports from the EU: according to the official data they fell at a LSG rate

of minus one percent, whereas mirror statistics pointed to a modest growth of 0.3 percent. The only

exceptions were Botswana and Zambia, as official statistics indicated stronger growth.

Second, official data tend to over‐report exports. In consequence, the difference between respective

growth rates amounts to 58 percent for LSG rate (10.4 percent versus 4.4 percent) and to 87 percent for

an average annual growth rate (a whopping 44 percent against 5.5 percent for mirror exports). The

discrepancy between shares of respective countries and regional groupings has remained very high. For

instance, the share of SACU in officially reported exports was 52 percent and in total mirror exports was

37 percent in 2009. Much larger shares of Zimbabwe’s two neighboring countries, Mozambique and

Zambia, in Zimbabwe’s official exports than their corresponding shares raise suspicion that both of them

under‐report imports from Zimbabwe for tax evasion reasons. Surprisingly, given its high quality of

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governance, the same may apply to Botswana with the official average share of 4.1 percent in 2002‐08

almost 55 percent higher than in mirror exports.

Appendix Table 6: Directions of imports according to official and partners’ imports statistics in 2000‐08 (in percent)

2001 2002 2004 2005 2006 2007 2008 Index 2008

Direction of imports according to official statistics Aver.2001‐02=100

SACU, of which 49.7 54.9 57.1 20.1 54.1 56.7 70.0 134

South Africa 46.8 52.6 52.6 15.0 45.5 44.6 62.1 125

Botswana 2.0 1.9 4.0 5.0 8.2 11.9 7.6 392

Mozambique 5.2 1.9 2.3 9.9 7.7 3.6 2.9 81

Zambia 0.8 0.9 3.4 3.7 1.8 3.2 2.2 259

Malawi 0.2 0.1 0.4 0.1 0.7 5.0 0.9 601

EU‐27, of which 11.6 17.0 9.0 7.1 9.0 8.7 7.7 54

United Kingdom 3.2 4.9 3.8 1.7 3.6 3.1 2.4 59

Rest of the world 29.9 19.0 22.1 52.9 10.7 12.7 6.4 26

Memorandum:

Neighboring countries 54.8 57.3 62.3 33.6 63.2 63.3 74.8 133

Direction of imports according to mirror statistics

SACU, of which 60.9 62.5 62.5 69.2 72.1 62.1 71.3 116

South Africa 54.6 56.4 54.6 59.4 45.4 47.3 63.0 113

Botswana 5.7 6.0 7.6 9.4 10.8 14.7 8.0 137

Mozambique 3.2 4.6 2.0 2.4 3.2 2.9 3.0 78

Zambia 1.4 1.3 5.2 3.8 2.3 3.2 2.4 178

Malawi 0.7 0.5 0.5 0.6 0.9 5.2 0.8 142

EU‐27, of which 17.3 14.1 11.1 8.0 7.8 8.1 7.2 45

United Kingdom 4.5 4.2 2.8 2.1 1.5 1.8 1.4 33

Rest of the world 14.9 11.5 9.3 7.6 21.6 5.7 4.6 35

Memorandum:

Neighboring countries 64.9 68.3 69.5 75.0 61.7 68.1 76.5 115

Notes: Neighboring countries include Botswana, Mozambique, South Africa and Zambia Source: Derived from trade statistics reported to the UN COMTRADE by Zimbabwe and its foreign trading partners.

Yet, all these differences notwithstanding, the general picture emerging from both sets of statistics has

one common feature in common: there has been a rather dramatic reorientation of exports towards

neighboring countries as well as in imports, although not to the same extent. Their share in official

exports increased from 25 percent in 2000 to 58 percent in 2008 while that in mirror exports from 18

percent to 42 percent over the same period (Appendix Table 6). The respective shares for imports are 55

percent and 75 percent for official imports and 65 percent and 76 percent for mirror imports.

CONCLUSION

Foreign trade statistics of Zimbabwe do not display biases typical for a developing country. There has

not been systematic bias of under‐reporting imports usually indicating evasion of border charges

through either smuggling, misclassification of imported goods, and under‐invoicing. Neither has been

any tendency to under‐report exports. If anything, exports reporting has been biased in favor of over‐

reporting them.

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In fact, the puzzle is why exports were so overstated in national statistics in 2006. The direction of

exports changed dramatically albeit only for a year with the share of Zambia in total exports rising to 26

percent up from 6 percent a year before and that of South Africa falling from 42 percent in 2005 to 17

percent. It seems that hyperinflation rendered the task of converting local exports invoices particularly

challenging. Whatever, the reason, this clearly excludes official exports data for 2006 and 2007 from any

discussion of long term foreign trade performance of Zimbabwe.

