Commodity slump to further weaken economies

Rumbidzayi Zinyuke
The persistent slump in commodity prices and a strong US dollar will have adverse effects on the growth prospects for most Southern African economies thereby reducing export competitiveness in those countries, an expert has said.Zimbabwe, along with most economies in the region, rely heavily on mineral exports but lower demand from the Chinese market as well as the appreciation of the United States dollar has had significant impact on revenue from these minerals.
The greenback has been enjoying its fastest rise in 40 years this year as it is strengthening dramatically against all the world’s other major currencies.

The Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU), which re-launched the latest edition of the Economic Barometer on Wednesday, notes that in the case of Zimbabwe, prices of key mineral exports have been falling with platinum falling by 31,2 percent in the third quarter to September 2015 and gold by 12,3 percent over the same period.
Consequently, there was a substantial decline in mineral earnings (excluding diamonds) of about 11 percent compared to same period in 2014.

He said the implications for Zimbabwe are being felt through reduced profits for local mining companies and possible reduction of revenue for government.

The World Bank says Sub-Saharan Africa’s growth will decline from 4,6 percent last year to 4,2 percent this year as the major source of revenue for most governments decline.

According to the International Monetary Fund (IMF), the weak commodity price outlook could also subtract almost 1 percentage point annually from the growth rate of commodity exporters, from this year to 2017 as compared with 2012/14.
As the prices fall, most currencies of these commodity-exporting nations have also plummeted to record lows forcing economies to revise their growth projections downwards.

Zambia has recorded significant falls in the kwacha to all-time lows of 13,5100 per dollar earlier this month on falling copper prices.

The southern African nation derives 70 percent of export earnings from copper which accounts for 11 percent of Zambia’s gross domestic product.

The economy of Angola is also one of the most heavily oil-dependent in the world.
Subsequently, the kwanza has also reacted to the decline in oil prices falling to 135,172 on Wednesday.

Dr Chigumira said to mitigate the effects to the low prices, SADC economies need to have diversified robust economies that are not only dependent on commodities.

He echoed the sentiments of many other economic analysts who have been calling on African governments to diversify their economies.

“This is where value addition comes in. When African countries add value to their minerals, it then means we are exporting finished products instead of raw mineral and we get more for our products,” he said.
He also said Zimbabwe needs strategies to enhance export competitiveness in light of the economy using the US dollar which is stronger than most of its trading partners’ currencies.

“In line with the recently launched Zimbabwe National Competitiveness Report (NCR), Zimbabwe needs to implement strategies that increase export competitiveness and reduce its vulnerability to global economic shocks.

This requires a renewed focus on value addition and beneficiation that will ensure that the country exports high value added products and not low value primary products which are susceptible to price volatilities.
Export competitiveness can also be enhanced through properly designed export incentive,” he added.

March 2016
« Feb   Apr »