The advent of globalisation has demonstrated that each country has expertise in a certain trade and there are commodities that resonate with certain countries more than others. It is often argued that to be successful in business, specialise on what you do best.
When the name Switzerland is called, chocolates or wrist watches come to mind. Russia is synonymous with Vodka, Netherlands with cheese, Germany with Auto Engineering, Italy with pizza or pasta, America with Hollywood movies, France with fashion and L’Oréal beauty products, Japan with Toyota, South Korea with Samsung, Dubai (in UAE) with shopping and Botswana with diamonds. The list can go on for every nation on the planet, including Zimbabwe even though the citizens may not appreciate the value of the nation’s expertise as the world does.
Undoubtedly, Zimbabwe’s most valuable exports are minerals and tobacco which rake in over $4 billion in export earnings every year. However there are consumer brands that resonate with the nation since timely memorial and represent the best brands that can make it on the regional export market.
The irony is that the international market and Zimbabwean expatriates appreciate the originality of these brands more than local consumers. In 1930, a businessman called Arthur Sturgess founded Mazoe in a small factory in Bulawayo and 90 years down the lane, the brand has grown to be a household brand treasured across the world.
This success story should not be limited to Schweppes Mazoe brand only. The list should includes Cairns brands (Chompkins, Cashel Valley, Things, Willards, Sun Jam and Charhons Biscuits), ART Corporation (Eversharp pens, Exide batteries and Softex Tissues), Dairibord (Lacto, Lyons, Steri, Chimombe, Cascade, Rabroy & Quick Brew) and National Foods (Gloria, Red Seal & Zimgold).
Delta Corporation (Chibuku Beer, Bohlinger’s and Zambezi lagers), Unilever Zimbabwe (Geisha, Royco, Omo and Sunlight), Olivine (cooking oil and Buttercup margarine), Nestle Cerevita, Blue Ribbon Ngwerewere, United Refineries’ Roil, Colcom pork pies, Merlin Towels, Tanganda Tea and Irvine’s chicken.
There is no doubt that these products are popular beyond Zimbabwean borders especially in the Sadc region and given the right investment (economic) impetus, they can boost Zimbabwe’s trade position under the new Africa Continental Free Trade Area (AfCFTA).
The growth of multinational corporations (MNCs) that dominate the African market (including Zimbabwe) was at the back of direct or indirect support from their home government policies.
A study into the success of the world’s biggest MNCs shows a history of state assistance especially on government tenders, technology importation, tax holidays, export facilitation and advocacy, bailout packages, legal and intellectual property protection.
The long-term objective of such interventions on the part of government is to industrialise, substitute imports with home grown commodities, create value chain linkages for value addition, boost economic and infrastructure growth, create or save jobs, safeguard future tax revenues, diversify the economy, earn foreign currency and uphold national pride.
During the height of the financial crisis in 2007/8, the French government poured billions of investment into Peugeot, Citroen, Renault and L’Oreal among other flagship corporates.
The same was done by the United States on Boeing, Ford, Chrystler and General Motors. Germany has often bailed out its Daimler AG, BMW and Volkswagen while Japan did the same for Toyota, Honda, Mitsubishi and Sony.
Given the difficulties Zimbabwe is having to control its import bill for consumer products, diversify the economy from mining and agriculture. There is a strategic need in implementing policies that capacitate local manufacturers to ensure competitiveness of locally manufactured products.
Selected manufacturers have tried to make forays into the regional market with little success due to competitiveness reasons back home (high cost of production and economic instability), liquidity constraints for funding, foreign currency shortages and policy inconsistencies.
Selected local companies from other economic sectors have ventured successfully on the African market with Econet Global, Seed Co and Sambisa Brands being notable examples. However, all had to rely on external sources of funds for their regional expansion.
The adoption of AfCFTA presents threats and opportunities for the local industry. To minimise the impact of these threats and provide a firm grounding for locally manufactured brands, government policy needs to aim towards re-industrialisation.
The current export retention scheme where the government retains 40% of all the foreign currency earned by exporters (Using a soft pegged exchange rate), while taxing the same entities in foreign currency discourages value added export growth and encourages importation of finished merchandise for domestic consumption.
Zimbabwe’s taxation model should encourage import substitution, value addition (beneficiation) and export led growth. This entails investment incentives to local and foreign investors that open shop to produce for the export market or simply produce to import substitute the country’s top import commodities which include fertilisers, agriculture and industrial chemicals, motor vehicles and auto parts, plastics and packaging materials, pharmaceuticals and medical equipment, home chemicals, iron and steel products, animal and vegetable oils, newsprint and paper products, among others.
Protectionism and tax reforms
Equally important is protectionism policies from product dumping and smuggling in of finished merchandise. Local manufacturers cannot compete with counterfeit and cheap products (dumped merchandise) from the Far East given the high cost of producing locally.
Import duty for finished goods (say Refrigerators) cannot be the same as import duty for importing components used in manufacturing refrigerators locally. Similarly, raw commodity exports (say raw tobacco) cannot be levied the same export fees as the finished product (i.e. cigarettes) or processed tobacco destined for the export market.
A survey conducted by the Zimbabwe National Chamber of Commerce in 2019 found that a business operating locally has to make at least 51 payments for various tax heads to be considered tax compliant. Zimbabwe’s tax regime remains difficult and burdensome, especially for the few fully compliant taxpayers. The tax heads, procedures of paying, documentation and approvals remain very complex.
Trade policy reforms
Currently, exporters bemoan the extended beauracratic procedures involved to get an import and export permit, the border delays and the over 10 independent agencies involved to approve both processes. There is need to streamline the import and export processes to ensure efficiency in trade and reduce corruption in the chain.
A number of government departments simply exist to levy producers without adding any value to the export or production process.
Managing high cost of production
The high cost of producing locally is one of the primary reasons why Zimbabwean brands struggle to break into the export market as they are not competitive.
Besides a heavy tax burden, the high cost of doing business also takes into account the cost of capital (bank loans), transport (road haulage), electricity, water, labour, fuel and rentals. To move cargo in Zimbabwe, it costs US$0,12 per tonne/kilometer using road and US$0,06 per tonne/kilometer using rail. The Sadc average is US$0,07 by road and US$0,03 by rail.
Similarly, diesel currently retails at US$1,19/litre in Harare as compared to a Sadc regional average of US$0,95/litre. There is need to reduce excise duty paid on fuel imports which currently cost at least US$0,35/litre of fuel before other indirect levies on the same commodity are applied. The cost of fuel heavily feeds into the cost of production across all economic sectors. The same comparisons can be done on all inputs to production locally.
To support local manufacturers, the government should also tighten procurement policies for government agencies and make it difficult to import finished merchandise for state consumption. This includes motor vehicles and buses among other finished imports. The positive effects of industry supply side interventions to the economy cannot be overemphasised.
The gains realised in subsidising production in agriculture and growth in mining output will only make economic sense if output from these two key sectors is processed by the local industry than being exported in raw form, then be imported as finished goods by local consumers.
Implementation of supply side intervention policies to re-industrialise the local economy represent a sustainable formula to curtailing the high import bill for finished merchandise (with its imported inflation), create employment, incentivise export growth and laying the platform for some of Zimbabwe’s coveted brands to find space in foreign market shelves under the AfCFTA.
Bhoroma is an economic analyst and holds an MBA from the University of Zimbabwe. — firstname.lastname@example.org or Twitter: @VictorBhoroma1.