In all, for practical reasons, mirror statistics provide better insights into composition and dynamics of

Zimbabwe’s trade. Furthermore, the quality of foreign trade reporting of Zimbabwe’s major trading

partners—SACU and the EU—is as good as it can get.

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Appendix 2: Note on geography and policyinduced costs of trading across borders Zimbabwe scores low in the World Bank’s Cost of Doing Business comparative surveys seeking to assess formal barriers to conducting business activities by assessing conditions in following areas: starting business, labor market flexibility, registering property, contract enforcement, bankruptcy, protection of investors, foreign trade, and getting credit.70 Zimbabwe was ranked 160th out of 1983 countries and has been among thirty or so countries with the highest hassle cost of doing business related to regulations. In trading across borders, Zimbabwe was ranked 167th or 11 ranks below the average for its neighbors (Appendix Table 6).

Appendix Table 7: Trading across borders against overall ease of doing business in Zimbabwe and other comparator countries in 2010

Ease of Doing Business Trading Across Borders Difference between (a) and (b)

(a) (b) (c)

Botswana 45 150 ‐105

Mozambique 135 136 ‐1

South Africa 34 148 ‐114

Zambia 90 157 ‐67

Zimbabwe 159 167 ‐8

Memorandum:

Malawi 132 172 ‐40

Mauritius 17 19 ‐2

Namibia 66 151 ‐85

Rwanda 67 170 ‐103

Source: data downloaded from http://www.doingbusiness.org/

Although the deviation of 11 ranks from the average of comparators’ rankings in trading across borders is relatively low compared to other dimensions of formal cost of doing business, this is not the result of transparency and simplicity of Zimbabwe’s foreign trade regime but it is due to high transaction cost of foreign trading in other countries of the region. All of them score in “trading across borders” well below their average score across all dimensions of the formal cost of doing business with the difference at single‐digit level only for Mozambique, Zimbabwe, and Mauritius. Yet, Zimbabwe’s rank in trading across borders is the lowest among comparators, which are not demanding at all in terms of transaction costs associated with foreign trade activities (Appendix Table 6).

Zimbabwe’s low ranking in terms of exploiting opportunities offered by foreign trade‐led economic development stems not from its geographical location but self‐inflicted policy‐induced costs. A closer examination of the components of the transaction cost of completing export or import operation corroborates this observation. Appendix Table 7 presents data on formal costs of trading in Zimbabwe set against some of its SADC partners ranked according to the cost of importing. Zimbabwe had the third highest cost to import and to export in the world after Chad and Central African Republic. While it would be tempting to associate high costs with transportation costs exacerbated by the lack of direct access to cheaper maritime transport, ‘land‐lockedness’ is only part of an explanation.

70 Each area has several different indicators estimated by local professionals dealing with issues related to each of these areas that have been surveyed in respective countries in both large cities and rural areas. The Cost of Doing Business’ advantage over surveying firms is obvious. Professionals deal with respective issues on a day‐to‐day basis, whereas firms confront the issues only to the extent that the issues directly affect them. The former have an overall view, whereas the latter do not.

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Appendix Table 8: Formal cost of foreign trading in Zimbabwe and selected SADC countries in 2010 (in days and US dollars)

Rank world Country

Documents to export (number)

Time to export (days)

Cost to export (US$ per container)

Documents to import (number)

Time to import (days)

Cost to import (US$ per container)

3 Zimbabwe 7 53 3,280 9 73 5,101

4 Rwanda 9 38 3,275 9 35 5,070

13 Zambia 6 53 2,664 9 64 3,335

14 Botswana 6 30 2,810 9 41 3,264

26 Malawi 11 41 1,713 10 51 2,570

47 Namibia 11 29 1,686 9 24 1,813

49 South Africa 8 30 1,531 9 35 1,807

69 Mozambique 7 23 1,100 10 30 1,475

70 Tanzania 5 24 1,262 7 31 1,475

170 Mauritius 5 14 737 6 14 689

Memorandum: average and two countries with highest transportation cost in the world

Average (excluding Zimbabwe) 8 31 1,864 9 36 2,389

Zimbabwe in % of average 93 169 176 104 202 214

1 Chad 6 75 5,497 10 100 6,150 2

Central African Republic 9 54 5,491 17 62 5,554

Note: Inland transportation cost is based on 20-ft container FCL of general cargo that is valued at US$20,000 Source: Based on data in Doing Business 2010: Reforming through Difficult Times, World Bank, Washington D.C. 2010

Geography alone cannot explain much higher costs incurred by Zimbabwe’s traders. Note that Botswana, Malawi, Rwanda and Zambia are also land‐locked, yet their costs of both imports and exports are lower, albeit the difference is hardly significant for Rwanda. Zambia’s exporters paid 20 percent less, Botswana’s 14 percent, and Malawi’s 48 percent, whereas importers paid 35 percent less in Zambia, 36 percent less in Botswana and 50 percent less in Malawi. Note also that both exporters and importers from Zimbabwe needed significantly more time (about twice as much as compared with the average for selected SADC countries listed in Appendix Table 7) to complete both export and import transactions.

