Lo­cal in­dus­try still needs pro­tec­tion

The Sunday Mail (Zimbabwe) - - OPINION & ANALYSIS - Cle­mence Machadu In­sight

HOWDY folks! Th­ese are in­ter­est­ing times, as coun­tries, both rich and poor, adopt in­ward-look­ing poli­cies that could take us back to the Age of Mer­can­til­ism.

One won­ders what is in­form­ing this new think­ing af­ter years of pur­su­ing glob­al­i­sa­tion and deeper in­te­gra­tion through free trade.

Zim­babwe, too, has not been spared as we have had to pro­tect our lo­cal in­dus­try, much to the cha­grin of neigh­bour­ing South Africa.

The United Na­tions Con­fer­ence on Trade and De­vel­op­ment has rang alarm bells, stat­ing that the pace of in­ward-look­ing in the world, mainly through es­ca­lat­ing tar­iffs and other trade pol­icy tools, might trig­ger trade wars which have ad­verse ef­fects on global eco­nomic growth.

UNCTAD es­ti­mates that Zim­babwe faces an ex­port tar­iff in­crease of about 54 per­cent in the event of a full-blown trade war.

For a coun­try whose main source of for­eign ex­change is ex­ports, you can only imag­ine what will hap­pen if Zim­babwe’s for­eign mar­ket ac­cess con­di­tions are tight­ened.

You may re­call from my pre­vi­ous writ­ings that I have al­ways ar­gued that in­ward-look­ing poli­cies should be care­fully struc­tured and should never be used in per­pe­tu­ity.

Faced with ris­ing im­ports and low ex­ports, Zim­babwe has over the years sought to re­duce its over reliance on im­ports and to grow its ex­ports through mea­sures that may qual­ify as beg­gar-thy-neigh­bour poli­cies.

Such poli­cies mainly aim at ad­dress­ing a coun­try’s own do­mes­tic prob­lems with­out much re­gard to the ul­ti­mate con­se­quences to other na­tions.

Zim­babwe in­tro­duced Statu­tory In­stru­ment 64 in 2016 to con­trol the im­port of a num­ber of goods, with the aim of pro­mot­ing the growth of lo­cal in­dus­tries. SI 122 was gazetted to house all pro­tec­tive in­stru­ments un­der one roof.

But why are the pro­tected en­ti­ties fail­ing to bring prod­ucts to the mar­ket?

Folks, the chal­lenge with pro­tec­tion is that those that re­ceive it al­ways use an er­ro­neous im­pres­sion to as­cer­tain its suc­cess.

We have heard in­dus­tri­al­ists go­ing to town about how pro­tec­tion has in­creased their ca­pac­ity util­i­sa­tion lev­els, with some man­ag­ing to re­cap­i­talise and em­ploy more. But there is more to it.

As long as that growth is not or­ganic, it will al­ways cre­ate prob­lems even­tu­ally. It’s like build­ing a house of cards.

Some of the key in­di­ca­tors that should be fo­cused on are price and qual­ity com­pet­i­tive­ness.

If your price is high com­pared to sub­sti­tutes on the in­ter­na­tional mar­ket, then even if you achieve 100 per­cent ca­pac­ity util­i­sa­tion un­der pro­tec­tion, it will abruptly go down to zero if that pro­tec­tion is re­moved. Qual­ity is also of im­por­tance. You see, even if you pro­duce what is enough to meet do­mes­tic re­quire­ments while pro­tected, yet fail to meet or sur­pass the qual­ity of sub­sti­tutes on the in­ter­na­tional mar­ket, you will be wast­ing your re­sources as the mar­ket will re­ject your prod­ucts.

Around July, I made an ob­ser­va­tion that while lo­cally made salad creams and may­on­naise were ac­tu­ally cheaper than im­ported sub­sti­tutes, folks were choos­ing to buy the ex­pen­sive im­ports be­cause they best sat­is­fied their tastes and pref­er­ences.

The other day I bought a bot­tle of lo­cally made “pure honey” in one of the main­stream su­per­mar­kets, only to find it con­tain­ing sugar syrup with vis­i­ble crys­tals at the bot­tom.

So, or­ganic growth should re­ally be the yard­stick used to mea­sure the progress of pro­tected com­pa­nies.

We all know ca­pac­ity util­i­sa­tion grows once the pro­tec­tion but­ton is pressed be­cause de­mand that was be­ing served by im­ports would have shifted to lo­cal prod­ucts, but that de­mand should be earned and sus­tained.

Any­thing short of that does not cut it!

You see, one of the rea­sons why peo­ple still smug­gle im­ports into the coun­try is be­cause they are ei­ther cheap or have bet­ter qual­ity.

But this is not to say that we have poor prod­ucts in Zim­babwe.

In­deed, we have great brands such as Ma­zoe, Tan­ganda and oth­ers which are do­ing quite well lo­cally and in­ter­na­tion­ally.

Folks, while it might sound con­tro­ver­sial, when we pro­tected lo­cal com­pa­nies in 2016, we did so with­out a plan.

