Local content policy: Local action for global competitiveness

THE golden era of exploitation is over, today the rules of the game have to change: developing local economies, stimulating industrial development, increasing local capability, building a skilled workforce and creating a competitive supplier base also referred to as local content, should be the minimum requirements for doing business with any country.

Buy Zimbabwe serves as the Secretariat of the Local Content Project chaired by the Confederation of Zimbabwe Industries and comprising key institutions such as the Ministry of Industry, Commerce and Enterprise Development, Zimbabwe National Chamber of Commerce, Retailers Associations, Farmers Associations, Consumer Council of Zimbabwe, and the Ministry of Finance and Economic Planning, among others.

The local content policy is expected to stimulate use of local factors of production, such as labour, capital, supplies of goods and services, to create value in the domestic economy and hence expand the industrial sector.

Over the years, Sadc consistently remained the largest trading market for Zimbabwe. The country’s imports from Sadc reached a high of $5.6 billion in 2011 before declining to $2.7 billion in 2016. This decline is a function of the country’s weakening income base and import restriction measures instituted by Government. Zimbabwe consistently runs a trade deficit in Sadc. Between 2009 and 2016, Zimbabwe had a cumulative trade deficit of $8,9 billion.

In June 2016, Government of Zimbabwe introduced interim measures aimed at reducing the trade deficit and resuscitating local industry, whose performance had been immensely affected by the influx of imported products. The most notable of these was the gazetting of Statutory Instrument (SI) 64 of 2016 which regulated the importation of selected products, by removing them from the Open General Import Licence (OGIL).

According to the Minister of Industry and Commerce, these measures were introduced after recommendations from, “local industry which was based on an extensive study and consultations with respective sector players on the locally available manufacturing capacities. Imports are only allowed on instances where the local producers are not able to satisfy local demand.”

Briefly, the rationale for SI 64 was the need by Government to deal with the high import bill, boost local capacity utilisation, avert company closures and address challenges stemming from the use of the multi-currency regime. SI 64 has been credited for the reduction in the import bill, an increase in capacity utilisation and/or employment levels, as well as new investments.

The introduction of SI 64 has however been met with stiff resistance within SADC, especially from South Africa. Several gaps in the SI 64 policy have been identified which affect effective regional trade and inclusive industrialisation across all value chains in the economy. SI 64 currently protects select industry without considering integration across value chains. The policy for example protects against importation of cooking oil but not the raw materials required for cooking oil production. Secondly, SI 64 does not consider areas of competitive advantage for the economy resulting in scarce resources being expended in areas where the country is not competitive. Furthermore, the policy violated global trade agreements Zimbabwe has signed up to. The local content policy is largely needed as a modification of the SI 64. Local content policies have been identified as a possible solution to address the gaps of SI 64 however little is understood of the feasibility of implementing such policies in the Zimbabwean context.

The local content policy has been a major tool for industrial growth in resource-rich countries. Implementation of a local content policy can lead to job creation, boost investment and local production, facilitation of research and development, technology transfer and building of a competitive local industry. Framing of local content provisions, targets, and other local content objectives, need to be carefully quantified, adapted to the local context and be collaborative to other policies. Local content provisions can be key to translating resource investments into sustainable benefits for the local economy and targeted locals.

The overall objective of the local content policy and implementation framework for Zimbabwe as this is more popular in the resource rich countries is to establish the impact on the growth of the industrial sector. The policy will touch on a number of issues that affect the viability of the industrial sector starting from establishing the perceptions of industry on local content as a policy more so to establish companies’ production capacity and establish specific product’s national demand;

The major tenant of the policy is to establish the minimum threshold (in percentage) that can be produced locally and to establish sectors/products which have competitiveness potential referred as priority sectors. The current existing formulated policies have implications for local content development in the country. Therefore, review of these policies reveals the need for a dedicated local content policy for the country to identify capacity and regulatory requirements which must be in place to make LC work;

The local content policy will impact positively on production and consumer prices. It is widely known that the cost of production is relatively high compared to the region, with major costs being taxes, cost of utilities and the cost of labour. Due to the high cost of production, the burden is transferred to the consumer, hence the local content policy will ensure that these challenges are addressed and local products are competitive when compared with regional and international products. To estimate the possible impact of the LC policy on employment to date the share of informal employment to total employment increased from 84,2 percent in 2011 to over 94 percent in 2016. The Local policy will aid in addressing the huge challenge that exist .

The country is struggling due to the existing external debt as well as the perplexing trade deficit the policy will address the balance of payment gap by import substitution as well as export growth To estimate the impact of local content on tax revenue;

Local content policy is aimed at ensuring rapid creation of employment, broadening and deepening of forward and backward linkages for the local procurement and supply of goods and services, leading to the development of new industries and increased capacity utilisation in existing industries, and resultantly spurring increased consumption of local goods and services, and a reduction in imports and increased exports

The implementation of local content requirements will be preceded by the gazetting of a local content Act and sectoral local content regulations with provision for the establishment of sectoral local content regulatory authorities, committees and rating agencies.