Local goods will do us good

24 Jul, 2016 - 00:07 0 Views
Local goods will do us good

The Sunday Mail

Sifelani Jabangwe
Since dollarisation, the manufacturing sector has been experiencing a range of challenges, hence it has been requesting support to level the playing field. This support has come in the form of specific tariff hikes for some products and in the form of Statutory Instrument 64 of 2016. The conformity-based assessment system has also assisted in identifying and preventing importation of poor quality products that may harm consumers.

Some of the products that have been competing with local products are of poor quality, but that poor quality would be the type that consumers cannot measure or determine at the point of purchase. Unscrupulous manufacturers from South Africa can play around with ingredients to make their products cheaper.

And such manufacturers can usually do this when they are manufacturing for export markets where they believe their conduct may not be easily detected. They may also target export markets where they cannot face penalties if their poor quality products are detected.

Apart from Zimbabwe having good manufacturing ethics, a local manufacturer would not necessarily make poor quality products for the domestic market as he/she or their relatives could end up consuming the same product.

They can also be prosecuted if those products prove harmful. Thus some cheaper imports are poor in quality, but the local consumer can unwittingly pick them over domestically-manufactured goods.

Such imports lead to low demand for local industry, leading to company closures, retrenchments, low tax to Government and trade deficits which may lead to liquidity challenges.

Let’s consider the examples below:

1. Cooking oil – Consumers usually look at the bottle size and price when making purchase decisions. What the consumer may not be aware of is that soap ingredients have been discovered in some imported oil products. Other oils were volatile, thus lasting shorter periods when used for cooking. One could use one bottle of locally-produced cooking oil over a period where someone else could end up using two bottles of imported cooking oil, making it expensive in the long-run.

Other imported brands, still, were labelled as soya bean oil when it was actually unhealthy palm oil that had been blended to make the product cheaper.

2. Baked beans – A can of locally-produced baked beans comprises an ample serving of beans and little soup. Conversely, imported baked beans could have 60 percent beans and 40 percent soup.

3. Tomato sauce – When one buys tomato sauce, one looks at the pack size. However, imported sauce may not have as many tomatoes as the local sauce. It may just have colorant and sugar, but the consumer will not be able to make that distinction, and end up going for the cheaper import.

In all cases, the consumer unwittingly selects the poor quality product. Thus the conformity-based system is assisting the consumer by ensuring products meet minimum standards, thereby protecting the consumer and levelling the playing field for the local producer. I dare add that local industry can compete with products of equivalent quality.

However, domestic producers have been facing several challenges. One of them relates to rebates that some countries give their exporters.

Under this system, companies export at no cost and then make profits on rebates as high as 15 percent of export value.

This can result in goods being cheaper in Zimbabwe than they are in the country of origin, and that is more or less a form of dumping. That is unfair competition.

Transacting in the United States dollar – the world’s strongest currency – has also caused challenges. The currency is attractive to neighbouring countries as it preserves value. This is what we also did during the hyperinflation era (2007/8) to access foreign exchange.

The South African rand has devalued by over 150 percent over the last four years, resulting in its goods being cheaper and thus difficult to compete with.

The impact is that Zimbabwe has imported about US$40 billion worth of goods, and we have nothing to show for it as we imported for consumption.

Industrial capacity utilisation has gone down to about 34 percent from a high of 57 percent in 2011. Government revenues (taxes) have been declining, resulting in the State struggling to pay dues.

Though we have not received much in terms of FDI like Zambia, which has received an average of US$1,5 billion annually, what we have received is about US$1,8 billion of diaspora remittances.

That means we are almost the same, but the challenge is: What have we done with those diaspora remittances?

Other countries are driving their industrialisation agendas by putting in place minimum content requirements for the goods that are consumed locally.

These minimum content thresholds are even included in their tender documents, making it difficult for Zimbabwean companies to supply goods such as clothing textiles and footwear.

The liquidity coverage ratio also makes it difficult for local companies to even get contracts in those countries for road maintenance; etcetera. Our local tenders are accessed by companies from anywhere, thereby depriving the available local work from our industry and our people. SI 64 is a stop gap measure to assure local companies with installed capacities of volumes.

Companies are operating at 34 percent capacity utilisation, meaning there is 66 percent capacity available to supply the local market. What needs to be put in place are LCR for Zimbabwe so as to do what other countries are doing to support their industries. That approach was used for the dairy and edible oils sectors.

Before the support measures, imports comprised over 80 percent of local retail shelf space, but now, local products occupy over 90 percent of shelf space.

The oil sector is also now doing soya outgrower projects thus benefiting the agriculture sector. Raw milk output has also been going up over the last months due to the support measures. Local milk processors are now also dominating shelf space. The way SI 64 will be managed is that the relevant industrial association will look at gross national demand and then account for their current output to determine the supply gap. Export licences can then be issued for the gap. It is expected there will be a gradual improvement in capacity utilisation for supported sectors, resulting in increased employment. Government will also be able to generate increased taxes.

◆ Sifelani Jabangwe is the vice-president of the Confederation of Zimbabwe Industries.

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