Growth Options for Zimbabwe

Topics: International trade, Economics, Trade Pages: 11 (3089 words) Published: March 30, 2009



Group 10

Bright ChidyagwaiR074349A
Raymond MharaparaR074352B
Sarathiel ChaipaR901942L
Lovemore MurondaR074359Q
Lovemore HakunaR0019347
Fanuel SigodhoR9913490

Course:Business and Its Environment

Course Code:MBA 504

Lecturer:Mr. M. Kwaramba

Due Date:02 December 2007

QUESTION: Zimbabwe’s comparative advantage is restricted largely to resource-based activities. What are the advantages of such a situation and what scope is there for shifting into another growth path?

Zimbabwe is richly endowed with several different types of resources, such as gold, platinum, nickel, tin, copper, trees for timber, water bodies etc. This gives the country a comparative advantage, which is largely resource-based. The theory of comparative advantage states that, a country should export products it can produce at a lower comparative cost than those with whom it trades with (Samuelson & Nordhaus, 1988:689). Zimbabwe, for some years, was the bread-basket of southern Africa, relying more on agricultural products for trade within the Southern Africa Development Community (SADC). The country has been week regarding exports on manufactured products.

Comparative advantage, generally would dictates the industrial policy of a country, unless there are strong reasons not to. We define industrialisation as the process of building a country’s capacity to process raw materials and to manufacture goods for consumption or further production. There are five determinants of industrialisation namely: • Size of as country: The size of a country refers to the population size together with the spatial distribution of the country. Countries with high population and high per capita incomes would industrialise faster than small ones. • Geography: This refers to the resource endowment of a country and how it is located. Poorly resource-endowed countries may industrialise faster that those which are well endowed. This is due to the demand for goods and services e.g. South East Asia. This contrasts sharply with manufacturing, which tends to lag in resource-rich states since investment flows into high yielding resource-based industries like oil in Nigeria, tobacco in Zimbabwe, and copper in Zambia etc. • Government economic policy: government policy can favour a different direction in terms of its policies on interest rates, property rights, exchange rates etc, can increase or accelerate industrialisation. • Trade policy: this can influence pace of industrialisation, more on the same lines as point three above (Government economic policy). A country’s openness regarding trade can influence the pace of industrialisation, that is, exports give rise or impetus to demand while imports are the main channel of new technology, in the initial stages of industrialisation. • Infrastructure: Good infrastructure, like roads, telecommunications and others, favours industrial growth.

Research has shown that, industrialisation tries to follow three stages namely 1. Domestic production of non-durables, such as, food processing, tobacco, clothing and textiles, brewing of beer, etc 2. Production of durables

3. Processing of intermediates and capital goods

Four industrial options exist, which a country can follow, namely, import substitution (IS) industrialisation, resource-based (RB) industrialisation, export-led (EP) industrialisation, and finally, agricultural-demand led (AD) industrialisation.

Let us look at each of these industrialisation options in more detail, and in relation to the Zimbabwe situation.

Import substitution industrialisation
This entails an attempt to replace commodities being imported, usually manufactured goods, with domestic sources of production and supply. According to Gillis et al (1996), choice of an industrial strategy or policy is dependent on a country’s...
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