THE massive contraction of the manufacturing sector is as clear as day. Notwithstanding the innumerable factors which have caused economic decline over the last 15 years, the decimation of the manufacturing sector has contributed immensely to that decline.Eric Bloch Column
More than 100 industrial operations have ceased to exist, with the remainder considerably downsized. As a result, thousands of workers became unemployed, while those with technical skills left Zimbabwe to seek employment elsewhere. Imports have increased considerably, because similar products are no longer available locally.
Consequently, Zimbabwe’s adverse balance-of-trade has worsened, with concomitant negative effects upon financial liquidity. Revenue inflows to the fiscus have been markedly reduced, thereby exacerbating government’s bankruptcy.
The manufacturing sector’s demise can be attributed to many causes. However, one of the stand-out factors has been the increase in imports of products identical to locally-produced ones.
In part, the increase was fuelled by price competitiveness due to economies of scale not available to the local industries. This negative development has also been intensified by the ability of manufacturers in other countries to make use of state-of-the-art machinery in their production, whereas the illiquid local industries remain with antiquated machinery.
In addition, foreign industries enjoy consistent and reliable energy supplies, water, refuse and sewerage removal as well as a well-developed telecommunications and transportation infrastructure.
One of the key reasons many foreign industries are able to supply goods to Zimbabwe at considerably lower prices is the magnitude of direct and indirect export incentives they get from their governments. These incentives, in some cases, may be in breach of the international General Agreement on Tariffs and Trade (Gatt). This is especially so in the case of some countries in the Far East.
At least one of those countries provides its manufacturers with some of their manufacturing inputs free of charge.
In addition, they give their exporters massive financial subsidies (in one instance equal to 180% of attributable manufacturing labour costs.
With free procurement of some inputs and no sizeable labour costs being incurred, the manufacturers are able to produce goods at minimal cost, enabling them to market the products at exceptionally low prices –– far below the production costs Zimbabwean producers of like products have to deal with.
Although “protectionism” is undesirable and should not be pursued, the need for an upward revision of import duties and allied charges by the government, to an extent that would result in market price equality, is imperative.
Customer determination on whether to purchase local or like imported manufactured goods should be founded upon quality, reliability, availability and not on price where the imported product prices are substantially less than those of locally-produced goods.
Appropriate revision of import tariffs is overdue, and should now belatedly be effected in the forthcoming 2013 national budget, scheduled to be presented to parliament by Minister of Finance, Tendai Biti, on November15.
Rein in import duty evasion
Concurrently, the government must vigorously and urgently enhance its operations on containment of import duty evasion. Considerable quantities of imported goods unlawfully enter Zimbabwe free of duty.
To a major extent, such goods are marketed in the “flea markets” and by informal sector street merchants. Some of the products enter Zimbabwe at unofficial border crossings, instead of through border posts. Others are imported as so-called “personal effects” of some diplomats and other foreigners entering Zimbabwe, whilst yet other products are imported under cover of falsified import documentation.
Without being oppressive thereby prejudicing persons arriving in Zimbabwe, or unduly delaying clearance of imports, the Zimbabwe Revenue Authority needs to enhance its containment of spurious and evasive imports.
Biti also needs to review downwards the import duty on manufacturing inputs. The duties on certain production materials such as consumable plant and machinery spares, is yet another contributor to the inability of many industries to compete with imported manufactured products.
The minister should have urgent interactions with bodies such as Association of Businesses in Zimbabwe, Confederation of Zimbabwe Industries and Zimbabwe National Chamber of Commerce in order to constructively review relevant import tariffs.
Government also needs to introduce meaningful export incentives (within the constraints of Gatt). If that is done simultaneously with the review of import tariffs, and countering of other impediments to substantial volumes of production, local enterprises would be able to re-penetrate export markets thereby helping revive the economy.