The EU, Africa and Zimbabwe: disarray leads to industrial stasis

By Bernard Bwoni

Revolutions just as with evolution can happen silently. Analysing the boon and bane of the new landscape and the transformation it ushers is fine art or should I say finite. A new and effective system of checks and balance and politics of maturity and openness evolves. Any ruling party has to constantly be kept on its toes by a brand of inter-party and intra-party political maturity by learning to adapt to this uncomfortable but necessary level of scrutiny. This ascendance towards a mature brand of politics is for those with the moral and mental mettle to deal with the facts minus the associated emotions. Let us focus on facts and figures of the realities on the ground. Zimbabwe signed the trade liberalization EPA with the EU which means Zimbabwe with mere population of less than 15 million people opening 80% of its markets to products from the EU with its 300 million economically-advantaged population by 2022. In the short term it will appear like Zimbabwe is gaining from the trade relationship but in the long term what you will find out is that as volumes increase the balance will shift exactly where the long-term thinking EU are aiming for and that is in their favour. Do your sums and numbers and facts are stubborn.

The Economic Partnership Agreements (EPAs) are ‘meant to safeguard’ African, Pacific and Caribbean countries’ preferential access to EU markets previously granted through the Lome Convention. The recent EU-Africa summit focused on trade liberalization as well as liberalization in investment and services. Many African countries have expressed reservation about signing the EPAs and rightly so. The EU has been exerting pressure on those countries which have not ratified and has set a deadline of October 2014 or it will start levying tariffs on all imports into the EU from those countries that have refused to ratify.

Zimbabwe is already an import-dependent country and signing the EPA and opening its doors further duty-free to more imports was a counter-productive move. The country could have focused on developing the industrial sector to compete globally especially in those areas the country has comparative and competitive advantage. The comprehensive duty-free access for EU finished products significantly impact on revenue to government in the long-term. The government could be forgiven for signing the interim EPA as this was during the time of contentious government of national unity.

The deal which the EU is putting on the table appears fair on paper but in reality and in the long term will not stimulate economic transformation on the continent. Zimbabwe has signed the interim EPA which covers the liberalization of goods (agricultural or manufactured products) but not the full EPA to cover services.

The comprehensive EPA includes goods, services and investment including banking, water services, construction and any other services. From the import figures above it is clear that Zimbabwe mainly exports raw materials to the EU and liberalizing the services sectors which could be important to the country’s own productive capacity as stipulated in ZimAsset’s value addition and beneficiation cluster is detrimental to the country’s economic growth. The EU has not been very clear on infant industry protection within the EPAs being proposed for the continent. What this means is that countries like Zimbabwe which have signed the EPAs will be exposed to direct competition from EU goods and services. Just a quick look on the EU exports to Zimbabwe will illustrate the point clearly. Value addition will be hampered, infant industry protection will be affected and domestic industry will not realize their full productive potential as they would be prematurely exposed to competition from more established firms from the more developed EU.

The recent EU-Africa summit focused on liberalization of investment and services which the EU is pushing for with individual African countries. This is negative for African unity in the sense that by negotiating different terms with already weak African economies this is basically weakening regional integration. The pressure from the EU for African countries has forced some countries to give in and sign the EPAs fearing the threat of exclusion from the EU market.

The EU is Zimbabwe’s third largest trading partner and in fact the balance is in Zimbabwe’s favour on face value. Zimbabwe has more exports to the EU than imports. The value of trade with the EU is in excess of US$800 million with a positive trade balance in favour of Zimbabwe. Zimbabwe exports to the EU mainly raw materials such as raw cane sugar, minerals, tobacco, citrus, cotton, raw hides, tea and leather. In return Zimbabwe imports cars, transport equipment, machinery, chemicals and luxury goods. The Zimbabwe government has signed the interim EPA with the EU which means the country will continue to enjoy preferential duty-free  plus quota-free access of all goods to the EU market and in turn the EU also will have a 80% duty-free quota access to the Zimbabwe market for their manufactured products gradually implemented with full implementation in 2022. The issue of infant industry protection has not been made very clear and there seem to be a lack of long-term planning on Zimbabwe’s part here.

Zimbabwe is likely to lose that revenue base from the removal of all tariffs from trade with the EU and SMEs will be negatively affected by trade liberalization in the long-term. There is no country in the world that has developed without protecting its industry. With very few exceptions, tariff cuts and other measures of trade liberalisation have not brought about the anticipated economic growth and in a lot of cases have in fact brought economic collapse.

