Zim must utilise EU-EPA: AfDB

HARARE - The African Development Bank (AfDB) says Zimbabwe must utilise the interim Economic Partnership Agreement (EPA) it signed with the European Union (EU) to help boost exports and reduce a burgeoning trade deficit.

In 2009, Zimbabwe, together with Madagascar, Mauritius and Seychelles signed an agreement with the EU — which came into force in May 2012 — that allows the southern African countries to enjoy duty and quota free export into the EU for all products.

“The EPA gives Zimbabwean firms an opportunity to explore the large EU market, which constitutes about seven percent of the world population and generates about 25 percent of the world’s gross domestic product,” said the regional developmental institution.

The AfDB noted the fact that only four countries signed the EPA, gives Zimbabwe an advantage, specifically over South Africa, which dominates the regional market.

“This advantage is particularly helpful since Zimbabwean firms are still struggling to remain competitive in the global market. On a level playing field, Zimbabwe’s chances of successfully securing export contracts would be slim, given South Africa’s regional market dominance,” said the institution.

This comes after statistics from Zimstats reveal that the country had a $3,6 billion trade deficit gap for the year 2012, attributed to a low manufacturing base.

Early this year, Reserve Bank of Zimbabwe governor Gideon Gono warned that the current overreliance on imports could undermine the country’s economic recovery prospects.

“It doesn’t require rocket science to appreciate the fact that where a country is relying more and more on importation of finished products, particularly those that it can produce on its own, is on a path of self-destruction and deindustrialisation,” said Gono.

The central bank chief said there was need to strengthen and capacitate local industries.

“That is the only way we can stop the haemorrhaging of foreign exchange that is unnecessarily going out of the country; that is the only way we can reduce unemployment,” he said.

Economic experts also argue that exports into the EU could also include value added and finished products, which would still attract no duty.

This can be an opportunity to enhance value addition, especially in the clothing and textile industry, in which the country historically had some comparative advantage.

AfDB, however, said for this to be realised there are a lot of challenges with which Zimbabwean firms have to be able to deal.

“EU standard specification might be different from those to which Zimbabwe currently adheres, which might call for investment into new specifications. These standards could also amount to significant barriers to trade with the EU, which would have to be overcome,” said.

AfDB adding that the EU has also negotiated with other countries, such as Colombia and Singapore, which are more competitive than Zimbabwean firms.

“This implies that Zimbabwean firms should also invest in competitive production. This is also important since the EU is currently negotiating similar arrangements with countries including Malaysia, Thailand, Indonesia, the Philippines and India; these countries likely have competitive advantages over Zimbabwean firms in several product lines.

“Thus, if the opportunity is to be seized, this has to be done urgently — before competition becomes unbearably stiff,” said the regional financial institution.

“Thus, while the EU market represents opportunities that are ready to be grabbed, some challenges still exist. These need to be overcome in order for local companies to secure the EU market,” said AfDB.

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