GREAT ZIMBABWE UNIVERSITY

FACULTY OF COMMERCE

DEPARTMENT OF COMMERCE
GROUP ASSIGNMENT

BUSINESS STATISTICS :PART 1 SEMESTER 2

MODULE CODE :MBA 709

STUDENT NAMES :ITAI MATIBIRI (M225850)
JOSEPHINE TINEYI MUSHAMBI (M102169)
FRANCIS CHARAMBA (M225594)
GIVEMORE KUDZWIDA (M225314)
MUNYARADZI GOPOZA (M226010)
NOTHANDO MOYO (M223590)

LECTURER :DR G. MAKUYANA

DUE DATE :28 FEBRUARY 2023

ASSIGNMENT TITLE:
a) Explain the main arguments for trade restrictions in Zimbabwe. [12 marks]
b) Zimbabwe is presently experiencing a net outflow of financial and non-financial
resources, which is adversely affecting the general performance of the country through
widening balance of payment (BOP) deficit. As a Macroeconomist and Advisor to the
Minister of Finance and Economic Development, discuss the policy measures and
associated strategies that you would recommend to revive the manufacturing sector so as
to solve the current BOP disequilibrium. [8 marks]
c) Discuss the effectiveness of devaluation as a monetary policy measure to correct the
balance of payment deficit. [5 marks]
a) Explain the main arguments for trade restrictions in Zimbabwe. [12 marks]

INTRODUCTION
A trade restriction is an artificial restriction on the trade of goods and/or services between
two or more countries. It is the by-product of protectionism. This presentation shall explain
the main arguments for trade restrictions in Zimbabwe.

CONTENT
There are a number of reasons that Zimbabwe has put as the basis for trade restrictions. These
include:
1. Infant industries
The “infant industry” argument is one of the well-known and oldest of the economic
argument for protection of upcoming industries in developing countries lie Zimbabwe.
This argument considers the fact that although developing countries have a comparative
advantage in manufacturing, this is not usually taken advantage of because there are new
manufacturing industries in such countries. These new manufacturing industries have no
capacity to compete with well-established industries in developed countries. The government
has stepped to assist the upcoming industries to establish themselves by imposing temporary
import restrictions (such as tariffs, import quotas, and subsidies) until the industries are
internationally competitive.
According to the US Department of Commerce (2022), Zimbabwe has partial bans on various
meat products citing consumer protection or disease prevention considerations, although
these measures also have the effect of protecting local producers from foreign competition.
Although the government allows the importation of a limited amount of goods for personal
use, the government generally requires importers to obtain product-specific import licenses.
The Zimbabwean government has also introduced a import ban (embargos) for certain
products such as soaps and lotions, precious and semi-precious gems, jewellery, carbonated
beverages for resale, textiles and clothing, and second-hand clothes for resale.
The Government of Zimbabwe is generally committed to a policy of import substitution, and
as a result will sometimes impose a ban on the export of a good for which it believes there is
sufficient domestic processing capacity. For example, in August 2021 the government
announced, without warning and with immediate effect, a ban on the export of raw chrome in
a bid to support the domestic ferrochrome industry. Such unpredictable changes in
government policy make long-term planning difficult.
Many economists are critical of “infant industry” argument stating that protection from
foreign competition is not worth it unless it promotes efficiency of the local industries. The
trend is that such protection results in development of inefficient industries that have no plan
or hope of ever competing in the world market.
The protection may create monopolistic conditions in the local market and industries that
will become complacent and reluctant to adapt to change.
This has a impact on the welfare cost of society, that is the society suffers from poor quality
products due to lack of competition created by protection of local industries.