It was just to sat­isfy the cry­ba­bies in in­dus­try who were cry­ing the loud­est, which is why most in­dus­tries have now mas­tered the art of cry­ing.

There was re­ally no plan. Even the then in­dus­trial pol­icy later ex­pired the same year and it has not been re­placed to this day. So we were just shoot­ing in the dark through piece­meal poli­cies.

I am not re­ally sur­prised that we are where we are to­day.

You see, while I un­der­stand that there are a num­ber of chal­lenges be­yond lo­cal in­dus­try’s con­trol, I still be­lieve that we could be talk­ing of dif­fer­ent out­comes right now if things had been done dif­fer­ently by dif­fer­ent stake­hold­ers.

Folks, now that Govern­ment has temporarily set aside SI 122, I think it should also now dawn on us that there is more to pro­tec­tion than just rais­ing tar­iffs and im­pos­ing bans and quo­tas.

I think the short-term sus­pen­sion of SI 122 is a nec­es­sary evil for the liveli­hoods of cit­i­zens. What should be noted is that lo­cal in­dus­try is lack­ing ca­pac­ity to meet lo­cal de­mand due to in­ad­e­quate forex avail­abil­ity.

Tak­ing no ac­tion was only go­ing to af­fect mil­lions of peo­ple, who were fail­ing to ac­cess ba­sic com­modi­ties.

The lift­ing of SI 122 is there­fore go­ing to al­low the im­port com­po­nent to avert short­ages and sta­bilise prices.

South African man­u­fac­tur­ers can now ex­port to Zim­babwe, with mil­lions of Zim­bab­weans liv­ing in South Africa also be­ing able to send goods to their friends and fam­i­lies back home (es­pe­cially this time of the year when Christ­mas’ sil­ver bells are ring­ing), while those with off­shore and free funds can also im­port.

How­ever, I think there should be a limit to how much is go­ing to be im­ported as this should be rec­on­ciled with the lo­cal in­dus­try’s re­cov­ery cy­cles.

It is, there­fore, im­por­tant for Govern­ment to work with dif­fer­ent stake­hold­ers to es­tab­lish the quan­tum to be im­ported un­til lo­cal in­dus­try is able to re­cover.

Oth­er­wise, if this open win­dow is abused by im­port­ing ex­ces­sively, it will hurt the lo­cal in­dus­try as there will be no de­mand for their prod­ucts, which might re­sult in losses in jobs, taxes, and other strate­gic goals.

The in­dus­try has the po­ten­tial to re­form and be­come com­pet­i­tive, if man­aged well both at mi­cro and macro lev­els.

Folks, what Zim­babwe ac­tu­ally needs right now is an In­dus­trial Pro­tec­tion Pol­icy which speaks to how to bring com­pet­i­tive­ness to pro­tected en­ti­ties.

The pow­ers that be should use this pe­riod of im­port lib­er­al­i­sa­tion to craft such a pol­icy.

While there might be a cri­te­ria for who qual­i­fies for pro­tec­tion, such as the one used by Com­pe­ti­tion and Tar­iffs Com­mis­sion, there are no rules to mon­i­tor and eval­u­ate if a pro­tected com­pany is do­ing any­thing to show that it de­serves the spe­cial favour.

Pro­tec­tion should be like a schol­ar­ship folks; if you pride your­self in the mere fact that you are at­tend­ing all classes, yet fail­ing the ex­ams, then that schol­ar­ship is re­voked. All the “ex­am­i­na­tion ques­tions” for pro­tected com­pa­nies should be clearly set out in the In­dus­trial Pro­tec­tion Pol­icy I al­luded to above.

The same pol­icy should re­quire in­dus­try to take re­al­is­tic and time­framed strate­gies to be­come com­pet­i­tive.

Com­pa­nies or sec­tors granted pro­tec­tion should also be granted pri­or­ity sta­tus in the coun­try’s in­dus­trial pol­icy, which should be ur­gently launched to chart Zim­babwe’s in­dus­tri­al­i­sa­tion path.

All pro­tected com­pa­nies should be re­quired to sub­mit their plans de­tail­ing con­crete mea­sures they will take to be­come price and qual­ity com­pet­i­tive while sur­pass­ing in­ter­na­tional bench­marks and meet­ing de­mand, with pro­tec­tion only granted on the strength of such sub­mis­sions.

There should be a vi­brant mon­i­tor­ing and eval­u­a­tion task­force in place to en­sure that pro­tected com­pa­nies are liv­ing up to their prom­ises, oth­er­wise it will be a waste of time to pro­tect com­pa­nies that do not re­form.

But then again, we are not as swift as we should be when it comes to pol­icy mak­ing.

Surely, why does it take two years to re­place im­por­tant ex­pired poli­cies such as the In­dus­tri­al­i­sa­tion De­vel­op­ment Pol­icy as well as the Na­tional Trade Pol­icy?

To be open for busi­ness, we need such poli­cies in place.

Later folks!

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