Transport is not the only component determining the number of days and amounts spent per container of foreign shipments.71 The breakdown of components identified to produce time and cost estimates allows distinguishing between the policy‐induced or procedural aspects and the infrastructural‐related, although there is an overlap between the two (Appendix Table 8). The latter reflects the fact that poor organization of, for instance, handling operations can dramatically raise the cost even though the port is up‐to‐date in terms of technology and facilities. Costs and times involved stem from bureaucratic procedures in place and, on the other hand, from infrastructural bottlenecks. While not much can be done in a short time perspective about weakly developed infrastructure contributing to high costs through high transportation cost (inland transportation), bureaucratically induced barriers can be easily addressed provided there is political will to do so.

Bureaucratic procedures consume more time than dealing with infrastructure‐imposed or technical constraints while the latter account for most of the total transaction cost incurred by exporters and importers alike (Appendix Table 8). Meeting bureaucratic requirements accounts for the bulk of the time needed to complete both export and import transactions: between 53 percent (Botswana) and 65 percent (Mozambique) of the total time needed to complete a standardized export transaction, and

71 See Simeon Djankov, Caroline Freund and Cong S. Pham. 2008. “Trading on Time.” Review of Economics and Statistics, November.

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between 49 percent (Botswana) and 77 percent (Mozambique). Inland transportation and cargo handling at ports account for between 60 percent (Mozambique) and 91 percent (Botswana) of total export transaction costs and between 47 percent (Mozambique) and 85 percent (Zambia and Zimbabwe) of the total import transaction cost.

Appendix Table 9: Policy and infrastructure‐induced costs of trading across borders in Zimbabwe and its neighbors in 2010 (in days and US dollars)

Zimbabwe Zambia Botswana Mozambique South Africa

Nature of Export Procedures Duration (days)

US$ Cost

Duration (days)

US$ Cost

Duration (days)

US$ Cost

Duration (days)

US$ Cost

Duration (days)

US$ Cost

Procedures: Documents preparation and customs/technical clearance 32 480 39 316 16 260 15 435 19 347 Infrastructure: Ports and terminal handling and inland transportation 21 2,800 14 2,348 14 2,550 8 665 11 1,184

Totals: 53 3,280 53 2,664 30 2,810 23 1,100 30 1,531

Nature of Import Procedures Duration (days)

US$ Cost

Duration (days)

US$ Cost

Duration (days)

US$ Cost

Duration (days)

US$ Cost

Duration (days)

US$ Cost

Documents preparation and customs/technical clearance 46 752 37 486 20 515 23 775 18 472 Infrastructure: Ports and terminal handling and inland transportation 27 4,349 27 2,849 21 2,749 7 700 17 1,335

Totals: 73 5,101 64 3,335 41 3,264 30 1,475 35 1,807

Source: Derived from data available at http://www.doingbusiness.org/ExploreEconomies/?economyid=172 accessed on June 2, 2010

Appendix Table 10: Elements of the cost of cross border trading in Zimbabwe as compared with Malawi in 2010

Zimbabwe Malawi Memo: Malawi in % of Zimbabwe

Nature of Export Procedures Duration (days)

US$ Cost

Duration (days)

US$ Cost

Duration (days)

US$ Cost

Procedures: Documents preparation and customs/technical clearance 32 480 27 473 84 99 Infrastructure: Ports and terminal handling and inland transportation 21 2,800 14 1,240 67 44

Totals: 53 3,280 41 1,713 77 52

Nature of Import Procedures Duration (days)

US$ Cost

Duration (days)

US$ Cost

Duration (days)

US$ Cost

Documents preparation and customs/technical clearance 46 752 28 430 61 57 Infrastructure: Ports and terminal handling and inland transportation 27 4,349 23 2,140 85 49

Totals: 73 5,101 51 2,570 70 50

Note: Inland transportation cost is based on 20-ft container FCL of general cargo that is valued at US$20,000 Source: Based on data in Doing Business 2010: Reforming through Difficult Times, World Bank, Washington D.C. 2010.