2. Employment
The most co for the protection of political argument for the imposition of trade barriers is that
they are necessary to protect jobs and industries from foreign competition. If tariffs are
prohibitive, they would exclude imports altogether and thus maintain a high level of
employment in the domestic industry.
The major disadvantage of such protection is that it may delay the structural changes
(including the restructuring of jobs) that are required to render the industry competitive again.
The government of Zimbabwe charges higher import duties on finished goods than on raw
materials and intermediate goods, as a means of assisting the country’s manufacturing sector
to boost production and create employment. There different types of payment that may be
charged for import of goods are: import duty, surtax, and value added tax (VAT) as described
in the Harmonized System Tariffs Handbook and other relevant legislation. Most imported
goods are subject to surtax and VAT. The General Agreement on Trade and Tariffs (GATT)
method is used for customs valuation.
The Government of Zimbabwe is generally committed to a policy of import substitution, and
as a result will sometimes impose a ban on the export of a good for which it believes there is
sufficient domestic processing capacity. For example, in August 2021 the government
announced an immediate ban on the export of raw chrome in a bid to support the domestic
ferrochrome industry. This has also been extended to other minerals such as platinum.
It should noted that such unpredictable changes in government policy may make long-term
planning difficult.
The critics of this argument is that the barriers are an inefficient way of stimulating
employment or lowering unemployment. There is argument that there are better ways of
creating employment such as through appropriate fiscal, monetary and exchange rate policies.
It should be noted that import restrictions may work for one country and fail in the other,
what is true for one country is not true for all countries.
3. Balance of payments (BOPs)
Tariffs and other controls may be imposed as a short-term method of correcting a deficit in
the BOPs. How successful measures which raises the prices of imports will depend on the
price elasticity of demand for imports.
The higher the price elasticity, the greater the saving of foreign currency will be. However,
since the imposition of trade barriers is likely to invite retaliation from other countries, it is
uncertain whether or not such a strategy will succeed in improving the country‟s balance of
payments position in the long run.
For example, the banning of second-hand Japanese cars above 10 years from date of
manufacturing into Zimbabwe as a measure of reducing BOPs deficit. Charges at the border
for imported vehicles have been added to include……. The bill for import vehicles was
reaching…….
4. Dumping
Trade barriers can be imposed to counteract the practice of dumping. Dumping occurs when a
firm sells its product in a foreign market at a lower price than in the domestic market or at a
lower price than in other export markets.
Dumping may be that a firm charges high prices in the domestic market and lower prices
elsewhere to expand its output and achieve economies of scale. For example, the influx of
cheap Chinese goods into Zimbabwe that are not durable.
Dumping may also be done to undercut competitors in the world market. This is known as
predatory dumping and it is generally agreed that this type of dumping is unfair and that
governments are entitled to impose protective tariffs called countervailing duties to counter it.
Dumping may also be done by countries that want to dispose obsolete goods for example
second hand Japanese cars that are being imported into Zimbabwe.
However, dumping is difficult to prove as what might look like dumping may simply be
comparative advantage. Foreign firms may be more efficient and allegations of dumping may
simply be the political response of domestic firms that cannot compete with efficient foreign.
The allegations may be there to drive out competition of efficient foreign competition.
5. Government revenue
In developing countries, the import tariff, import and export licenses are not only a means of
industrial protection, but extremely efficient forms of revenue collection.
Many low-income countries receive between one-quarter and three-fifths of their government
revenue from customs duties, whereas in industrialized countries the average figure is about
two percent.
In Zimbabwe, the toll gates from the border as Road Toll Fee are also means of revenue
generation.
6. National security
Governments prefer not to be entirely dependent upon foreign suppliers for essential and
basic resources. It is often argued that industries that produce products that will be essential
in times of war or international crisis should be protected.
In Zimbabwe, commodities like sugar, flour, cooking oil, washing soap an mealie meal and
medication are not taxed to support the industries producing them.
7. Export subsidies
Free trade is desirable only if all countries play according to the same rules. When a country
subsidizes some or all of its exports or export industries, firms in other countries call for
retaliation measures (for example in the form of countervailing duties).
The export-subsidy issue once again illustrates the asymmetries inherent in such issues. For
example, if country A subsidizes its exports, consumers in country B benefit (at the expense
of taxpayers in country A, who bear the burden of the subsidies), but producers in country B
lose, and since they are the well-organized, vocal group their voices are to be heard by the
policy-makers (rather than those of the consumers, who benefit from the subsidy).
For example, Sunway City in Harare where industries located within that zone are offered
special tax concessions. The products they produce may have a lowered cost and are
competitive if exported.
Manhize area in Mvuma where industries are offered special tax concessions to promote the
development and production of stell products for the export and local market.
Non-Tariff Barriers (NTBs) refer to restrictions that result from prohibitions, conditions,
or specific market requirements that make importation or exportation of products difficult
and/or costly such as import quotas or embargos.

NTBs arise from different measures taken by governments and authorities in the form of
government laws, regulations, policies, conditions, restrictions or specific requirements,
and private sector business practices, or prohibitions that protect the domestic industries
from foreign competition.

