DOMESTIC consumption of locally produced goods plays a pivotal role in economic growth.
Consumption comes in various forms and it can be broadly categorised as pure consumption, investment and government spending.
Despite the fact that countries may benefit via comparative advantage from global trade, the benefits of promoting consumption of local products cannot be underestimated.
Such merits may include employment creation, an improved tax base and reduced dependency on imports hence a reduced trade deficit. For example, China has been termed a consumption-led economy and in the first three quarters of 2014, consumption contributed 48, 5% to GDP whereas investment and trade contributed 41,3% and 10,2% respectively.
Conversely, dampened domestic demand has its consequential negative effects on the local economy. In the Confederation of Zimbabwe Industries 2014 Manufacturing Survey report, lower local demand contributed 28, 8% of the major capacity constraints affecting the sector.
In light of the foregoing, the Buy Zimbabwe initiative is worth incorporating in policy making and developing monitoring measures to help reap the intended benefits.
Regionally and globally, many countries have embraced the need to boost domestic companies through the promotion of domestic brands. South Africa introduced the “Proudly South African” or “Made in South Africa” campaign and in the USA the Buy American Act (1933) was instituted to ensure that the government preferred procurement of local products.
Elsewhere, the 1997 economic crisis in Thailand prompted the government to introduce the Buy Thailand campaign which was part of the seven-step program to help curb unemployment and boost the local economy.
Other examples include Malaysia, New Zealand and India. These countries have taken steps towards promoting local production. In comparison, the Buy Zimbabwe campaign cannot be merely taken as a promotional ad. It needs to be viewed as a significant tool for economic restructuring.
Currently, Zimbabwe is saddled with a persistently high trade deficit. According to the 2014 midterm fiscal policy, the country recorded a trade deficit of US$1,8 billion for the period January to June 2014.
This unfavourable negative figure is expected to increase by year-end as exporting capacity continues to be constrained coupled with high appetite for imports.
In general, there is over-reliance on imports while local manufactured products remain shunned. For example, 16% of the US$3 billion imports between January and June were accounted by food, tobacco and beverages, items which can be produced locally. At the same time, there is high unemployment above 85%.
In as much as there are various factors contributing to high unemployment and trade deficit, promoting local production can partly address these issues.
However, the regulatory mechanisms and quality standards assessments to ensure that locally produced goods are promoted have been simply blueprints which have suffered implementation risk.
Notwithstanding the benefits in promoting local companies, there are arguments which have led to weaker demand for locally produced products.
For example, since major imports come from South Africa, the USD/Rand exchange rate plays a significant role in the surge of imports in Zimbabwe. A stronger dollar combined with a weaker Rand makes imports from South Africa cheaper.
Additionally, there is lack of capital to allow companies to retool and acquire new technology in production. Resultantly, high costs of production have been incurred in USD terms relative to other countries so it becomes cheaper to import than source locally.
In addition, the need to adhere to quality standards has also led to more preference for imports than locally produced goods. More so, government’s reluctance to monitor the surge in imports has also resulted in local corporates’ continued preference for imports even if some of the commodities can be sourced locally.
Due to Bilateral trade agreements, the government has continued to issue import permits for some goods which can be produced locally. This is counter-productive in the interest of boosting domestic demand.
For instance, Botswana, Zambia, Namibia, China and South Africa have become sources of imported livestock products and cooking oil when local supply has not been exhausted.
While it is appreciated that with a low capacity utilisation of 36, 3%, there is need to fill the gap created by insufficient local production, it is also imperative that the government create feasible mechanisms to promote demand for locally produced goods. For example, the motor vehicle manufacturing industry has potential capacity but the recent customs duty increase on motor vehicles will not persuade locals to buy locally assembled cars.
A precondition for the success of Buy Zimbabwe is support from government, business, labour and the general community. The government can create an enabling environment through subsidies, tax exemptions on local manufacturers.
Since Buy Zimbabwe cannot be merely imposed on consumers, there is need to promote incentives for a paradigm shift to develop strong consumer preference for locally-produced goods.
Organisations like the Standard Association of Zimbabwe and the Consumer Council of Zimbabwe, Competition and Tariff Commission have a significant role to play to ensure that quality is not compromised; consumer rights are respected and reduce dumping of cheap imports.
Other initiatives to promote local products include creating value-addition industries.
In as much the country is endowed with resources or raw materials, there is need for value addition to enhance consumer appeal.