Zimbabwe, however, beats each neighbor across all discussed dimensions of foreign trade transaction costs in both dollar and time terms except for Zambia where it takes more time to prepare documents necessary for exports, albeit not for imports.

Lower infrastructure‐related costs in Zambia than in Zimbabwe raise suspicion that they are under‐stated for the latter. But this does not seem to be the case, as shipments from Zambia can go directly to

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ports in Mozambique by‐passing Zimbabwe. Furthermore, the cost of delivering shipments and getting them ready for shipping by sea for Malawi’s firms is much lower than for firms in Zimbabwe: the cost of ports and terminal handling and inland transportation is US$1,240 for Malawi as compared with US$2,800 and for imports it is US$2,140 against US$4,349. In all, foreign trade transaction costs of Malawi firms are roughly half of what their Zimbabwean counterparts have to pay (Appendix Table 9 above).

The above discussion provides empirical illustration of the fact that geography and infrastructure is not a barrier to foreign trade of Zimbabwe. Governance is the major impediment and the main reason why Zimbabwean economy has failed to exploit opportunities offered by plugging into global markets.

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Appendix 3: Taxation as the most binding formal constraint to do business in Zimbabwe In terms of formal ease of doing business, Zimbabwe has the most hostile regulatory environment as compared to its neighbors, albeit its positive score on enforcement of contract is an encouraging sign for easiness of improvement. Excluding mining, had decisions by foreign investors been made solely on the basis of hassle cost of conducting business operation, Zimbabwe’s neighbors would have attracted capital well before their attention would have turned to Zimbabwe. Legal environment for doing business in Zimbabwe imposes much larger burden on firms to comply with regulations than in neighboring countries. Zimbabwe ranked 159th in overall ease of doing business among 183 countries surveyed by the World Bank’s cost of doing business in 2010.72 Its rank was well below rankings of its neighbors—Botswana was ranked 45th, Mozambique 135th, South Africa 34th, and Zambia was ranked 90th. Zimbabwe’s ranking in ten dimensions of doing business (starting business, labor market flexibility, registering property, contract enforcement, bankruptcy, paying taxes, licenses needed to build a warehouse, foreign trade, and protection of investors) is better than the average ranking of its neighbors only in registering property (11 ranks higher) and enforcing property (17) (See Figure 9). Since enforcing contracts cannot be improved with the stroke of a pen, Zimbabwe’s better ranking (78th) than any of its neighbors seems to be encouraging.

Appendix Figure 3: Formal ease of doing business in Zimbabwe as compared to its neighbors in 2010

Source: data downloaded from http://www.doingbusiness.org/

Among the dimensions of formal cost of doing business covered in the World Bank’s 2010 survey, the most binding constraint to investment, foreign and domestic alike is taxation regime. The critical weakness of Zimbabwe’s formal business climate viewed through the lenses of Zimbabwe’s ranking in the context of its neighbors is taxation. Zimbabwe’s 130th rank, although better than its overall rank in ease of doing business of 159, is well below ranks of its neighbors of which the worst performer,

72 Information collected are not based on survey of firms but provided by local professionals dealing with issues related to these areas that are surveyed in respective countries in both large cities and rural areas. They shed light on procedures, laws, and regulations and say nothing about informal constraints such as corruption or predatory administration. For instance, the absence of barriers in starting or closing business may be offset by corruption.

‐100

‐80

‐60

‐40

‐20

0

20

40

Difference: neighbors' average minus Zimbabwe rankings

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Mozambique, was ranked 97th. As can be seen from Appendix Table 10 summarizing information for Zimbabwe and neighboring countries on the total number of payments per year, the time it takes to prepare, file, and pay (or withhold) the corporate income tax, the value added tax and social security contributions (in hours per year), and the total tax rate, which measures the amount of taxes and mandatory contributions payable by the business in the second year of operation, expressed as a share of commercial profits, Zimbabwe’s businesses face the highest burden across the three above dimensions.

Appendix Table 11: Fiscal and administrative burden of paying taxes and contributions in Zimbabwe and neighboring countries in 2010

Total number of

payments per year Time (days)

Total tax rate (% profit)

Memorandum: Rank in Paying Taxes

Botswana 19 140 17 18

Mozambique 37 230 34 97

South Africa 9 200 30 23

Zambia 37 132 16 36

Zimbabwe 51 270 39 130

Zimbabwe in % of average 200 154 161 299

Source: Derived from data in http://www.doingbusiness.org/ExploreTopics/PayingTaxes/Details.aspx?economyid=27

Zimbabwe’s medium‐sized domestic companies face the highest tax burden and the most demanding administrative requirements to comply with tax regulations against its competitors in neighboring countries, which discourages foreign and domestic investment as well as undercut their ability to compete in neighboring markets. They have to spend 54 percent more time fulfilling tax and mandatory contributions requirements than on average their counterparts in neighboring countries; they have to make twice as many payments per year; and the total tax rate of 39 percent is 61 percent higher than on average in neighboring countries.

