• Zimbabwe's trade deficit for March 2024 soared to over 100%, reaching US$184.3 million
• Exports experienced a significant decline of 17.1%, dropping from US$654 million to US$534.7 million
• Causes of a widening deficit

Harare- The month of March witnessed a significant surge in trade deficit, exceeding 100% and reaching a total of US$184.3 million according to the latest data released by ZimStat. The trade deficit for goods was US$184.3 million, translating to a 117.8% increase from a deficit of US$84.6 million recorded in February 2024.

This rise was primarily driven by a substantial decline in exports, which dropped by 17.1% from US$654 million to US$534.7 million. Although imports experienced a slight decrease of 1.5% from US$729.6 million to US$719 million, it was insufficient to narrow the deficit.

Key exports included semi-manufactured gold, which accounted for 23.6% (up from 19.9% in February), nickel mattes at 16.1% (up from 11.4% in February), and tobacco, partly or wholly stemmed/stripped, at 12.3% (down from 33% in February). Major imports comprised mineral fuels and oil products at 21.4% (up from 19.2%), machinery and mechanical appliances at 13% (down from 14%), and cereals at 8.6% (down from 9.5%).

The trade deficit was exacerbated by the conclusion of the tobacco season, resulting in a significant decrease in tobacco exports from 33% in February to 12.3% in March.

Declining nickel ores and concentrates, coupled with an increase in mineral fuels and oil products, widened the deficit. Global metal prices which went down by a minimum of 48% negatively impacted the production of nickel mates and concentrates, leading companies to reduce output to offset production costs.

Major nickel miner Bindura Nickel Corporation reported zero production in the third quarter, while Zimplats, the largest corporate in Zimbabwe, scaled back production projects due to lower platinum group metal (PGM) prices. These factors contributed to low exports in the mining sector, which accounts for over 50% of the country's total exports.

Even tough with an uptick from last month, gold exports failed to reach their potential due to high production costs associated with electricity blackouts, backup generators, and a decrease in output from Caledonia, one of the largest miners.

Despite a slight increase in March, gold exports have been on a steady decline since December 2023, dropping from 28.8% to 23.6%. In contrast, imports have not seen significant improvement due to severe drought spells, impacting agricultural exports and food availability. As a result, Zimbabwe is heavily relying on neighboring countries to offset food shortages. The import bill is expected to continue rising in April due to a state of emergency declared by the government as a response to the ongoing drought, requiring extensive assistance.

During the period, South Africa remained Zimbabwe's largest trading partner, accounting for a significant share of both exports and imports. The United Arab Emirates held a prominent position in gold trade, surpassing China as the second-largest export destination during this period.

South Africa and the UAE together accounted for 69% of exports (34.6% and 34.3%, respectively), while China accounted for 10.4%, a significant drop from 27.5% due to poor global metal prices affecting lithium and PGMs. These three countries comprised approximately 79% of the total export value of US$534.7 million.

The major source countries for imports in March 2024 were South Africa at 38.5%, China at 15.1%, the Bahamas at 9.4%, and Mozambique at 3.9%. These four countries accounted for around 70% of the total import value of US$719.0 million.

Final Thoughts

A growing trade deficit signifies a decrease in foreign currency reserves in the country, as fewer exports result in reduced inflows of foreign exchange. This situation can impact Zimbabwe's new currency, ZiG, and contribute to exchange rate volatility. To address this issue, there is a need to increase gold production, as platinum group metals are currently affected by geopolitical tensions, making gold a preferable hedge. The government can support this by reducing production costs through consistent electricity supply and promoting value addition. However, the operating environment in Zimbabwe is challenging, and it does not align with the tax regime imposed by the regulator.

To bolster gold reserves and US dollar reserves, the government should crack down on corrupt officials involved in illicit gold trade. The documentary "Gold Mafia" revealed that the reported annual loss of US$100 million due to illicit gold trade is actually lost weekly due to corruption. These funds could significantly contribute to currency stability and the overall economy.

Large scale licensing of small-scale miners who constitute 60% of the gold trade, and implementing effective tracking mechanisms for gold trades can help prevent leakages and boost exports and foreign currency reserves.

Regarding currency, the government should promote the usage of ZiG, considering the narrowing exports and resulting decrease in foreign exchange availability in the economy. To avoid inflated US dollar demand on the parallel market, which can devalue ZiG and render it ineffective like its predecessor, the Bond Note, it is crucial to collect taxes in ZiG, especially for fuel, passports, and licenses, where influential individuals within the government have vested interests. Partial assistance and penalties for companies engaged in black market activities can also support the adoption of ZiG.

At a broader scale, measures to boost local production and promote "Buy Zimbabwe" initiatives should be implemented to reduce the import bill. This can be achieved by cracking down on corrupt officials and redirecting the funds towards productive sectors. It is important to recognize that Zimbabwe is not a poor country, as proclaimed by its leaders, but rather the current leadership situation impedes progress.

Therefore, Zimbabwe's trade deficit experienced a significant increase in March, primarily due to a decline in exports. Factors such as reduced gold exports, challenges in nickel production, and a slight decrease in imports contributed to the widening deficit. To address this situation, efforts should focus on ramping up gold production, curbing corruption in the gold trade, promoting the use of ZiG, and fostering local production to reduce reliance on imports.