Local industry still needs protection
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.