HomeAnalysisReindustrialisation through import substitution strategy

Reindustrialisation through import substitution strategy

IT surely must be clear to most that as long as we do not generate adequate foreign currency earnings and utilise whatever we may earn wisely, we will continue to have an under-supply which can never meet the high demand.

This, in turn, will continue to fuel a parallel market which is primarily driven more by trade of money than by production of goods and services. This will also mean that we will remain a high-import economy, leading to a continual trade deficit unless we become more aggressive in cutting down our imports and utilising the savings for capital formation and reindustrialisation.

Import substitution is not a new story.

We all know that Rhodesia faced serious sanctions but the country rapidly developed notwithstanding. This was through a clinical import substitutions strategy which was a joint venture between government and the business community. It is to our advantage to learn from our past, regardless of how we may feel about it. After all, as Karl Max once noted, men make their own history, but they do not make it as they wish; it remains educated by and predisposed to the past. That is one thing we cannot change.

Our first lesson is that leadership integrity and accountability were at the centre of the success of Rhodesia’s import substitution project. In addition, there was cooperation between government and the business sector. A symbiotic relationship between government and the business sector is always a critical success factor where government facilitates and makes easy the implementation of economic projects of national interest.

Second, as a matter of strict policy, no raw material should leave the country unprocessed. Vertical integration of industry is primary at all costs. If no raw materials are to leave the country, it requires that the country has to develop the capacity to process them first (local value addition).

This can be achieved by investing heavily in production facilities and rehabilitating our infrastructures, especially in the railway network, power and water.

Third is implementation of selective subsidies, but these must be price subsidies and not input subsidies. In other words, finished products are subsidised through their sell price only. This avoids a parallel market for inputs developing. It also avoids profiteering at input level as is has been our case where, for example, speculators buy fertiliser or cement in bulk to make super-profits, thereby creating artificial shortages and increasing production costs unnecessarily.

Fourth, there must be very strict import control measures with strong accountability and fairness. Before importing, companies must first prove that they cannot source inputs locally and this further encourages local supply companies to grow. The middleman has no place in that process.

Fifth, we must put in place incentives for industry to build local production capacity. For example, building a manufacturing plant must have huge tax incentives while in the agricultural sector, for example, farmers must be able write off costs for infrastructure development like irrigation which ultimately ensure food security and exports. In fact, incentives and not penalties work more effectively. This policy must apply to key productive sectors, including tourism.

Sixth is the issue of buying local goods; the government needs to take the lead. A huge import bill for motor vehicles must be a thing of the past as we develop local capacity to assemble, if not make, local cars. Leading by example here is key and the government and business must take the lead. The rehabilitation of Willowvale Motor Industries and capacitating of Quest Motors, for example, must play a central role in any import substitution strategy.

This I understand is already on the cards.

The Buy Zimbabwe initiative therefore needs our full support as we create a new psychology or a new paradigm which deliberately ensures that we change our consumption behaviours and buy as much as we can locally. That will take some doing but it is important.

Of course, my judicious readers will agree with me that there is nothing new proposed here. It has been done before in Zimbabwe and elsewhere and can of course be done again.

Finally is the issue of access to capital. We must ensure that those who seek to replace imports get access to patient capital without undue pressure and at reasonable costs. An Import Substitution Fund for example with favourable repayment terms would work well.

The following principles as articulated in Phillip von Hornigk’s Nine Points on How to Emulate Rich Countries, written in 1684, well before Adam Smith in 1930, are well worth repeating. Hornigk is the author of a book which outlined Austria’s strategy in 1684 which resulted in the greatest increase in Austria’s wealth over 100 years.
I have shared and continue to share this philosophy on how we can create our own wealth as we are well-endowed and have everything we need in order to make Zimbabwe great and prosperous.

Please note, lest I get accused of plagiarism, that the following are quotes from Professor Erik Reinert’s book How Rich Countries Got Rich and Why Poor Countries Stay Poor, and are mostly therefore not my words. I have just extracted the relevant points and attempted to be as brief as possible while para-phrasing.

The first point is that any country should inspect its soils with greatest care not to leave any agricultural possibilities of a single corner or clod of earth unconsidered.

Every useful form of plant under the sun should be experimented with and considered for adaption to the country. Above all, no trouble or expense should be spared to find gold or silver.

Second, all commodities found in the country, which cannot be used in their natural state, should be worked up within the country since payment for manufacturing generally exceeds the value of raw materials by two, three, 10, 20 or even 100-fold and the neglect of this is an abomination to prudent management.

Third, for carrying out the above, there will be need for people to cultivate the raw materials and for working them up. Therefore, the people should be turned by all possible means from idleness to remunerative professions instructed and encouraged in all kinds of inventions, arts and trades and, if necessary, instructors should be brought in from foreign lands for this.

Fourth, gold and silver (once in the country), whether from own mines or obtained by industry from other countries, are under no circumstances to be taken out for any purpose. They should never be converted into any use which destroys them.

Fifth, the inhabitants of the country should make every effort to get along with their domestic products to confine their luxuries to these alone and to do without foreign products as far as possible.

Sixth, if necessary such foreign products should be exchanged for other wares and not for gold or silver.

Seventh, such foreign imports should be obtained in their unfinished form and worked up within the country, thus earning the wages of manufacturing there.

Eighth, opportunities should be sought night and day for selling the country’s superfluous goods to these foreigners in manufactured form for gold and silver if possible and their consumption must be sought to the farthest ends of the earth and developed in every possible way.

Lastly, except for important considerations, no importation should be allowed under any circumstances of commodities of which there is a sufficient supply of suitable quality at home. In these matters, neither sympathy nor compassion should be shown foreigners, kinsfolk, allies or enemies. All friendship ceases when it involves my own weakness and ruin. And this holds good even if domestic products are of poor quality or even higher priced.

For it would be better to pay for an article two dollars which remain in the country than only one which goes out.

What will make this policy work will be the ability of principled, focussed leaders, skilled technicians, prudent accountants, ethical lawyers, experienced engineers and disciplined administrators, industrious farmers and miners including creative entrepreneurs, all of which we have in abundance both locally and in the diaspora.

Ours is to merely harness their skills and create the necessary space for them to do what they do best.

In my opinion, all we need is a compelling inclusive national vision which accepts the above principles as sacrosanct, good governance and competent management and we can truly live to our full potential as a country, improve our quality of life and create wealth for ourselves and generations to come.

Vince Musewe is an economist and you may contact him on: vtmuswee@gmail.com These weekly New Perspectives articles are coordinated by Lovemore Kadenge, immediate president of the Zimbabwe Economics Society (ZES)- kadenge.zes@gmail.com and cell no. +263 772 382 852

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