This has resulted in the fall of industrial capacity utilisation from 57 percent to just above 40 percent. Our sources of liquidity such as diaspora and portfolio inflows, lines of credit and foreign direct investment have remained subdued due to the confusion surrounding indigenisation initiatives. Our hope for expanding our liquidity base is pinned on the performance of exports.
Exports closed the year 2012 at $3.884 billion, with imports at $7.484 billion, resulting in a huge trade deficit of $3.6 billion. The high imports have also left us with an unsustainable current account deficit which has to be financed by non-concessionary debt flows, which is further ballooning our national debt. The widening trade deficit is a worrisome indicator of how our local industries are cutting down on production.
Unemployment is as high as 80 percent and more jobs are being shed as industries cut down on production. Foreign products already occupy 65 percent of our retail shelves.
The growing import dependence is worrisome as it results in significant cash leakages – a huge blow to liquidity boosting efforts. It is high time industrial policy measures be activated and deliberate measures are put in place to restrict the importation of goods which are already being produced locally. I have seen people importing products like sugar and bread from South Africa.
The problem with our exports is that they are highly vulnerable to external developments due to their unprocessed nature. What happened to cotton prices last year, as a result of the Eurozone crisis and depressed demand for cotton in Asia, is a good example. Our mineral commodity exports such as nickel and copper suffered subdued prices too. The majority of our exports are commodities.
Commodity exports cannot lead to sustained economic growth. Commodities cannot generate productive jobs and livelihoods. We should opt for value addition, which has a higher potential for employment creation and better returns on exports.
The existence of diminishing returns to scale in agriculture, due to fixed factors such as land, implies that the opportunities for employment in the sector are limited. As the population is growing and urbanisation is taking place, there is also a need for growth in manufacturing employment to absorb those displaced from agriculture.
Our top exports at the moment are all composed of unprocessed products like tobacco, ferro-chromium, cotton, nickel and raw sugar. Our aim should be to secure concessionary funding to sustain our collapsed manufacturing, so that more goods can be value added competitively and exported.
The services sector should also support the export function through efficient transport networks, cost effective communication and insurance. In order to achieve some of these imperative economic fundamentals, we have to be flexible and discretionary with the indigenisation and economic empowerment regulations, so as to allow for new investors to come in and recapitalize our local industries.
There are a few local manufacturers who are producing efficiently but still facing challenges in exporting. There is need to support these manufacturers so that they can optimize their exports and achieve high returns to boost liquidity.
A number of tax and non-tax incentives can be introduced to support the export initiative. Our markets also need to be diversified in order to benefit from maximum prices. Exports are our only hope of growing our economy and let us support them by all means necessary.
Post published in: Business