Balance of Trade (BoT)
The Balance of Trade (BoT) is the difference between the total value of exports and the total value of imports of a country within a time period. It is also referred to as trade balance, commercial balance or net exports (NX). BoT is the largest portion of the Balance of Payments (BoP), which is the record of a country’s international finance activities.
The Balance of Trade shows whether the country had achieved to sell locally produced goods and services to foreign countries (export) more than it bought products from abroad (import) in the focused period. Therefore, BoT is considered as the main economic indicator of a country’s international commerce activities and an important parameter to assess economic growth (Economic Growth in Zimbabwe).
When the total value of exports is higher than imports, the Balance of Trade is positive and yields a trade surplus. A trade surplus means that the country made profits from international trade. The government can use this extra budget to increase either local investments to enhance the standard of living, or foreign investments to create new income sources for the country.
When the total value of exports is lower than imports, the Balance of Trade is negative and yields a trade deficit. A trade deficit means that the country is spending more than it earns in the global arena. Consequently, the government might be forced to implement new taxes or borrow from other countries or international money organisations like International Money Fund (IMF) to cover for the budget shortage.
Components of the Balance of Trade
Economic products included in the Balance of Trade calculation are categorised into goods or services, and their prices have direct influence on the export and import values.
Goods are tangible merchandise produced locally, ranging anywhere from food and medicine to automotive and energy.
Services are based on human interactions and involve offering support for or assuming the responsibility of performing a task. The scope of services can range anywhere from entertainment and education to sales and health care.
How the Balance of Trade Affects the Economy?
The Balance of Trade reveals whether the country is generating extra resources beyond its local capacity to create value. As a major indicator of economic growth potential and an important part of the Gross Domestic Product (GDP), the BoT figures are carefully monitored by governments and central banks to adjust their policies. A trade surplus usually increases the GDP, while a trade deficit weakens it.
Zimbabwe's Balance of Trade
Zimbabwe's trade balance improved in September 2019 resulting in the country's monthly trade imbalance (trade deficit) narrowing 34,9 percent to US$25,3 million from US$38,9 million in August 2019 on increased trade volumes.
This was according to the Reserve Bank of Zimbabwe's report for the month of September 2019.
The balance of trade in Zimbabwe averaged minus US$242,14 million from 1991 to 2019, reaching an all time high of US$293 million in December of 2000 and a record low of minus US$395,7 million in December of 2009. Trade figures from the Reserve Bank of Zimbabwe showed that the country's overall value of trade increased by 7,2 percent to US$782,2 million in September 2019 driven by increases in both merchandise exports and imports.
Exports increased by 9,5 percent to US$378,4 million in the period under review on account of increases in export earnings from flue cured tobacco (41 percent), nickel ores and concentrates (31,8 percent), and gold (7,7 percent).
The export basket continued to be biased towards primary commodities, with gold, nickel and flue-cured tobacco contributing about 72 percent of the country's export earnings, during the period under review. Zimbabwe's exports were destined for South Africa, which received 41 percent, followed by United Arab Emirate at 27 percent and Mozambique at 8,3 percent while the balance was shared by countries mostly in Africa.
Merchandise imports rose by 5 percent to US$403,7 million in September 2019, from US$384,4 million in August. The increase was largely on account of higher imports of diesel, fertilisers, medicines and electricity.
The country’s import sources largely comprised of South Africa (40,2 percent), Singapore (23,2 percent), China (7,6 percent), India (4,4 percent) and Mauritius.
September 2020 Balance of Trade
- The value of total exports in September 2020 was US$398.8 million. This was a slight increase of 2.4% from the value of total exports in August 2020, which was about US$389.3 million.
- During the same period, imports increased by 9.0% to US$441.4 million from US$404.9 million in August 2020. While a positive trade balance was maintained for the four months in a row at the end of 2019, the trade balance has been negative from February to September 2020.