All other things equal, foreign investor already committed to investing in the region would put Zimbabwe at the bottom of its preferential list. Furthermore, many domestic entrepreneurs will either refrain from establishing business or enter the informal sector.

It might be tempting to dismiss Zimbabwe’s much higher regulatory hassle cost of doing business than in neighboring countries on the ground that real ease of doing business may be lower. Indeed, formal ease may not be the same as the real ease: for instance, the rankings assign the same weight to each area and corresponding indicators of doing business putting a country with a low number of procedures higher in the ranking despite a very long time needed to complete these procedures. Furthermore, a country may have low tax rates and simple rules of compliance and still informal cost of compliance with a tax code may be huge due to predatory and corrupt administration. On the other hand, the higher tax and compliance burden may be offset by virtual absence or low informal cost of compliance.

But this does not seem to be the case as these two stipulations do not fully apply to Zimbabwe: First, Zimbabwe has both complex procedures and long times. Second, considering a very high incidence of corruption, Zimbabwean businesses face both high taxes and significant informal costs, albeit with a caveat. Informal payments may lower taxes paid. This however automatically excludes higher quality foreign investments and encourages the development of informal sector. Hence, there are no reasons to argue that real conditions of doing business are better than formal ones.

With taxation regime looming over other dimensions of formal cost of doing business in Zimbabwe as the most binding constraint, tax reform is critical to increase foreign and domestic investments. This, however, will not be enough to trigger FDI inflows, as other constraints are even more binding. The

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Indigenization and Economic Empowerment Act towers them all. The bill, which was signed in 2007 and became law on 17 April 2008, has ever since been poisoning investment climate, in spite of the fact that no regulations on its implementation were announced as of August 2010. The bill requires a 51 percent ownership of all companies operated in Zimbabwe by formerly ‘disadvantaged’ citizens of Zimbabwe. Albeit not yet having been implemented, the ensuing uncertainty over property rights erects a huge barrier to FDI inflows. It also suppresses investments in domestic firms with ownership not meeting the ‘disadvantaged person’ criterion and may even encourage some to transfer profits abroad rather than investing them domestically.

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Statistical Annex

Annex Tables

Annex Table 1: Values of Transparency International’s corruption perception indices for Zimbabwe and

its comparators in 1998, 2002, 2007 and 2008 ........................................................................................ 107

Annex Table 2: Revenue from international tourism per arrival in Zimbabwe and Zambia in 1996‐2008 (in

US dollars and millions of dollars) ............................................................................................................. 107

Annex Table 3: Change triggered by change in export prices and exported quantities in 2000‐08 (in

percent) ..................................................................................................................................................... 108

Annex Table 4: Top twenty four‐digit SITC exports in “peak years” of 1997 and 2007 and in 2008 (in

millions of US dollars and percent) ........................................................................................................... 109

Annex Table 5: Top twenty four‐digit SITC exports in ‘trough’ years of 1994 and 2002 (in millions of US

dollars and percent) .................................................................................................................................. 110

Annex Table 6: Exports of iron and steel products in 1994, 1997, 2002‐08 (in millions of current US

dollars) ...................................................................................................................................................... 111

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Annex Table 1: Values of Transparency International’s corruption perception indices for Zimbabwe and its comparators in 1998, 2002, 2007 and 2008

1998 2002 2007 2008 2009 Index 2008 1998=100

Botswana 6.1 6.4 5.4 5.8 5.6 95 Malawi 4.1 2.9 2.7 2.8 3.3 68 Mauritius 5.0 4.5 4.7 5.5 5.4 110Mozambique (a) 3.5 2.7 2.7 2.8 2.5 80 Namibia 5.3 5.7 4.5 4.5 4.5 85 South Africa 5.2 4.8 5.1 4.9 4.7 94 Tanzania 1.9 2.7 3.2 3.0 2.6 158Zambia 3.5 2.6 2.6 2.8 3.0 80 Zimbabwe 4.2 2.7 2.1 1.8 2.2 43

Memorandum:

Average (b) 4.3 4.0 3.9 4.0 3.8 93 Zimbabwe in % of average 97 67 54 45 59 46 Botswana in % of average 141 159 140 145 149 102

Rwanda (c) n/a n/a 2.8 3.0 3.3 n/a Notes: (a) value of CPI in 1999 and 2003, as no data are available for 1998 and 2005; (b) the average includes Botswana and excludes Zimbabwe; (c) classified first in 2005 with a score of 2.6 Source: Extracted from data in the website of Transparency International.

