INSIGHT: Punctuating the protectionist discourse

14 Dec, 2014 - 00:12 0 Views

The Sunday Mail

A number of people I have interacted with since penning the piece titled “When captains sail to State House” have been of the view that raising import tariffs is not the key to fostering economic turnaround in general, and the manufacturing renaissance in particular.

Their broad argument is that import tariff increases would result in price increases and that it is not good for an economy already facing a liquidity crisis and suppressed domestic demand.

For Diana, who was saving to buy a car, the increase in the duty for cars by the Mid-Term Fiscal Policy Review, meant that she had to pay more money now.

It also seems that the protected vehicle manufacturers, Willowvale Mazda Motor Industries, specifically, has not been capitalised for it to benefit from this incubation facility.

So why protect it?

All these important questions compelled me to revisit this crucial discourse which I wish to attempt to punctuate in the interest of informing how it ought to be optimally implemented.

Please don’t take offence, but if you do, still that helps.

It is important for this subject to be demystified, especially noting that the 2015 National Budget again took a protective stance and raised import duties on additional manufactured products, while extending the period of protection for some goods whose period of protection was coming to an end.

From a general perspective, the opening of borders is beneficial as it allows countries to tap on the merits of specialisation and mass production.

However, if we look it from a national, social and economic viewpoint, it presents the reality that the terms of trade will favour richer and highly industrialised countries at our expense.

An ideal protection strategy requires that the incubated sub-sectors have concrete strategies in place to implement so that they can increase capacity and competitiveness within specified timelines.

It is fortunate that in our case, it is happening at a time when Government is envisaging to do some value chain analyses on priority productive sectors.

This will abet the process and foster the likelihood of success.

In the short-run, yes, prices may marginally increase, while those strategies are taking effect.

However, it is the only sustainable way of ensuring that our great grandchildren won’t buy bread at the same price we bought it, if not higher. There should also be moral suasion to appeal to consumers on the benefits of supporting local industries by buying locally- manufactured goods.

Which brings me to my problem with the “Buy Zimbabwe Campaign”.

Although buy local initiatives, in the context of regional integration, are viewed as non-tariff barriers, I believe they are necessary evils.

While the word “buy” from that phrase is referring to the consumer, it appears that BZC is spending much of its focus on producers.

Most, if not all, BZC awards are for manufacturers, yet the consumer is the one who really should be awarded for “Buying Zimbabwe”.

This is, however, not to say that the producer is not important. But the consumer naturally happens to be the most important piece of the puzzle.

So heads up to BZC.

But the companies, too, whether protected or not, have to play their part to withstand competition.

Competition from imports is the biggest challenge facing industry, according to the Confederation of Zimbabwe Industries’ 2014 study.

Individual manufacturing companies, too, can bear true testimony to these claims.

In one of their term financial statements, Art Corporation said: “The persisting liquidity constraints in the economy, as well as competition from imports significantly constrained business’ ability.”

So we really can put faces to CZI’s claims.

The above, therefore, formulates the basis under which the 2015 National Budget essentially took a protective stance.

If the manufacturing industry has identified competition from imports as their biggest problem, then let us have the biggest-solution-for-the-biggest-problem mindset.

From my understanding, protection is not just granted from the blue.

It follows a very long and bureaucratic process that involves a couple of Government ministries and agencies.

The Competition and Tariffs Commission is responsible for receiving tariff protection applications.

CTC conducts extensive research to establish whether the applicant’s sector really needs protection and then recommends to its parent ministry, the Ministry of Industry and Commerce, which, in turn, recommends to the Ministry of Finance and Economic Development.

So when you see Finance Minister Patrick Chinamasa taking a protective stance, it’s really an issue that would have passed through fire.

Manufacturing has been identified as the engine of sustainable economic growth.

Yet, its contribution to GDP is shrinking.

Manufacturing contributed 17 percent to GDP in 1965 and 25 percent in 1980. Now we are down to 13 percent.

In retrospect, it appears that we realised reasonable economic conditions and manufacturing competitiveness when we had strategic protection, and the very opposite with wreckless import liberalisation.

In the 1980s, as much as half the country’s output was competitive in international markets.

In 1986, manufacturing value-added growth was three times the African average, thanks to import controls.

Then came the Economic Structural Adjustment Programme, which brought import substitution.

The results spoke for themselves; the percentage of manufacturing to exports fell from 31 percent in 1991 to 22 percent in 1996.

Manufacturing value-added growth per annum slowed down from 3,4 percent between 1980 and 1990 to 2,1 percent during Esap.

After Esap, the downfall persisted and growth in the manufacturing sector output was negative between 1997 and 2008 (save for 2005).

Cumulatively, manufacturing output growth shrunk by 78,8 percent between 1997 and 2008.

Yet, we know that the Asian Tigers realised their famous miraculous growth, thanks to heavy reliance on significant protection.

We should see and learn this as we are Looking East.

Considering that not less than 60 percent of our exports are raw materials, we really are still an extractive sector-oriented economy that has to transition into manufacturing. That transition will remain a dream if protection is not utilised. There shall come a time when our industries will be operating at full capacity, highly competitive and with no need for tariff protection at all.

Sadly, now is not that time.

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