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Zimbabwe, grappling with a widening trade deficit, has significant potential to boost its export sector despite a declining economy, a study by the export promotion body, ZimTrade, has revealed.

Zimbabwe, which used to export a diversified amount of products to the region, the European Union and other outside markets before its economy touched an unprecedented crisis precipitated by a violent land reform programme, is experiencing a liquidity crunch due to large amounts of imports that far outstrip exports.

In the past, government supported companies to export but that facility collapsed with the adoption of a multi-currency regime in 2009. The study by ZimTrade, the country’s trade development and promotion agency, indicates that 40 percent of the manufacturing companies in Zimbabwe producing at only 37,5 percent capacity utilisation, are currently exporting. South Africa, Zimbabwe’s largest trading partner, absorbs 70 percent of the exports. “The survey reveals that there is significant export potential if the business operating environment is improved,” said the report.

“Though industry capacity utilisation remains subdued at 37,5 percent, due to the business constraints cited, companies currently exporting 40 percent of their produce are demonstrating a high degree of commitment to export despite the current challenges,” the report said.

The constraints were said to include subdued capacity utilisation, high electricity charges and outages, lack of lines of credit and ageing equipment. The study highlighted that companies surveyed had interest to expand their current export levels while others were ready to commence exports with an appropriate supportive policy regime.

“Raw material and labour costs are ranked highly as cost drivers with the former accounting for 44,1 percent and the latter 15,3 percent of overall production costs,” said the report. It said only 42 percent of products from the manufacturing sector were certified while some firms were operating without formal exporting departments.

“The level of non-certification is very worrisome given the availability of ISO certification facilities through SAZ (Standards Association of Zimbabwe). This should be addressed by action from the sector associations which should encourage voluntary certification as this gives the companies a better opportunity to sell in the export markets,” said the report. The report recommended that government should review the 50 percent export threshold for accessing corporate tax relief.

“Given the current subdued industry and export capacity, the current 50 percent or greater threshold for exporters to access a five percent corporate tax relief may not be achievable in the short term,” it said.

Association of Business in Zimbabwe chief executive officer, Lucky Mlilo, said there was need for business associations across the country to form a single body to speak with one voice to deal with problems highlighted by ZimTrade. The study said ineffectiveness of the dialogue process between government and business in the past had resulted in high levels of mistrust.

Source : Financial Gazette