Zimbabwe should be looking more at strengthening regional integration and tapping into the huge potential of the regional trade as that will most definitely stimulate economic growth. Zimbabwe’s trade with the DRC and Botswana is positively skewed in favour of Zimbabwe as exports are tenfold more than imports and it is value-added exports. The concerning feature is that our government preaches value addition and beneficiation and at the stroke of a pen turn around and open up its markets duty-free to more advanced economies and in so doing exposing domestic producers to  unequal competition.

Zimbabwe has a significantly negative balance of trade with the world and that is where the argument against EPAs is stemming from. It is quite interesting to note that the EU urgently wants African countries to commit to the EPAs or face tariffs on goods from those countries that have not signed. The EU wants to counter the growing Chinese influence on the continent and it is beginning to look like they are coercing African governments to sign trade agreements which are unfavorable in the long run. The 100% duty-free quota access will give the EU firms the definite edge over competitors in particular the Chinese. The issue with the trade flow between the EU and Zimbabwe is not in the numbers but the detail. Exporting raw materials and importing the finished product will hamper innovation and development for a country like Zimbabwe. The country recently came up with a brilliant ZimAsset blueprint which clearly prioritises value addition and giving 100% duty-free access for EU finished products will just curtail domestic manufacturing industry potential and revival.

The recently concluded EU-Africa summit did touch on this delicate subject and the EU wants a free trade zone for goods with Africa as well as services. What this means precisely is that if a tender is put out for any of the service industries in the country, then companies from all over the EU will freely and equally compete for such tender with local  companies. Now this goes against infant industry protection which is why some African countries are holding out on signing the EPAs. Domestic African companies would find it very difficult to compete against the more established companies from the developed EU with some form of initial infant industry protection.

What we have here is a case of facts and figures, political grandstanding aside. The Zimbabwe government signed the interim EPA with the EU in 2009 and since then trade between the two has increased drastically. The trade is in fact skewed positively in favour of Zimbabwe at present. However looking into the detail of the agreements is crucial because it is the all-important small print that sets out our contractual rights and dilemmas, which tie us down and when you do not read the small print it is a life time braise. The elimination of export taxes will significantly impact the National Trade Policy (NTP) and Industrial Development Policy (IDP) which are meant to promote trade and industrial regeneration respectively. It will also negatively impact ZimAsset which advocates value-addition and beneficiation.

Empirical historical and modern day evidence clearly shows that it is nearly impossible for a developing economy like Zimbabwe to develop without some form of trade protection and subsidies. The signing of the EPA in the short-term and on paper might seem a positive step but in the long term is damaging to Zimbabwe’s developmental efforts. Documents and their small print are always difficult and confusing to read and hence why developed countries have specifically trained individuals to synthesise such and offer politicians and decision-makers an informed inference into their contents. These are not documents you just browse through and sign on the dotted line. They have far-reaching national implications and complications.

Evidence shows that trade liberalisation works only when it happens gradually and selectively as part of a long-term industrial policy. Given that Zimbabwe’s manufacturing sector is emerging from years of decline, it cannot be expected to compete against the mature industries in the more advanced regional and advanced international economies without an initial period of deliberate government protection. It is going to take time and more importantly investment in technological capabilities for manufacturing companies in Zimbabwe to absorb advanced technologies. Without this initial period of protection the sector is going to struggle to survive the international competition. The manufacturing sector in Zimbabwe requires government protection and subsidies at the initial stages so that they can absorb the technologies and learn to complete in the global market. The exportation of EU manufactured goods and services would directly expose domestic industry to this unfair competition.

When Zimbabwe signed the interim EPA in 2009 trade increased drastically between the two. The EU will be granted full duty-free access to the Zimbabwe market by 2022 and what some analysts have pointed out is that that is sufficient enough time for Zimbabwe industry to  build on its competitiveness and face the competition from EU goods and services. What is interesting to note is that all EU countries developed their economies on a backdrop of tariffs and subsidies throughout the 19^th century and 20^th century and exerting the sort of pressure they are on African countries to commit to these EPAs can only be detrimental to African economic transformation.  Zimbabwe is one country that should have learned from ESAP. Americans owe their high standards of living and international political dominance to the intellectual father of protectionism Alexander Hamilton and not to free market economists like Adam Smith. My argument is that Zimbabwe’s industry is not even in its infancy, it is still to be reborn and exposing it to EU competition by 2022 is just too premature and will impact negatively on the country’s economic progress. It is all high sounding talking about competitiveness but for Zimbabwe to build that level of competitiveness to compete with more advanced economies of this world it requires that initial level of protection and promotion.