The Sunday Mail
Clemence Machadu: Insight
Howdy folks! Zimbabwe is expected to launch a new industrial policy (IP) this year, following the expiry of the one launched in 2012 to run up to 2016. The new policy is going to run until 2020.The World Bank defines an industrial policy as “government efforts to alter industrial structure to promote productivity based growth”. An IP is very important in that it defines a country’s road to industrialisation and guides the direction towards industrial progress.
For a country with countless natural resources available for value addition, there is certainly need for a deliberate plan defining how they can be best utilised to give an optimal return and improve the quality of lives of the generality of its citizenry.
The vision of the preceding IP was to transform Zimbabwe from a producer of primary goods into a producer of processed value-added goods for both the domestic and export markets.
That vision is still a far cry considering how Zimbabwe’s exports are still dominated by raw materials, with a significant amount of finished goods used in the country still being imported from other nations.
The preceding IDP also failed to meet its overall objective of restoring the manufacturing sector’s contribution to GDP to 30 percent and its contribution to exports to 50 percent and increase capacity utilisation to 80 percent.
Industrial capacity utilisation is currently at 47 percent, while manufacturing contribution to both exports and GDP are nowhere near the intended targets.
While the IP assumed an average GDP growth of at least 7 percent per annum during its lifespan, the actual average outturn was 4,12 percent per annum.
The failure of the IP to meet its targets is mainly attributed to lack of funding. However, non-implementation of identified strategies is also worth mentioning.
The success of any policy is hinged on full implementation of its strategies. The previous IP was full of brilliant ideas that unfortunately remained on paper.
For instance, it talked about establishing an industrial bank primarily dedicated to financing medium and long term recapitalisation of the industry.
Other key sectors in the economy such as agriculture, infrastructure and SMEs already have dedicated financial institutions.
But the manufacturing sector is still competing with such sectors for the little available loans given by banks.
For instance, the agricultural sector which is supported by Agribank, got 16 percent of bank loans last year while the manufacturing sector only got 10 percent.
A dedicated industrial bank would have made a difference.
The policy also did not do well in implementing other measures such as strengthening existing institutions such as SIRDC to coordinate the modernisation of industry and to foster a well-coordinated brand management of the Government, the State and the country.
As the country prepares for the launch of yet another IP to set out the strategies to foster rapid industrialisation in the next five years, there are a number of issues that need to be addressed in order for the policy to succeed.
First and foremost, Government should be careful in the manner it relies on protectionism as an industrialisation strategy.
It can be argued that Government heavily relied on protection over the last half decade, to the end that other countries exporting to Zimbabwe complained at some point.
Protection is not a permanent solution, especially noting how Zimbabwe’s commitments to deeper regional integration require it to actually lower down (or remove) its tariffs and eliminate other non-tariff barriers to trade.
In any case, protection should only be granted to firms that really promise to be competitive and dynamic.
If a company that was producing a pack of toothpicks for $1 still produces the same product for $1 after ten years of protection, can that same company be protected for another decade?
The new IP should have a mechanism for weighing the strategies of companies seeking to be incubated. Only those that have concrete turnaround strategies should be supported with protection. Those strategies should be regularly monitored to see if they are being implemented.
Most companies that are protected tend to relax as they would have been guaranteed a market even if they produce substandard products.
The new IP should also have bold strategies promoting exports diversification. Exports are currently crucial to the economy, as they bring 60 percent of the country’s revenue. Zimbabwe’s exports are currently concentrated to a few countries whose currencies are depreciating, resulting in lower export returns.
The country’s main export markets such as South Africa, Mozambique and Malawi saw their currencies depreciating, which discouraged some manufacturers from exporting.
The new IP should therefore endeavour to minimise the export risk by promoting diversification of export markets as well as creating new products for new markets.
More export incentives such as the five percent bond facility can also abet manufacturers to recover their production costs.
The need to increase export markets is also against the background of the country’s low aggregate demand, which means that as production capacity increases, the local market may not be able to take up all the goods produced by local companies.
Zimbabwe’s final consumption succumbed to low disposable incomes with private non-capital spending declining by four percent last year. Overall consumption was also projected to decline by two percent in 2016 against a drop of one percent in 2015.
There is therefore need to increase knowledge of the export process and to ensure that local manufacturers perfectly understand the tastes and preferences of consumers in those markets.
The political landscape is also a very key determinant of the success of any IP, as was the case in East Asia. A good example is the GNU period when the political parties in Government were accused of sabotaging each other.
A case in point were the clashes between the Ministries of Mines (Zanu-PF) and that of Industry and Commerce (MDC). Some attribute the clashes to the ultimate failure of the ZISCO deal.
The steel sector was identified as one of the four priority sectors in the IP of that time and Zisco was the main driver as 80 percent of the companies in the sector relied on raw materials from the steel giant.
As the country waits for a new IP, Government must also deal with divisive politics that have the potential to curtail the success of policies. We may no longer have contesting multi-parties in Government, but they can have the same effect as multi-factions in Government.
The growth of the manufacturing sector over the past few years has not been encouraging. The two industrial policies implemented over the past decade also did not impress much.
To break that pattern, Government should be realistic in the crafting of the new IP and should flex more political will to propel full implementation of IP strategies. Otherwise its efforts to alter industrial structure to promote productivity based growth will be in vain.