Need engage the International Community

The need to re-engage the International Community
By Gilbert Muponda
The recent Monetary Statement by the Reserve Bank of Zimbabwe revealed the relaxation of the foreign exchange market aimed at floating the Zimbabwe Dollar. This represents one step in the right direction only if backed by an active and aggressive growth of export revenues. This is urgent given that a floating currency not backed by exports leaves the currency exposed to wild speculative attacks. Zimbabwe needs to take immediate steps to reclaim its position in the international Trade arena which is the exchange of goods and services across national borders. In most countries, it represents a significant part of National Output. While international trade has been present throughout much of history its economic, social, and political importance have increased in recent centuries, mainly because of Industrialisation, advanced transportation, globalisation, multinational corporations, and outsourcing. In fact, it is probably the increasing prevalence of international trade that is usually meant by the term "globalization".

Zimbabwe in particular and Africa in general need carefully structured policies which will allow them to access international markets at favorable terms .This will shift the focus from donor aid to better trading terms which are more preferable .Empirical evidence for the success of trade can be seen in the contrast between countries such as South Korea, which adopted a policy of export-oriented industrialisation, and India, which historically had a more closed policy (although it has begun to open its economy, as of 2005). South Korea has done much better by economic criteria than India over the past fifty years, though its success also has to do with effective state institutions. Such examples make it clear that rapid industrialization is possible given that Ghana and South Korea were essentially at the same stage of development 50 years ago. But to active and aggressive export based policies South Korea has been transformed into a highly developed and wealthy nation. This presents lessons for Zimbabwe and SADC since with careful planning they could be where South Korea and other Asian nations are. The difference being that Zimbabwe could do it faster with the right policy.

Trade sanctions against a specific country are sometimes imposed, in order to punish that country for some action. An embargo, a severe form of externally imposed isolation, is a blockade of all trade by one country on another. For example, the United States has had an embargo against Cuba for over 40 years. A lot has been said about Zimbabwe in this regard. Whilst sanctions can hurt an economy they also present opportunity to develop internal capacity such as that was developed by Zimbabwe and South Africa when under sanctions ( pre 1980 and 1994 respectively).The two nations managed to build strong infrastructure and industrial capacity despite being under sanctions. The key appears to be national will at the top levels of government to develop internal capacity whilst minimizing expenditure on what is deemed luxuries.

Although there are usually few trade restrictions within countries, international trade is usually regulated by governmental quotas and restrictions, and often taxed by tariffs. Tariffs are usually on imports, but sometimes countries may impose export tariffs or subsidies.

Standards may be voluntarily adhered to by importing firms, or enforced by governments through a combination of employment and commercial law. Proposed and practiced fair trade policies vary widely, ranging from the commonly adhered to prohibition of goods made using slave labour to minimum price support schemes such as those for coffee in the 1980s. Non-governmental organizations also play a role in promoting fair trade standards by serving as independent monitors of compliance with fair-trade labelling requirements.


Traditionally trade was regulated through bilateral treaties between two nations. For centuries under the belief in Mercantilism most nations had high tariffs and many restrictions on international trade. In the 19th century, especially in Britain, a belief in free trade became paramount. This belief became the dominant thinking among western nations since then despite the acknowledgement that adoption of the policy coincided with the general decline of Great Britain. In the years since the Second World War, controversial multilateral treaties like the GATT and World Trade Organization have attempted to create a globally regulated trade structure. These trade agreements have often resulted in protest and discontent with claims of unfair trade that is not mutually beneficial. Nations such as Zimbabwe need to watch these treaties carefully as they can easily result in product dumping( poor quality imports) and ruin local industries similar to what happened to the textile industry which was ruined by cheap used clothes from the far east in the 1990s when Zimbabwe was pursuing ESAP.

Free trade is usually most strongly supported by the most economically powerful nations, though they often engage in selective protectionism for those industries which are strategically important such as the protective tariffs applied to agriculture by the United States and Europe. The Netherlands and the United Kingdom were both strong advocates of free trade when they were economically dominant, today the United States, the United Kingdom, Australia and Japan are its greatest proponents. However, many other countries (such as India, China and Russia) are increasingly becoming advocates of free trade as they become more economically powerful themselves. As tariff levels fall there is also an increasing willingness to negotiate non tariff measures, including foreign direct investment, procurement and trade facilitation. The latter looks at the transaction cost associated with meeting trade and customs procedures. For Zimbabwe and Africa it is critical to develop certain areas such value addition on minerals and agro produce which will help in increased export value plus give voice on international trade area.

Traditionally agricultural interests are usually in favour of free trade while manufacturing sectors often support protectionism. This has changed somewhat in recent years, however. In fact, agricultural lobbies, particularly in the United States, Europe and Japan, are chiefly responsible for particular rules in the major international trade treaties which allow for more protectionist measures in agriculture than for most other goods and services. This places Africa at a disadvantage given the lack of clout in many trade negotiations since the value of its exports are relatively low.The emergence of oil and other mineral wealth on the African continent presents Africa with a new platform to negotiate better terms of trade. Such negotiations are better done as a block than as individual countries. This is why is critical that Zimbabwe’s economic and political crisis be solved so that the country can play a more leading role in SADC as the trade block positions it self among other trading blocks
During recessions there is often strong domestic pressure to increase tariffs to protect domestic industries. This occurred around the world during the Great Depression. Many economists have attempted to portray tariffs as the underlining reason behind the collapse in world trade that many believe seriously deepened the depression.

Whilst there are many benefits of International trade there are attendant risks that have to be mitigated .The risks that exist in international trade can be divided into two major groups:

Economic risks
Risk of insolvency of the buyer,
Risk of protracted default - the failure of the buyer to pay the amount due within six months after the due date
Risk of non-acceptance
Surrendering economic sovereignty
Risk of Exchange rate

Political risks
Risk of cancellation or non-renewal of export or import licences
War risks
Risk of expropriation or confiscation of the importer's company
Risk of the imposition of an import ban after the shipment of the goods
Transfer risk - imposition of exchange controls by the importer's country or foreign currency shortages
Surrendering political sovereignty
Influence of political parties in importer's company

The above factors indicate the need for the Authorities to re-double their efforts to create conducive atmosphere for exporters to export. The policy should be clear and consistent to encourage investors to invest in those areas which will result in increased exports and foreign currency earnings. Investments in this area normally take a minimum of 6 to 18 months to start showing improvements so there is need to implement further reforms that support this initial step.

Gilbert Muponda is a Zimbabwe-born entrepreneur. He can be contacted gilbert@gilbertmuponda.com