The Sunday Mail
Persistence Gwanyanya
| RESTRICTIONS on importing select products, as specified by Statutory Instrument 64 of 2016, have generated heated debate in Zimbabwe. |
There are two competing schools of thought around the socio-economic impact of the SI.
On one hand, there are those who support the protectionist policy. They believe it will ward off competition from well-established and more efficient foreign firms, offering local industry an opportunity to grow.
On the other hand, there are those who opine that the controls are inadequate to sustainably restore Zimbabwe’s trade balance due to deep-seated structural rigidities characterising the local economy. To them, protectionism can only result in a hard landing for most business due to the high dependence on imports. A bourgeoning informal sector, the bulk of which relies on imported products, is unlikely to embrace the intervention.
There is, therefore, need to rebalance the economy. The arguments from the two groups are important: They shine a light on fundamentals on which the Zimbabwean economy is based.
It is such fundamentals that provide the basis for rebuilding the economy.
Imbalances in both domestic and foreign sectors are negatively weighing on the economy. High levels of consumption – topping 80 percent of GDP – especially in an environment where there isn’t any correspondent increase in production, represent an inherent imbalance in the local economy.
A shrinking industrial base and the continued decline in capacity utilisation are increasing Zimbabwe’s dependence on imports.
Since dollarisation in 2009, imports have been averaging more than 65 percent of GDP. Also, the country has been recording an average trade deficit of US$3 billion per annum since 2012.
This imbalance explains why the economy contracted by more than 50 percent in the decade leading up to dollarisation.
There is obviously need to rebalance the economy by reducing consumption and imports while increasing production and exports.
SI 64 of 2016 is, therefore, considered an initiative towards economic rebalancing.
Rationale for import regulation
Import controls were necessitated by the need to protect local manufacturers from unfair competition from large, well-established and more efficient foreign entities.
This is the reason why the SI targets products that can ordinarily be manufactured locally. Quite clearly, several imported products can be locally manufactured and at competitive prices.
Over time, imports have been allowed to replace local commodities, and the Buy Zimbabwe initiative was born out of the realisation that such a state of affairs could not continue.
The economics around promoting local products are grounded in the need to protect local jobs, preserve the scarce liquidity and ease contractionary pressure.
Zimbabwe has been exporting a lot of money and jobs by hitching its economic model on imports.
Scattered success
There is evidence that protectionist policies have paid off in Zimbabwe.
Import restrictions extended to cooking oil, milk, poultry, clothing and milling sectors in the last two years have seen a significant improvement in capacity utilisation in these sectors.
Production capacity for the cooking oil industry increased more three times to 20 000 litres per month in the past two years, whilst the milk production capacity increased to 58 million litres in 2015 from 47 million litres in 2010.
The poultry industry similarly grew.
SI 64 of 2016 is, therefore, seen as a measure to build on the progress made so far by extending the benefits of protectionist policies to selected product lines that have potential to respond positively.
However, like with any other protectionist policy, the danger is that the protected industry may remain in the infant stage with no improvement in competitiveness.
Whilst this is possible, it may also create a case for foreign industries to invest in the local economy, if there is a compelling case to do so.
The case of D’lite of South Africa, which recently opened a cooking oil factory in Mutare, bears testimony to this proposition. D’lite cooking oil is very popular here.
Local oil expressing companies such as Olivine Industries and Surface WIlmar continue to recover. Some of the companies have actually started contract farming for supply of soya beans. Steel product manufacturers such as Africa Steel and BSI Steel are also benefitting from the new measures.
Instead of exporting jobs, Zimbabwe is now able to create employment from this investment, whilst also minimising the hemorrhage of cash from the local market. While protectionism will give life to local companies, it will however not protect them from inefficiencies.
SI 64 not enough
Whilst reducing the country’s imports is a noble idea, economic rebalancing is a two-way street which should take into account both the demand and supply side of the economy.
Reducing demand for imports is not enough if the local production cannot step up to the plate to cover the gap left by reduction in imports.
The supply side of the economy is severely constrained by antiquated machinery, obsolete technology, infrastructure bottlenecks, inefficient utilities and funding challenges.
There is need to address these issues and boost production and exports, lest the restrictions will affect the welfare of ordinary citizens.
FDI inflows are crucial for reindustrialisation. FDI can help deal with financial constraints affecting the economy and high levels of debt.
Anxieties surrounding the indigenisation policy and lack of competitiveness have been scaring away foreign capital.
At US$545 million, Zimbabwe’s FDI flows for 2014 are significantly lower than US$5,7 billion for South Africa, US$4,9 billion for Mozambique and US$2,4 billion for Zambia.
Zimbabwe’s rebalancing equation is not complete without the export sector. Being a dollarised economy, exports will be a major source of both liquidity and growth. Despite being richly endowed with natural resources, the economy remains highly uncompetitive, having been ranked number 125 out of 140 countries rated by the World Bank’s 2015 Global Competitiveness Index.
Product beneficiation and value addition cannot be possible in an economy plagued by electricity shortages. The need to invest in power generation is urgent. The road and rail networks also need to be spruced up.
It is estimated that Zimbabwe needs between US$14 billion and US$20 billion to cover its infrastructure deficit.
Efficacy of import controls
From the above analysis, there is a compelling case for the restriction on imports.
However, SI 64/2016 alone is not enough to usher Zimbabwe from the economic challenges it faces today. The policy needs to be complimented by measures to strengthen our porous borders and to boost investment and exports.
There is also need to manage the transition towards a well-balanced economy given the high levels of unemployment and informal sector growth.
Persistence Gwanyanya is an economist, banker and a member of the Zimbabwe Economics Society. He writes in his personal capacity. Feedback: [email protected] and WhatsApp +263773030691
