Who will Save Local Industry?

AS the effects of the global financial upheaval rage on, job cuts have become the talk of the day.

From computer geeks Microsoft to steel makers Corus, companies are laying off workers. The intention is to assume leaner and more cost–efficient structures in the hope of remaining profitable and with a little luck ride out the wave.

Governments on the other hand have responded by throwing around generous rescue packages while relaxing regulations to create an enabling environment for business.

What is evident is that authorities will stop at nothing to give a life line to locally domiciled companies in their respective countries. Their determination, one can say, derives from a need to save jobs and to shield local industries in the face of increased threats from foreign products and subsequently, to their position in world trade.

Western economies appear to follow an unwritten code which accents the importance of producing and exporting as much as they can while limiting imports to inputs and what can be acquired cheaply elsewhere.

The rationale is that economies grow and develop if local supply is harnessed to meet local demand especially for basic goods and services.

The strategy, it appears, is to generate and attract as much money as you can from local products and keep most of it working within their economies by limiting outflows.

Evidently this is why many were relieved when the crisis spread to emerging economies, particularly the BRIC countries (Brazil, Russia, India and China).

Fears were that if they had not been affected, their companies would outflank struggling local companies and tip the balance. This also explains why there is so much noise whenever other economies adopt protectionist policies or preferential trade practices.

Back home, policy appears to turn a blind eye to this simple rule that requires protecting the local industry and ensuring a favourable operating environment.

This is despite the growing need to position the country to benefit from the looming free trade area. Price controls, unfavorable exchange rates and raging inflation are some of the structural impediments in place that have stripped local products of an upper hand previously held over foreign products.

The existing foreign currency retention schemes have imposed an extra tax and have worked hand in glove with cumbersome red tape, to eat into company revenues, in the process compromising the competitiveness of local business notably the mining sector.

The decade–long economic slumber has not done industry any good either; the collapse of the primary sector has left it no option but to import expensive raw materials.

While we were absorbed in coping with the economic decay, our production technologies, infrastructure and service provision methods have become obsolete. This has left the economy prone to invasion by alien products. Local products have become less and less attractive because of inferior quality and poor product packaging among a host of other factors.

Food shortages forced authorities to blindly open an onslaught on local products. Removal of duty on basic goods in a bid to improve the food situation has gutted the economy leaving industry at the mercy of foreigners. This followed the selective licensing of retailers to sell in foreign currency.

Again locals were left to swallow the bitter pill as they were barred from selling their products in foreign currency. To add insult to injury, the cost of producing locally, were the inputs can be found, is now only in hard currency.

 
This has lead to a gradual erosion of whatever advantages local businesses previously enjoyed. The result has been an influx of imported products which seem to be out- competing local products.

Today it makes more sense for companies and individuals to import and sell finished products than for them to commit resources to producing. Highlighting the extent of the problem, it is now cheaper to drive and have cars serviced elsewhere in the region than to contract local service providers who import from the same sources before applying fat mark ups. ]

Delta Corporation is probably one of the most affected. The current structure has left the beverage manufacturers fighting a war they look set to lose. The giant is struggling to unseat an invasion by foreign beverages which have gained popularity especially with the younger generation of customers.

Not only do they enjoy superiority in their packaging and quality but they seem to be enjoying a price edge over Delta which has to import most raw materials and no longer enjoys regulatory protection as was before. 

At a briefing in December the group revealed that they were looking to franchise products from SABMiller in a bid to spruce up their product line and starve off competition.

 
While local business including the mining and lately financial sectors, titers on the brink of collapse because of operational challenges imposed by the harsh environment, the country is sprawling with retail outlets that sell mostly foreign products.

The owners, predominantly foreign, take advantage of cheaply sourced products in their resident countries to wage successful market share takeovers with feeble resistance.

Sadly prices are nowhere near those in source countries plus transport costs, rather prices are only lowered to levels sufficient to boot out competition and enjoy the free meal.

The rumour mill has it that a South African–based retail giant has been acquiring properties in Zimbabwe with the view of establishing outlets and tapping the market as soon as the timing is right.

The question then is, when will authorities wake up to this plight?  If they do, how many of the local companies will survive to see that day.

BY RONALD K NYAWERA

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