Examples of NBTs
 High transport/transit charges, e.g., road taxes, toll gates charges;
 Visa requirements;
 Road blocks/vehicle check points;
 Informal payments to officials;
 Import bans
 General or product-specific quotas
 Quality conditions imposed by the importing country on the exporting countries
 Unreasonable/unjustified packaging, labelling,
 Product standards
 Complex regulatory environment
 Determination of eligibility of an exporting country by the importing country
 Determination of eligibility of an exporting establishment (firm, company) by the
importing country.
 Additional trade documents like Certificate of Origin, Certificate of Authenticity etc
 Occupational safety and health regulation
 Import licenses
 State subsidies, procurement, trading, state ownership
 Export subsidies
 Fixation of a minimum import price
 Product classification
 Multiplicity and Controls of Foreign exchange market
 Inadequate infrastructure
 "Buy national" policy
 Over-valued currency
 Restrictive licenses
 Seasonal import regimes
 Corrupt and/or lengthy customs procedures
b) Zimbabwe is presently experiencing a net outflow of financial and non-financial
resources, which is adversely affecting the general performance of the country through
widening balance of payment (BOP) deficit. As a Macroeconomist and Advisor to the
Minister of Finance and Economic Development, discuss the policy measures and
associated strategies that you would recommend to revive the manufacturing sector so as
to solve the current BOP disequilibrium. [8 marks]

INTRODUCTION
A balance of payments disequilibrium refers to a situation when the payments into and out of
an economy do not balance either because payments going abroad are greater than payments
received (a deficit), or when payments going abroad are less than payments received
(a surplus).

The payments refer to those from the current account, and from the financial and capital
account. Focus tends to go mainly on the current account balance, but changes in the
financial and capital account are also important. Flows into the financial and capital account
help achieve an overall balance.

This should not be confused with a disequilibrium which refers to imbalances that arise
before any accounting adjustments are made.

The country’s external sector remained relatively strong as evidenced by a surplus current
account balance estimated at US$305 million in 2022. This marks the fourth consecutive year
of current account surplus since 2019. The sector benefited from resilient remittance inflows,
coupled with strong export performance due to favourable commodity prices for key exports.
The current account surplus is projected to gradually decline over the medium term,
reflecting rising imports as the economy continues to recover and the adverse effects of the
slowdown in the global economy

CURRENT ACCOUNT DEVELOPMENTS (US$ MILLIONS)

Source RBZ Monetary Policy Statement 2023
The positive balance of payment position was buttressed by robust performance in foreign
currency receipts in the country which increased from US$9.86 billion in 2021 to US$11.57
billion in 2022, as shown in Table 1 above
Cumulative export earnings or proceeds as at 31 December 2022 were US$7.42 billion
compared to US$6.37 billion earned during the same period in 2021. This represents an
increase of 16.5% in 2022. The mining sector export earnings accounted for 75.8% of the
total export earnings in 2022, underlying the need for diversification and broadening of the
export base. Table 12 shows export earnings/proceeds by sector as at 31 December 2022.
Minerals underpinned merchandise exports performance in 2022, growing by 12.3%, from
US$5,011 million in 2021 to US$5,627 million, on account of higher production coupled
with favourable commodity prices for key commodities. Agricultural exports increased from
US$784.7 million in 2021 to US$1,154.8 million in 2022, led by tobacco, following a good
season.
As portrayed in the Monetary Policy statement 2023, it is clear that Zimbabwe is presently
experiencing a net outflow of financial and non-financial resources, which is adversely
affecting the general performance of the country through widening balance of payment
(BOP) deficit. This presentation shall discuss the policy measures to reduce the BOP deficit.

POLICY MEASURES TO REDUCE THE BOP DEFICIT

According to classical economists, a disequilibrium is self-correcting in the long run. This is

brought about automatically through alteration in prices and costs, according to the needs of
the situation. According to Keynes and modern economists, it is brought about by changes in
real (as opposed to monetary) variables like changes in output, income, employment, and
demand. But certain measures must be taken to initiate the process of adjustment so that the
equilibrium is restored quickly.

A number of steps can be taken to solve the balance of payments problem. A country may
raise exports or reduce imports

A government may raise interest rates to attract short-term capital to finance a deficit. The
most popular form of adjustment is foreign exchange control, in which demand and supply
are matched administratively, rather than through the price system.

1. Debt Policy

- The government should apply measures to control the problem of external debt for example,
insisting on transparency and accountability. A lack of transparency and accountability
exacerbated financial weakness at firm and national levels and complicates efforts to resolve
debt crisis. Action is needed to improve the transparency and accountability of the private
sector, national authorities and international financial institutions for dissemination of regular
and timely information about foreign exchange, liquidity and external debt positions,
including short term debt

- The Zimbabwean economy is currently experiencing very low inflation so the government
can issue debt at lower cost. Lower nominal interest rates might help reduce the high costs of
servicing the debt. It may help liquidate the high debt through low real interest rates
accompanied by a steady dose of inflation.

