INSIGHT: Protection makes ‘Made in Zimbabwe’ happen

28 Sep, 2014 - 06:09 0 Views

The Sunday Mail

Confederation of Zimbabwe Industries president Mr Charles Msipa has said they will release the results of their 2014 manufacturing sector survey next month.

The spotlight will certainly be on average capacity utilisation. I strongly believe that for the third year in a row, average capacity utilisation will fall again; chiefly due to the perennial bug, or – should I say – the usual suspect of competition from imports.

In real terms, the 2014 National Budget Statement initially projected the manufacturing sector to grow by 3,2 percent; when the economy was then projected to grow by 6,1 percent in aggregate terms.

However, the Mid-Term Fiscal Review cuts economic growth projection to 3,1 percent, citing “under performance in mining and manufacturing”.

When industrial capacity is perennially constrained by imports, which are proliferating in the country like nobody’s business, taking advantage of the fairly lower tariff regime, it then complies with logic to protect the local industry by raising import duties.

This does not contradict existing policy.

In fact, Government was categorical in the Industrial Development Policy that alignment of the Republic’s tariff regime will be primarily an instrument of industrialisation.

“The adjustments sought will, in the majority of cases, require a raise in tariff levels,” reads the IDP in part.

Section 13(c) of the Constitution calls upon Government to “foster the development of industrial and commercial enterprises”.

Foreign industries are not the ones being referred to, I assume.

Armed with the above wisdom, Government recently protected about 10 manufacturing sub-sectors. Some of the products which were protected include meat, edible meat offals, dairy produce, vegetables and miscellaneous edible preparations, beverages, mineral products, perfumery, cosmetics and soaps, a range of vehicles, handsets and furniture.

The independent media responded with a series of headlines giving the heads-up on price increases, although I really didn’t see the “man-bites-dog” philosophy in it.

The media had to only release the acceleration peddle when some cited the case of Delta Corporation. Although the beverages sub-sector was protected, Delta actually responded by cutting prices across the spectrum of its product range.

This is, however, not to rebuff the fact that protection does result in price increases in the short run.

The ultimate goal of protection is to foster competitiveness, both in terms of price and quality, and to abet industrial production. However, that process requires the patience and support of all stakeholders – Government, consumers, banks, shareholders, you name it; not to mention the media, of course.

The Zimbabwe Independent, a fortnight ago, gave some interesting musings about protection, some of them laughable, I should confess.

“Borrowing largely from other economies such as China which thrived on government protectionism to protect infant industries which later on propelled development, Chinamasa ironically failed to realise Zimbabwe has no meaningful infant industries to safeguard,” argued the paper.

The first mistake was to confuse protection with incubation.

Protection can be granted to any company that is facing viability problems due to competition from imports, but has the potential to become competitive when it implements certain concrete measures within specified time lines.

It is during the time of implementation of those measures that protection is sought. This allows for those measures not to be frustrated. The strategies may include acquisition of modern machinery and technology.

Infant industries require incubation to give them the warmth to hatch into giants. The incubation of infant industries is not necessarily confined to tariff protection. They may be given freebies like tax holiday, lower utility tariffs, you name it.

But let us talk about protection, which has been a topical issue lately.

Consumers play a major role in supporting the protected companies as they will have to shift their demand for imported goods to demand the locally-manufactured substitutes. This will also increase industrial production and capacity utilisation.

The increased industrial production will also result in enormous economies of scale being accrued; further increasing the production efficiency of the company.

Since labour has derived demand, the increased demand for domestic products will signal industrialists to employ more people. Jobs created!

What must be noted is that all countries in the world protect their local industries, the reason why they all have sensitive lists containing products which may never be allowed into their respective countries. The story of protection can, therefore, not be told by China only. The Zimbabwe Independent went on to claim: “Protection works better in an economy with vibrant production, not in this scenario whereby companies are closing on a daily basis. How do you protect collapsing industries?”

Reminds me of one Jesus, who once said, “Those who are well have no need of a physician, but those who are sick.” (Matthew 9:12).

Why do economies with vibrant production need protection?

Those trying to compete with them will simply fall by the wayside. This is the best scenario to engage the protection gear to full blast in Zimbabwe. It is folly to, therefore, ask: “How do you protect collapsing industries?”

By raising import tariffs – that would be my answer! Manufacturing has gone abroad, taking along a quantum of jobs with it. A case in point is that of the textiles sub-sector, which used to employ 20 000 people but is now down to 3 000. Of the estimated cotton crop of over 200 million kilogrammes this season, 96 percent will be exported as basic lint. A paltry four percent will be value-added locally.

The wisdom of the Zimbabwe Independent apparently implies that a textiles company like David Whitehead is a grown-up company and should not be protected. If it was a joke, it was a poor one.

We need to bring manufacturing back home where it belongs and protection is the right step in that direction. It, however, must be augmented by additional measures such as zero duty on capital goods and raw material importation.

Further, there should be a dedicated task force assessing concrete plans by protected companies. The plans must comprehensively detail the measures they have to become competitive. The task force will effectively monitor and evaluate such plans to ensure protection achieves its intended objectives. It can be composed of officers from the Ministry of Industry and Commerce, CZI, the Competition and Tariffs Commission and the Zimbabwe National Chamber of Commerce.

It would be reckless to grant protection to companies that have no plan at all to become competitive.

We have heard reports of companies that, after being protected, went on to smuggle in the very same imports, strip their clothes and re-dress them with the “Proudly Zimbabwean” insignia.

Government plays a major role in ensuring the protected companies thrive by making available funds which they can access at concessionary rates to revive operations.

Already, we have received commitment from Russia that it will populate our banks with money for on-lending to productive sectors, which is good news.

Government has also indicated that it plans to establish a Special Purpose Vehicle to mobilise funding from external institutions to support local industry.

Industry and Commerce Minister Mike Bimha is actually on record as saying: “IDC (Industrial Development Corporation) may have some issues since it was under sanctions. We are, therefore, still deciding on the need to set up a Special Purpose Vehicle… this is because you want some institution that is there to support industry, deriving authority from Government.”

Where is the industrial development bank alluded to in the current IDP? The IDP actually evaluates that: “The absence of an institutional funding mechanism that is well-resourced and specifically-targeted to the manufacturing sector was the biggest drawback of the IDP 2004-10.”

The IDP raised the need to “establish a new financial institution solely to provide medium and long-term funding to the productive sectors of the economy”.

I think the creation of an industrial development bank will be a sustainable way of financing the manufacturing sector.

The benefits of protection must not be clouded by short-term sacrifices we must make. Consumers may have to endure paying relatively more for products. However, we are the citizens of Zimbabwe whose duty is “to be loyal to Zimbabwe” and “to defend Zimbabwe”, if Section 35 of the Constitution is anything to go by.

Let’s make the “Made in Zimbabwe” dream a reality!

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