Annex Table 2: Revenue from international tourism per arrival in Zimbabwe and Zambia in 1996‐2008 (in US dollars and millions of dollars)

Zimbabwe 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Receipts (current US$ millions) 232 205 158 202 125 81 76 61 194 99 338 365 .. Receipts (current US$) per arrival 145 153 76 90 64 37 37 27 105 64 148 146 …

Zambia 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Receipts (current US$ millions) .. 29 40 53 133 80 64 88 92 98 110 138 146 Receipts (current US$) per arrival … 85 110 131 291 163 113 213 179 146 145 154 180

Zimbabwe in terms of Zambia

Receipts … 707% 395% 381% 94% 101% 119% 69% 211% 101% 307% 264% …Receipts per arrival … 180% 68% 68% 22% 22% 33% 13% 59% 43% 102% 95% …

Sources: World Bank WDI database.

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Annex Table 3: Change triggered by change in export prices and exported quantities in 2000‐08 (in percent)

A. Price effect: percent difference between exports in base year expressed in prices in 2000‐01 and value of exports in a base year (in percent)

Quantities in P2000 P2001 P2002 P2003 P2004 P2005 P2006 P2007 P2008

in 2000 0 ‐1 30 48 26 40 40 53 77

in 2001 ‐1 0 30 45 24 38 37 47 75

in 2002 ‐22 ‐24 0 12 ‐2 7 5 15 34

in 2003 ‐31 ‐34 ‐12 0 ‐13 ‐4 ‐5 7 22

in 2004 0 ‐2 25 43 0 32 45 55 86

in 2005 ‐26 ‐30 ‐6 9 ‐11 0 0 10 33

in 2006 ‐25 ‐27 ‐3 12 ‐12 0 0 9 31

in 2007 ‐27 ‐30 ‐7 6 ‐17 ‐6 ‐7 0 20

in 2008 ‐36 ‐37 ‐17 ‐6 ‐30 ‐20 ‐22 ‐19 0

B. Quantity effect: percent difference between value of exports of a base volume in successive years over a base year (in percent)

Export prices Q2000 Q2001 Q2002 Q2003 Q2004 Q2005 Q2006 Q2007 Q2008

in 2000 0 11 7 ‐5 ‐9 ‐10 ‐20 ‐27 ‐28 in 2001 ‐12 0 ‐6 ‐19 ‐22 ‐23 ‐31 ‐37 ‐37 in 2002 ‐6 6 0 ‐12 ‐15 ‐16 ‐25 ‐32 ‐33 in 2003 7 19 12 0 ‐1 ‐3 ‐14 ‐22 ‐23 in 2004 13 25 21 7 0 ‐2 ‐16 ‐25 ‐29 in 2005 14 27 21 8 3 0 ‐13 ‐23 ‐27 in 2006 32 44 36 23 21 15 0 ‐13 ‐18 in 2007 52 64 58 46 41 34 15 0 ‐10 in 2008 58 75 65 49 53 45 25 8 0

Source: Own calculations based on the data provided by Reserve Bank of Zimbabwe.

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Annex Table 4: Top twenty four‐digit SITC exports in “peak years” of 1997 and 2007 and in 2008 (in millions of US dollars and percent)

SITC Products 1997 Share (%) SITC Product Rev. 3 2007

Share (%) SITC Product Rev. 3 2008

Share (%)

