HARARE (Zimbabwe Investor) - Heated debate is raging whether Zimbabwe’s economy can withstand the pressures associated with the Economic Partnership Agreements (EPAs) signed between the African, Caribbean and Pacific group of states (ACP) and the European Union (EU) countries with the objective of widening the country’s export base as well as to integrate the country’s economy into the global market.

Despite the Government of Zimbabwe having signed the EPAs on an interim basis, it should be noted that the multilateral agreement has both positive and negative side-effects to Zimbabwe’s slowly recovering economy over the medium to long term; repercussions which if not carefully considered could be detrimental for the country’s economic future.

The ACP-EU agreements were ratified in 2009 and negotiations for the full implementation of the EPAs should be completed by the end of the year 2010. Part of the agreement is that, together with Mauritius, Seychelles and Madagascar, Zimbabwe must liberalize its markets to EU imports over the next 15 years by gradually removing tariffs of between 80% and 98% of products from the block.

More Than Meets the Eye

It is arguably a profound conundrum as to whether Zimbabwe’s economy stands to benefit substantially through integration into the global economy considering its fragile state and the stiff competition posed by global competition. Once the EPAs are completed by year end, local firms will have to be prepared to withstand the potential competition posed by an influx of products from the EU when 45% of its product lines enter Zimbabwe duty free from 2013. The figure is anticipated to grow to 80% by the year 2022.

The major advantage of EPAs is said be that they will enhance regional integration with a spin-off benefit through the spill-over effect and the absence of individual bilateral agreements. Members will have to enter into deals as blocks. Zimbabwe ostensibly stands to benefit in this regard as key economic growth drivers such as mining, manufacturing, tourism and agriculture benefit, as investor interest grows owing to trade interaction between both blocks.

Interestingly, the Confederation of Zimbabwe Industries (CZI) recently held a workshop where it was concurred that depending on the nature of one’s business it would be imperative that it is globally competitive to ensure that it survives in the face of an influx of EU goods.

Certainly such an envisaged scenario forces local companies to adopt an aggressive investment strategy aimed at boosting capacity utilization and producing quality goods that the market stands to benefit from. It will no longer be an era of simple profiteering as has generally been the case.

“We need to rethink our business strategies so that we can fully benefit from these agreements,” said CZI Chief Economist Lorraine Chikanya of the EPAs which also present the local industry with the opportunities to penetrate the EU.

The Loose Connection

EU producers have a technological advantage and production facilities backed by Chinese and Indian manufacturing relationship developed in recent years not to mention massive export subsidies. Farming subsidies have already caused tensions between the developed and developing world with the latter calling them an unfair trade practice.

Zimbabwean products will have to meet stringent requirements with regard to standards and environmental impact requirements demanded by EU legislation before they can find a market. The effect of this could be European companies insisting on certain quality control centres within the local industry adding another layer of cost to the price of the goods.

Local industry wants the government to understand their position before signing these agreements. With great trepidation, they are pointing out that they may not be ready to face the sophisticated level of competition and standards required by the EU to be able to export on a larger scale. Compounding the challenge the local industry is faced with serious liquidity and operational constraints and unpredictable macro-economic conditions that ensure local business operations oscillate between occasional profits and regular losses.

Way Forward

Considering the challenges that local firms are faced with regarding low capacity utilization, which currently stands at 32.3%, dilapidated equipment and the punitive cost of finance, it would be an excusable assertion that EPAs are an economic threat. CZI Vice President Mr Joseph Kanyekanye suggests that Government should renegotiate the EPAs with regard to the 2013 deadline in order to give local firms ample time to find their footing. Delaying the inevitable is a waste of time as long as the key imperative of the political standoff is not immediately addressed.

Some local economists contend that local companies need to prepare for EPAs through increasing exports in strategic economic sectors, such as mining and manufacturing. Certainly a lot needs to be done in order to fully enhance the latter sector. Another proffered solution is the need to create a strategic balance between imports and exports.

Realistically, this balance can best be achieved by urgently addressing the negative balance of payments position. Yet, once again that hinges on the political agreement being implemented for the common good and monetary and fiscal direction with a common purpose.