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Industrialisation toolbox

I HAVE taken note of the recently published Zimbabwe National Industrial Development Plan (ZNIDP), which seeks to articulate our proposed industrialisation policy for the next five years.

My immediate reaction is that it has unfortunately side-lined the profound and impending impact of ICT and the Fourth Industrial Revolution (Industry 4,0) on the future of manufacturing.

In my view, this should be at the core of the new policy. Furthermore, it neither deals thoroughly with an import substitution strategy to aggressively reduce our import bill and thus improve our trade deficit nor does it state the required capital budget to re-industrialise Zimbabwe.

In my book, any policy which does not have a budget is sterile and has the danger of being a theoretical wish list. We have seen many such documents from all sides of the political divide before, where, unfortunately, the policy document itself becomes the key deliverable and, once published, all is forgotten until the next round of policy documents.

To prove my point, I looked at the Zimbabwe 2012 to 2016 industrialisation policy and its objectives were to:

  • Restore the manufacturing sector’s contribution to GDP of Zimbabwe from the current 15% to 30% and its contribution to exports from 26% to 50% by 2016 consistent with the Medium Term Plan (MTP);
  • Create additional employment in the manufacturing sector on an incremental basis and reduce unemployment levels by 2016;
  • Increase capacity utilisation from the current levels of around 57% to 80% by end of the planning period;
  • Re-equip and replace obsolete machinery and new technologies for import substitution and enhanced value addition;
  •  Increase manufactured exports to the Sadc and Comesa regions and the rest of the world; and
  • Promote utilisation of available local raw materials in the production of goods.

This is exactly what we are repeating in the 2019 to 2023 policy document! The challenge we face is, therefore, not lack of ideas or solutions, but their effective implementation.

Some very thought-provoking insightful research has been done on how to industrialise and I want to point out to my readers the work done by Erik Reinert in his book How Rich Countries Got Rich and Why Poor Countries Stay Poor.
Central to his insights, is that countries who wish to industrialise must endeavour to emulate industrialised countries and rather look and understand at what they actually did to industrialise as opposed to what they may prescribe to other countries who wish take the same path.

Reinert studied 500 years of economic developmental policies in what are now industrialised countries and what is indeed striking, is that the now industrialised countries took a route which they now actively discourage developing countries to take.

In turn, developing countries have tended to take as given that the Western-based institutions such as the World Bank and International Monetary Fund have got it right and yet their policies have resulted in developing countries specialising in being poor by focussing on economic activities which do not create increasing returns.

De-industrialisation, increasing poverty and low incomes, particularly in Africa, remain in place, trillions of dollars later! The Washington Consensus, which advised on trade and investment liberalisation, privatisation, the promotion of free trade and markets, has failed to lead to the industrialisation of developing countries.

In his book, Reinert suggests what he terms “the toolbox for economic emulation and development” for those countries who wish to implement sustainable developmental policies through industrialisation. His advice is informed by the policies which the now industrialised countries actually implemented.

First, it important to target support and protect of economic activities which render increasing returns. The export of primary products to developed economies keeps poor countries poor and they must move away from such economic activities which create decreasing returns and move towards manufacturing and services sectors which create increasing returns.

Decreasing returns occur when unit costs of production increase with increased volumes while increasing returns are those activities where unit costs decrease with increasing in volumes.

Second, temporary monopoly rights, patents and protection must be provided for local companies which are involved in increasing return activities, including geographical exclusivity.

It is necessary to provide all the necessary support and to protect such economic activities from foreign competition until such time as these sectors are able to compete globally. This allows such economic activities to grow and build the necessary economies of scale.

Third, establish a manufacturing sector at all costs. “It is better to have a badly managed manufacturing sector than none at all.” The synergies or direct and indirect linkages created by a manufacturing sector are critical for development. A manufacturing sector increases value addition and gross domestic product, increases employment levels and incomes and also solves the balance of payments.

Fourth, offer tax breaks for targeted activities thus easing the cost of doing business. Also, offer cheaper credit and export incentives for value-added exports in order to encourage their local manufacture.

Fifth, establish export taxes for raw materials thus making it unattractive to export raw products and more expensive to foreign buyers. This must be coupled with string promotion of import substitution and deliberate consumption of locally made goods. It will be necessary to develop local manufacturing capacity using these raw materials.

Doing these will ensure an economy begins the process of localised industrialisation. The protection, promotion and support of those economic activities which create local value and higher incomes are the underlying principles.

When we attract foreign direct investment in activities such as mining and agriculture, we are not necessarily creating long-term wealth, but specialising in economic activities which create poverty. It will be necessary to ensure that foreign direct investment projects invest in manufacturing so that they do not merely export raw primary products to be processed into finished goods in developed economies as has been the case.

What is also important is that our industrialisation policy should be led by the private sector and not administrative government departments.

My approach would have been to establish cluster-based implementation teams led by entrepreneurs with agreed outputs, specific outcomes, a capital budget and timelines.

  • These clusters would ensure that industrial synergies are taken advantage of and would focus on:
  • The production of basic goods;
  • The local production in the light industry;
  • Local production of heavy industrial goods;
  • Complimentary industrial infrastructure and services and, finally;
  • Research and innovation.

Each cluster would then have a list of all products or services which we need to produce locally with a detailed implementation plan, timeline and budget for each product.

Lastly, there is the issue of energy and water infrastructure.

Without adequate energy and effective water management, you can forget about industrialising. Clearly the model we have is not working and it is critical we have fresh thinking in this area. That fresh thinking needs a new perspective on power generation and distribution and clean water reticulation and sewerage systems in relation to industrialisation.

The African Development Bank has produced a comprehensive and well-researched report on the prerequisites for the re-industrialisation of Zimbabwe in the next 10 years that is estimated to cost US$14 billion. This will mainly hinge on effective institutional arrangements and project management.

The Trade Ministry must focus on creating an environment conducive for the industrial transformation agenda, but the private sector must take the lead in implementing it. Private sector-led growth must stop being rhetoric.
We must learn from history.

Vince Musewe is an independent economist. You may contact him on vtmuswe@gmail.com. These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, immediate past-president of the Zimbabwe Economics Society — kadenge.zes@gmail.com and mobile: +263 772 382 852.

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