HomeOpinionValue-addition a must for Zimbabwe’s recovery

Value-addition a must for Zimbabwe’s recovery

Among the many operations which could contribute to a substantive recovery and growth of Zimbabwe’s presently fragile economy would be value-addition to many of the country’s high quality primary products.

The Erich Bloch Column

Much of the produce that can be forthcoming from the agricultural and mining sectors would be of exceptionally high quality, internationally favoured and in demand, whether exported in unprocessed, primary condition, or enhanced by industrial value-addition.

It is irrefutable that Zimbabwe has the potential to produce considerable quantities of agricultural produce of an extraordinarily high quality, including cotton, tobacco, and diverse foodstuffs, but most of that produce is disposed of in initial form, devoid of any value-addition.

In like manner, the varied minerals with which Zimbabwe is endowed are, relatively speaking, only minimally mined, and then are exported in their raw state, instead of undergoing any manufacturing processes which could considerably enhance their value. This includes, platinum, diamonds, gold, ferrochrome, palladium, nickel, copper and rhodium.

In the first five months of 2013, Zimbabwe produced in excess of US$83 million of palladium, over US$274 million of gold, more than US$246 million of platinum, approximately US$54 million of nickel, as well as diverse other minerals, including diamonds, and those considerable output values achieved were notwithstanding a fairly substantial decline of most mineral prices during that period.

However, almost without exception, these revenues were for the minerals in their raw state, without the enhancement of value through their being wholly or partially processed prior to export.

Among many opportunities of value-addition to Zimbabwe’s primary products are:

•Diamond cutting, polishing and manufacture of jewellery.

•Smelting and processing of chrome

•Refining and processing of copper, and manufacture of copper products;and similarly with many of Zimbabwe’s other minerals. In like manner, great value-addition could be given to innumerable others of Zimbabwe’s primaries. For many years textile and clothing manufacture was a key element of the country’s industrial production, servicing not only domestic consumer demand, but also very extensive export markets in the region and further afield.

Concurrently, the economy considerably benefitted through various food processing operations, whereas now it is very dependent on imports. Zimbabwe also had a significant timber producing sector, mainly in the eastern highlands and in Matabeleland North but, to a very considerable extent, timber was exported without any substantive value-addition, which could have include production of furniture, door and window frames, doors, flooring, and much more.

Despite extensive production of textiles and clothing, to a great extent Zimbabwean cotton was not a key input. Many of the manufacturers used cotton imported from neighbouring countries, and diverse other imported fibres and fabrics.

To a great degree, Zimbabwean cotton was exported in a primary state, and this has consistently been the case in respect of most other primary products. Concurrently that is so to an even greater extent, notwithstanding that with the exception of many minerals the extent of production of primary products has declined considerably, in tandem with the general economic decline that prevailed from 1997 to 2008.

However, as Zimbabwe pursues a much-needed, considerably greater economic recovery than has been achieved to date, one factor that could extensively contribute to such a recovery would be if, concurrently with increasing the production of primary products (as is already happening in the mining sector), it would vigorously pursue extensive value-addition to those products.

Doing so would generate considerable opportunities of the much-needed growth in employment opportunities, with major economic benefits downstream of the value-addition enterprises, and progressively enhanced revenue flows to the fiscus. But, if that is to occur, government must cease its creation of barriers to value-addition, and instead, facilitate and incentivise such operations.

The governmentally-created barriers are manifold, including many instances of highly prohibitive fees and taxes. One of the prime examples of such barriers was the recently announced annual fee prescribed by the Ministry of Mines and Mining Development in respect of diamond beneficiation.

Initially, the fee was US$20 000 per annum, but in 2011 it was increased to US$100 000 and then, with minimal responsiveness to the intending diamond beneficiation operators representations, in May, 2013 the annual fee was reduced to US$50 000. At that level the licence fee continues to be a major hindrance to the establishment of viable diamond processing entities. This was convincingly contended by Richard Mvududu, chairman of the Diamond Beneficiation Association of Zimbabwe, who highlighted that it was grossly disparate with such fees charged by other governments, such as ZAR5000 per annum in South Africa and BWP100 per annum in Botswana.

As a result, it is impossible for any Zimbabwean diamond processing operation to be internationally competitive, and hence such operations are effectively debarred from contributing any substance to Zimbabwe’s economy.

The extent that government’s diamond licensing fees are a deterrent to Zimbabwe achieving economic well-being was demonstrated by the president of the Zimbabwe National Chamber of Commerce (ZNCC), when he noted that in Surat, India, in excess of 60 000 people are employed in value-addition to Zimbabwean diamonds. That is cataclysmic when in excess of 80% of Zimbabwe’s employable population is devoid of formal sector employment.

Yet another barrier to Zimbabwe’s economic wellbeing is the total absence of any export incentive being accorded to Zimbabwean industries. Other countries provide comprehensive export incentives to their manufacturers. So doing accords the export products significant price competitiveness in the countries to which those products are exported, markedly lessening demand for similar Zimbabwean products.

That barrier is moreover intensified by the Zimbabwean fiscal authorities imposing excessively high import duties on the manufacturing inputs required by many of the country’s factories, as a result of which the Zimbabwean produced goods cannot be price competitive, in the domestic market, against goods produced in countries that give their manufacturers comprehensive export incentives.

Similarly, the authorities recurrently fail to facilitate Zimbabwean industry access to the state-of-the-art technologies which enhance product quality, production efficiencies, and real competitiveness against the products of other countries.

At the same time, endless hindrances are raised to foreign investment in Zimbabwe, which investment would provide the funding resources, technical expertise, and access to markets, which would stimulate value-addition to Zimbabwe’s wealth of primary products.

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