HomeComment50% local products policy ‘premature’

50% local products policy ‘premature’

. . . move could spawn retail inflation

ZIMBABWE’S push for a policy that compels retailers to stock at least 50% locally manufactured products is unlikely to be sustainable under the current economic environment in which local manufacturers are, among other factors, hamstrung by capacity underutilisation, high production costs and the liquidity crunch.
Hazel Ndebele

Last week Industry and Commerce minister Mike Bimha announced that the local product initiative was underway, but would not be drawn into specifying the proposed minimum local percentage. He said government was working towards the reduction or removal of duty for local suppliers who import raw materials so as to boost production.

Bimha also confirmed his ministry, together with that of Finance and Economic Planning, had already held consultations with different stakeholders regarding the issue.

The minister said the retail sector has indicated its eagerness to support the growth of the economy by selling locally manufactured products but, however, pointed out such keenness will not necessarily translate to an increased number of local products on the shelves due to a number of problems facing both the retail sector and suppliers.

“Some of these have to do with erratic supply of local products, pricing disparities between locally produced products and imported ones, late payments from retailers in a context where credit lines are limited and sometimes (has to be) the desire for the two parties to find each other,” Bimha said.

He added that improved synergies between retailers and suppliers are not only a business necessity but are critical in improving innovation, product quality and benchmarking against similar global offerings.

The move is part of a broader strategy aimed at reducing imports which are said to have now trebled exports, and which have flooded the local market resulting in the country’s import deficit increasing by 26% since 2012.

Imports stood at US$3,9 billion as of August 2013, largely driven by foodstuffs whose demand the country currently does not have the capacity to meet.

Industrialists say while such a policy is necessary to protect and promote local industry and to reduce consumption of imports, it is premature for government to approve the move before addressing challenges besetting industry whose capacity utilisation dropped to below 40% this year.

Economic analyst Takunda Mugaga said formulation of the policy was necessary but could result in retail inflation.

“Locally produced products are relatively expensive; therefore we run the risk of retail inflation if the policy is passed. It could also disenfranchise consumerism as consumers have the right to choose what they want as well as what they perceive to be quality,” he said

Mugaga also pointed out that if approved the regulations could lead to a creation of parallel retail supermarkets on the streets because of unfair laws in the formal sector.

“Local products are limited due to supply bottlenecks so we cannot create a market for something which is in short supply,” he added.

Food World general manager Denford Mutashu said government should prioritise and realise the importance of reviving the agricultural sector as farmers were facing raw material challenges and capacity constraints.

“We want government to set more than 70% local products (threshold) on the retailer’s shelves,” he said.

Locally produced products are often more expensive compared to imports because those producing are doing so under difficult conditions such as inefficient production methods, antiquat equipment, acute power shortages and high costs of labour which force them to use costly generators, thus adding to the cost build-up.

Local manufacturing firms continue to perform below 40% capacity utilisation, an indication it would not be strategic to introduce the policy now before addressing the fundamental issues so as to boost production.

Experts believe government should channel its efforts towards addressing a plethora of critical issues such as company closures, low capacity utilisation, erratic electricity supply, low farm productivity, liquidity constraints and undercapitalisation of banks.

The Zimbabwe Independent a fortnight ago reported that more than 700 firms in Harare and close to 1 000 in Bulawayo had closed shop dashing hopes of a quick economic turnaround under the new Zanu PF government. This has thrown thousands of workers onto the streets to join the teeming ranks of the unemployed estimated at above 88%.

Scores of big companies that used to employ thousands of workers are either on the verge of collapse or have closed down completely leaving workers stranded. A July 2013 National Social Security Authority (Nssa) Harare Regional Employer Closures and Registrations Report for the period July 2011 to July 2013 shows 711 companies in Harare closed down, rendering 8 336 individuals jobless.

In addition, many companies are downsizing and have retrenched thousands of employees, condemning them to a gloomy future.

Nine companies went into liquidation between September and October while 12 were placed under judicial management in the same period, joining dozens of other casualties that have gone that route as the overall business climate in Zimbabwe continues to plummet, dampening hopes of sustainable recovery.

According to the Master of the High Court’s roll, scores of companies are every month applying for judicial management, liquidation and voluntary closure as provided for by the Companies Act. The Act provides that a company may be placed under judicial management if it is unable to clear its debts or when it is likely to collapse

Economic analyst John Robertson said government needed to prioritise new electricity generation projects and improve agriculture instead of relying on small-scale farmers.

OK Zimbabwe chief operations officer Albert Katsande said his company currently stocks 65% in imported and 35% local products. He urged government to help farmers increase productivity so that there are more local products on the shelves.

“Retailers do not choose to import but are forced to because local suppliers are not consistent as they sometimes lack products on demand due to power cuts and water shortages, or even faulty machinery,” said Katsande.

He also said his company would support a 100% local product policy if relevant industries worked together with government to lift production.

Suppliers who preferred anonymity said they have the potential to facilitate and supply not only Zimbabwe but the whole of Africa with Zimbabwean products but wanted government to create a conducive environment for them.

“We want government to provide us with a supporting environment, assured electricity, water and effective, non-expensive lines of credit,” said a supplier.

On having more local products on the shelves, Bimha also said: “What in fact may at present seem like a curse to our industry could be the tonic required to ensure that in a few years’ time, Zimbabwean manufacturers will have learnt all the tricks required to be globally competitive in both price and quality.”

Last week our sister paper NewsDay reported that Zimbabwe National Chamber of Commerce deputy president Davison Norupiri had revealed that most chickens imported from Brazilian markets were embalmed with chemicals used to preserve dead bodies.

Because of the high unemployment levels which currently stand at 80% and endemic poverty in the country, consumers end up settling for such cheap and substandard imports.

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