-It can also attract private capital from abroad by raising the domestic rate of interest and
offering certain tax concessions. For example, Sunway City in Harare where industries
located within that zone are offered special tax concessions. The products they produce may
have a lowered cost and are competitive if exported and Manhize area in Mvuma where
industries are offered special tax concessions to promote the development and production of
stell products for the export and local market this is so that the general investment climate
becomes favourable.

2. FDI Policy

-In order to reduce balance of payment dynamics, the Zimbabwean government to encourage
and attract private investment flows and increase trade. Zimbabwe is therefore likely to
benefit through more FDI inflows if it creates an investment climate that can attract more FDI
flows into the country and implement its economic blueprints in a way that attract and tap
benefits from FDI. That notwithstanding, FDI can have a negative impact on the balance of
payments, and even contribute to the persistent deficits due to its larger propensity to import
production inputs from abroad.

- Zimbabwe should emphasize on first-class infrastructure, education and skills; focus on

investment promotion; public-private partnerships, lowering bureaucratic hurdles; and
restoring stability and security in the country.

-FDI may also mitigate or worsen the constraints imposed by balance of payments especially
through outflows in terms of profit repatriation. Manipulation of the money supply can
reduce or worsen the BOP position

3. Domestic Liquidity Policy

-The monetary authorities have lost control over domestic liquidity although there is still a
domestic banking system money multiplier since Zimbabwe operates a fractional reserve
banking system that creates new deposits

- Open Market Operations (OMO) to stimulate or slow down the market and thus influence
interest rates

4. Production Policy

- Loans for domestic purchases create a deposit multiplier effect, whereas loans for imports
flow out of the country. It is for this reason that Zimbabwe need to resurrect its industries,
including the manufacturing industry and start producing

5. Trade Policy

- The more goods a country can export, the better her balance of trade will be. Thus the
exchange rate and the wage level, which influence the number of goods a country can export,
are important variables for determining a country’s balance-of-payments situation.

- However, it is not always easy to raise exports. It depends not only on domestic supply
conditions but also on demand conditions abroad, over which the home country has little
control.

-Imports may likewise be kept in check through the adoption of a wide variety of measures.
Most balance of payments difficulties have adopted a strict import control policy.

-. It can also exercise control over capital movements.

- It may cut back spending abroad, tie foreign aid and impose restrictions on foreign travel.
- If it has huge accumulated resources (of gold and foreign exchange) it can reduce the stock
by selling some of its reserves to meet the deficit
c) Discuss the effectiveness of devaluation as a monetary policy measure to correct the
balance of payment deficit. [5 marks]

Devaluation is the deliberate downward adjustment of the value of a country's money

relative to another currency, group of currencies, or currency standard.

The absorption theory states that if a country has a deficit in its balance of payments, it means
that people are ‘absorbing’ more than they produce. Domestic expenditure on consumption
and investment is greater than national income. If they have a surplus in the balance of
payments, they are absorbing less. Expenditure on consumption and investment is less than
national income. Thus, here the BOP is defined as the difference between national income
and domestic expenditure.

Now the question is how devaluation of a currency works to improve balance of payments.
As a result of reduction in the exchange rate of a currency with respect to foreign currencies,
the prices of goods to be exported fall, whereas prices of imports go up. This encourages
exports and discourages imports. Because exports increase and imports decrease, there is
typically a better balance of payments because the trade deficit shrinks. In short, a country
that devalues its currency can reduce its deficit because there is greater demand for cheaper
exports.

Devaluation reduces the domestic prices of exports in terms of the foreign currency. With
low prices, exports increase. The extent to which they increase depends on the demand
elasticity for exports. It also depends on the nature of goods exported and the market
conditions. If the country is the sole supplier and exports raw materials or perishable goods,
the demand elasticity for its exports will be low. If it exports machinery, tools and industrial
products in competition with other countries, the elasticity of demand for its products will be
high, and devaluation will be successful in correcting a deficit.

Devaluation has also the effect of increasing the domestic price of imports which will reduce
the import of goods. By how much the volume of imports will decline depends on the
demand elasticity of imports. The demand elasticity of imports, in turn, depends on the nature
of goods imported by the devaluing country. If it imports consumer goods, raw materials and
inputs for industries, its elasticity of demand for imports will be low. It is only when the
import elasticity of demand for products is high that devaluation will help in correcting a
deficit in the balance of payments. Thus, it is only when the sum of the elasticity of demand
for exports and the elasticity of demand for imports is greater than one that devaluation will
improve the balance of payments of a country devaluing its currency

However, devaluation can lead to inflation in the economy. Even if it succeeds in improving
the balance of payments, it is likely to increase domestic incomes in export and import-
competing industries. But these increased incomes will affect the BOP directly by increasing
the demand for imports, and indirectly by increasing the overall demand and thus raising the
prices within the country