1212 Tobacco stripped/stemmed

534 25.7 6831 Nickel/alloys unwrought

537 22.6 6715 Other ferro alloys 301 14.2

6715 Other ferro alloys 217 10.4 1212 Tobacco stripped/stemmed

266 11.2 1212 Tobacco stripped/stemmed

273 12.9

2631 Raw cotton, excl linters

150 7.2 2841 Nickel ores/concentrates

224 9.4 2842 Nickel mattes/sinters/++

245 11.5

1211 Tobacco, not stripped

133 6.4 2842 Nickel mattes/sinters/++

213 8.9 2841 Nickel ores/concentrates

234 11.0

6831 Nickel/alloys unwrought

117 5.6 6715 Other ferro alloys 207 8.7 6831 Nickel/alloys unwrought

219 10.3

0449 Maize ex sweet corn

65 3.1 2631 Raw cotton, excl linters

115 4.8 2631 Raw cotton,excl linters

117 5.5

2784 Asbestos 60 2.9 6821 Copper refined/unrefined

51 2.2 0611 Raw sugars 58 2.7

2927 Cut flowers/foliage

58 2.8 2731 Quarried stone slabs

38 1.6 6612 Portland etc cements

34 1.6

9710 Gold non‐monetary ex ore

56 2.7 6612 Portland etc cements

38 1.6 2731 Quarried stone slabs

33 1.6

0711 Coffee, not roasted

37 1.8 0611 Raw sugars 34 1.4 2927 Cut flowers/foliage

30 1.4

0611 Raw sugars 36 1.7 2927 Cut flowers/foliage

34 1.4 2831 Copper ores/concentrates

23 1.1

0111 Beef, fresh/chilled 31 1.5 0571 Citrus fruit fresh/dried

31 1.3 6821 Copper refined/unrefined

21 1.0

8973 Precious metal jewellery

26 1.3 1223 Manufactured tobacco nes

28 1.2 1223 Manufactured tobacco nes

21 1.0

1213 Tobacco refuse 24 1.2 2831 Copper ores/concentrates

27 1.1 0571 Citrus fruit fresh/dried

19 0.9

0545 Vegetables nes,frsh/chld

23 1.1 2784 Asbestos 24 1.0 2892 Prec.metal waste/scrap

17 0.8

3250 Coke/semi‐coke/retort c

23 1.1 6672 Diamonds unset 23 1.0 2119 Hide/skin nes/waste

16 0.7

8414 Men/boy trouser/etc woven

19 0.9 0251 Eggs in shell 21 0.9 6672 Diamonds unset 16 0.7

7924 Aircrft nes over 15000kg

17 0.8 0612 Cane/beet sugar nes

20 0.8 2482 Softwood,simply worked

15 0.7

6522 Woven unb cotton fab nes

17 0.8 2482 Softwood,simply worked

18 0.7 0612 Cane/beet sugar nes

15 0.7

0571 Citrus fruit fresh/dried

16 0.8 1211 Tobacco,not stripped

14 0.6 3250 Coke/semi‐coke/retort c

15 0.7

Total above 1,660 79.9 1,962 82.4 1,721 81.0 Top three 901 43.4 1,027 43.2 818 38.5Top ten 1,463 70.4 1,757 73.8 1,566 73.8

Source: Own calculations based on partners’ data reported to the UN COMTRADE database.

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Annex Table 5: Top twenty four‐digit SITC exports in ‘trough’ years of 1994 and 2002 (in millions of US dollars and percent)

SITC Product Rev. 3 1994 Share (%) SITC Product Rev. 3 2002 Share (%)

1212 Tobacco stripped/stemmed 337 21.3 1212 Tobacco stripped/stemmed 550 32.1

6831 Nickel/alloys unwrought 105 6.6 6715 Other ferro alloys 108 6.3

6715 Other ferro alloys 105 6.6 2631 Raw cotton,excl linters 93 5.4

0611 Raw sugars 92 5.8 6831 Nickel/alloys unwrought 79 4.6

1211 Tobacco, not stripped 71 4.5 2927 Cut flowers/foliage 67 3.9

2631 Raw cotton ,excl linters 68 4.3 2841 Nickel ores/concentrates 54 3.2

0449 Maize ex sweet corn nes 55 3.5 1211 Tobacco,not stripped 53 3.1

2784 Asbestos 52 3.3 0611 Raw sugars 42 2.4

2927 Cut flowers/foliage 37 2.3 2784 Asbestos 33 1.9

0111 Beef, fresh/chilled 35 2.2 8973 Precious metal jewellery 27 1.6

6522 Woven unb cotton fab nes 27 1.7 0571 Citrus fruit fresh/dried 25 1.4

8414 Men/boy trouser/etc wovn 22 1.4 1213 Tobacco refuse 24 1.4

6513 Cotton yarn nes 22 1.4 0545 Vegetables nes,frsh/chld 19 1.1

1213 Tobacco refuse 20 1.2 8414 Men/boy trouser/etc woven 18 1.1

0112 Beef, frozen 18 1.2 2882 Non‐fer metal waste nes 18 1.0

6114 Bovine/equine leathr nes 16 1.0 2731 Quarried stone slabs 15 0.9

8973 Precious metal jewellery 14 0.9 0741 Tea 15 0.9

0545 Vegetables nes,frsh/chld 14 0.9 6513 Cotton yarn nes 14 0.8

2482 Softwood,simply worked 13 0.8 0751 Peppers dried/crush/grnd 13 0.8

6821 Copper refined/unrefined 12 0.8 6612 Portland etc cements 13 0.8

TOTAL ABOVE 1,135 71.6 TOTAL ABOVE 1,283 74.9

Top three 546 34.5 Top three 751 43.9

Top ten 957 60.4 Top ten 1,107 64.7


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Annex Table 6: Exports of iron and steel products in 1994, 1997, 2002‐08 (in millions of current US dollars)

