Enhancing Exports in the New Dispensation – The critical role of MSMEs TRADE AND INVESTMENT AND UNPACKING CONSUMER PROTECTION BUSINESS SEMINAR Enhancing Exports in the New Dispensation – The critical role of MSMEs Mike Nyamazana Africa Corporate Advisors (Private) Limited 31 May 2018

Presentation Road Map The Export challenge The possible causes The areas of opportunity – SMEs Necessary conditions for export enhancement Recap and conclusion

The Export challenge

The export challenge…(contd.) Exports are marginally improving At $3.48 billion, they are still below the 2013 peak position of $3.88 billion Imports are declining – but this is not good news Declining mainly because of SI 64 and the lack of foreign currency which affects imports of raw materials.

The export challenge The 2018 picture is also not too different The trade deficit for the first 4 months is not reducing significantly. Exports appear stagnant- If we annualise the figures for the first three or four months we may at best match the 2017 figures.

The export challenge … (contd) Exports have been declining over the last 5 years Huge budget deficits as a result SI 64 only choked off demand for imports, but had little impact on exports Despite SI 64, foreign currency shortages continue We need new policies and practices to boost exports

Modest export growth - the possible causes Dollarisation – too strong a currency; leading to lack of competitiveness. Fall in productivity – there is very little to export Slow pace of formalisation of the MSME sector Focus on import controls rather than export incentivisation and facilitation

SMES – the real opportunity (why) Sheer numbers – they have had an impact on employment locally (both formal and informal) They are closer to the new economy (smaller production facilities, modern equipment, etc. i.e. lower switching costs. ICT driven – linked to modern world Empirical evidence shows that if they are well supported they can contribute to the export drive

The necessary, practical conditions These are at three levels Policy level Industry level Financial sector level

Necessary interventions – Policy level We have seen interventions by the authorities in respect of: Ease of Doing Business (EODB) reforms However, more needs to be done. The agreed reforms have taken too long to take effect. The various legislative changes naturally take long to effect. But many of the measures to improve the cost of doing business (CODB) do not require legislative changes.

Policy level interventions (contd). Free export documentation – relaxed but still something is paid. RBZ export incentive packages: have been introduced but uptake is still low partly because the amount is in local currency. Companies require foreign currency for imports of raw materials. Post election economic policy – to focus on programme of return to local currency and give premium on foreign currency.

Policy level interventions (contd). Post election economic policy to focus on programme of return to local currency This will give premium on foreign currency and incentivise exporters in the strongest terms Will also choke off demand for unnecessary imports. Biggest impact will be on restoration of competitiveness

Industry level interventions Business linkages: Big business and MSMEs – to facilitate indirect exports Lines of credit with international funders – MSMEs have access to international support i.e. capacity building and revolving funds

Financial sector interventions Banking sector: Lines of credit for exports. The recent Standard Chartered facility is an example But more needs to be done The export sector is the one major area of growth with a lot of potential in the new dispensation

Financial sector interventions (contd) Foreign currency accounts (FCAs) an official return of the FCAs will create a real incentive for exports. This incentive was lost with the dollarisation or multicurrency regime This should benefit all exporters who will be able to import raw materials Admittedly the Z$B (bond note) incentive payments assist in CODB but are outweighed by the cost of getting foreign currency

Recap and Conclusion The recommendation for enhancing exports thus lie in: An active programme for the formalisation of the MSME sector The introduction of a local currency The introduction of FCA retentions The focus on removing unnecessary costs by introducing free export documentation

THANK YOU

Contact details – Mike Nyamazana Address: 15 Downie Avenue Belgravia, Harare; P O Box HG853, Highlands, Harare, Zimbabwe Switchboard +263 242 252978; Direct Line  +263 242 706992; Cell/mobile:  +263 772 203633 Email: mnyamazana@africacorp.co.zw, info@africacorp.co.zw; Website: www.africacorp.co.zw Email:  mnyamazana@africacorp.co.zw; Skype: nyamazana.mike Africa Corporate Advisors (Private) Limited