SITC 1994 1997 2002 2003 2004 2005 2006 2007 2008

6715 Other ferro alloys 105 217 108 118 173 202 191 207 301

6724 Ingot/primary iron/steel 0.10 0.01 6.99 0.74 3.71 2.39 0.24 0.02 0.05

6726 Semi‐fin iron/steel<.25%c 4.35 2.45 0.15 0.16 0.57 2.12 0.49 0.00 0.00

6727 Semi‐finished iron/steel. >.25%c 0.01 0.00 3.76 8.45 15.30 1.57 0.42 0.00 0.00

6728 Semi‐finish alloy steel 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.04

6731 Flat rolled steel‐1 0.98 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

6732 Flat rolled steel‐2 1.69 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.22

6733 Cold rolled steel‐3 0.44 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

6734 Colled rolled steel‐4 2.24 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

6735 Flat rolled steel nes 0.13 0.08 0.07 0.01 0.05 0.16 0.00 0.04 0.01

6741 Zinc coated/plated steel 1.00 0.04 0.31 0.28 0.27 0.07 0.03 0.06 0.07

6742 Tin plated/coated steel 0.47 0.03 0.05 0.16 0.02 0.00 0.00 0.04 0.03

6743 Steel paint/plastic cover 0.07 0.00 0.02 0.00 0.00 0.00 0.00 0.00 0.00

6744 Coated steel plate w>600 0.02 0.03 0.25 0.04 0.02 0.00 0.13 0.01 0.00

6745 Coated/platd steel w<600 0.65 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00

6751 Flat silicon‐elect steel 0.00 0.00 0.03 0.00 0.00 0.00 0.00 0.00 0.00

6752 Flat high‐speed steel 0.00 0.00 0.05 0.00 0.00 0.00 0.00 0.00 0.00

6753 Hot rolled stnless steel 0.00 0.04 0.00 0.02 0.00 0.00 0.04 0.04 0.00

6754 Hot‐rolled alloy steel 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.00

6755 Cold‐rol stainless steel 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

6757 Flat roll alloy stl nes 0.00 0.09 0.05 0.05 0.02 0.00 0.04 0.12 0.01

6761 Hot‐r coil bar/rod iron/steel 1.77 0.21 0.34 1.31 1.21 0.98 1.09 0.90 0.35

6762 Hot‐form steel bar/rod nes 1.73 0.07 0.01 0.09 0.01 0.02 0.20 0.30 0.34

6763 Cold‐form air/steel bar nes 0.15 0.10 0.02 0.02 0.26 0.03 0.00 0.25 0.04

6764 Iron/steel bars nes 0.87 0.16 0.05 0.12 0.18 0.03 0.05 0.07 0.97

6768 Iron/steel angle/shape/sect 1.50 0.75 0.98 1.82 6.14 4.63 6.45 3.68 3.35

6770 Iron/steel railway materials 0.09 0.03 0.00 0.04 0.02 0.02 0.10 0.17 0.00

6781 Iron/non‐alloy steel wire 0.65 1.37 4.22 8.07 7.13 3.07 0.91 0.73 0.40

6782 Wire, stainless/alloy steel 0.00 0.28 0.05 0.09 0.05 0.04 0.00 0.01 0.00

6791 Iron/steel tube seamless 0.35 0.06 0.12 0.08 0.01 0.15 20.54 0.01 0.00

6793 Seamed pipe/tube d>406.4 0.13 0.02 0.00 0.00 0.00 0.03 0.00 0.02 0.00

6794 Seamed tubes/pipes nes 1.27 1.09 1.89 4.92 3.28 1.91 0.62 0.32 0.09

6795 Iron/steel pipe fittings 0.30 0.05 0.19 0.34 0.24 0.28 0.08 0.04 0.17

TOTAL ABOVE 125 224 127 145 211 219 223 214 307

Memorandum:

Share of ferro alloys (SITC. 6715) in percent 83 97 85 82 82 92 86 97 98

RCA of ferro alloys (SITC. 6715) 29 46 38 34 32 35 34 28 37

Number of exports above US1 million exports 8 4 5 6 7 7 4 2 2


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