Towards economic efficiency and social responsibility

By Bernard Bwoni

As economic theory dictates, all removal of trade barriers is beneficial to the global economy. The argument is that by increasing trade barriers through tariffs, domestic consumer costs increase, foreign exporters’ sales decline and efficiency gains through comparative advantage are hampered. The developed economies often tell the developing countries of the benefits of free markets with promises of wealth and progress if they opened up their markets. Many developing countries have in the past and more recently taken such advice on board only to find that the markets from the very same developed countries tightly closed for them in return. Protectionist policies for the developing countries are essential but need to create a balance between social responsibility and economic savviness. In as much as the developed countries need to be sincere about free trade, local producers in developing countries also need to be sincere and honest in their conduct when barriers are put in place to support them. Protectionism must never be used as a way of creating artificial shortages to inflate prices and maximise profits. The priority must be the creation of a nation that is socially responsible and economically efficient. When it comes to trade liberalisation, the developed countries’ policies have their flaws but developing countries also have a responsibility to their own citizens to provide quality products that remain affordable to fill the gap left by the cheap imports foregone.

The Zimbabwe government’s decision to suspend importation of all agricultural produce and cancelling all import permits is a socially responsible and economically efficient strategy if domestic producer’s prices remain as competitive as the imports given up to make way for local produce. Competition is good for the economy as it increases efficiency, better service for consumers and lower prices. Protectionism in the initial stages of economic transformation is equally good for the economy as it offers the domestic producers that cushion to establish themselves and be able to learn to compete in the global market. Domestic producers in Zimbabwe have in the past been insincere and less than honest when government had intervened to offer that initial period of protection and promotion. Some domestic producers have deliberately induced a sense of severe shortages to allow them to hike up prices on basic commodities. Thus the call by local farmers for government to establish local production deficits first instead of directly exposing domestic producers to cheap competition is welcome. The government should be looking at importing only those products that local producers are failing to meet local demand and in return local producers need to offer a quality product at prices that do not impact on the welfare of the local consumer and a product that remain competitive for export.

There nothing unusual about domestic producers and farmers in Zimbabwe clamouring for protection against dumping from foreign producers. The European Union’s Common Agricultural Policy (CAP) protects EU farmers from foreign competition by deterring imports from outside the European Union through heavy import tariffs. The EU also protects producers against price drops by buying up and storing surplus crops or exporting them to developing countries at below market prices which exert unequal competition as has been happening to local Zimbabwean farmers. The EU’s free trade agreements force developing countries to open up their markets for European surplus production. Zimbabwean farmers cannot compete with subsidised EU goods, cheap imports from China and South Africa and in effect face risk of being displaced by unfair competition. Having said that, the cheap foreign imports sustain livelihoods in Zimbabwe in this severe economic climate and thus benefits to society are significant. The dilemma is how to sustain the same livelihoods at the same time protecting and promoting the domestic producer. The trade-offs are complex and with Pareto optimality in mind it is going to be impossible to improve livelihoods of Zimbabwean consumers without the producers becoming worse off because of the influx of cheap imports or vice-versa.

A strong agricultural sector is vital for the highly competitive food industry to remain an important part of the Zimbabwean economy and trade. The marginalisation of local farmers is precisely the risk associated with the ongoing dumping of cheap foreign food imports. For Zimbabwe just like other developing countries to be competitive there is an urgent need to significantly reduce the unsustainable import dependency that characterises the market at present. The country has to immediately switch from being a net importer to a net exporter and the government needs to pursue a policy trajectory that fosters domestic agricultural production and limits import dependency. Facts are stubborn and the fact of the matter is that there is no country in this world that has transformed its economy to an advanced economy through imports. It is stating the obvious that you have to make and sell more and buy less to make a profit and even if you buy more, you have to buy at a cheap price to sell at a higher price on a very large scale. There is need for a policy shift that allows Zimbabwe to protect itself from lowly priced imports. In the short term society benefits from cheap imports however the long-term effects on the national economy are devastating. However any government has to remain socially responsible to the plight of its citizens when addressing this issue and looking at policy shift.

 It is a delicate situation developing countries find themselves in, how to balance economic efficiency and social benefit. It is a sad situation that Zimbabwean farmers are being forced out of their own local market because of the cheap foreign dumping that the country is faced with. The cheap subsidised import means that local farmers cannot even compete on a level playing field on their own land. The developed countries such as those in the China, EU and the USA dumps cheap food stuffs in poor developing countries with the help of export subsidies which only further undermines the livelihood of farmers in those developing countries.

Zimbabwe just like other developing countries find herself in a very difficult position with the IMF and World Bank putting pressure on the country to scrap tariffs and subsidies as part of the free trade rules. In contrast, EU farmers are guaranteed a price for their produce at prices almost three times higher than world prices and there are stringent restrictions on foreign imports into the EU backed up by very high tariffs on imports. Export subsidies allow surplus EU produce to be dumped at bargain prices in developing countries. The EU Common Agricultural Policy uses quotas and very high tariffs to effectively block the importation of foreign food stuffs. It is interesting to note that the EU tariffs vary and rise in proportion to how processed the product is. Partially processed products face an average of 20% higher tariffs than raw resources and finished products face almost 50% higher tariffs (FAO, 2013). To put it simply, developing countries can export the sugar cane but not the sugar made from the sugar cane. Zimbabwe mainly exports horticulture products, tobacco and other unprocessed raw products and in return imports in bulk the finished products from those raw materials.

According to the United Nations, EU protectionism deprives developing countries of nearly US$700 million in export earnings a year. The US$50 billion a year EU agricultural subsidy regime is one of the biggest impropriety facing farmers in developing countries as Zimbabwe. The Sugar Industry is a good example in Zimbabwe where the EU has duty-free access which allows additional imports at reduced duty and below world prices. Thus significantly lower international sugar prices and a surge in sugar imports onto the domestic market has severely reduced domestic sales volumes in Zimbabwe.

From an environmental sustainability point of view, agricultural success needs not simply be viewed on successes at the auction floors alone but need to prioritise the environment and the impact of agriculture on the environment. Some of the current agricultural practices in the resettled farms need to be revised as they are not sustainable. The environment and the resources produced have a relationship that is multipurpose in nature and offer people a wide range of valuable goods and services such as renewable and non-renewable resources, landscape and amenity resources, waste assimilation capacity and life support system. Environmental goods and services are valuable products that humans derive from natural and managed ecosystems. The environmental services production of food; protecting water quality; water regulation; maintaining healthy waterways; natural climate regulation; provision of shade and shelter; soil regeneration; forest regeneration; carbon sequestration; nutrient cycling; waste assimilation; pollination; biological pest control; natural hazard regulation; maintenance of natural genetic material; and maintenance of native habitat. It is not just the farmers who have to be environmentally responsible, but every citizen’s duty.

 

The recent concerns expressed by the Forestry Commission of Zimbabwe that the rate of deforestation at over 300000 hectares per year would wipe out the country’s entire forest in 50 years’ time must be taken seriously. The small-holder farmers in particular tobacco farmers must take responsibility and use this valuable resource responsibly in curing their golden leaf. The issue of property rights remains a multiplex one and still needs to be understood from the complex corner it occupies in the Zimbabwean context.

 Farming and the environment are inextricably linked. The main functions of agriculture are often put into three broad categories namely economic, environmental and social. The economic functions of agriculture are assigned a value by the market since they generate tradable goods. Environmental and social goods and services have no markets and no markets prices hence non-marketable and non-tradable nature. This is because of absence of the demand and supply mechanisms for such goods. Valuation of environmental functions which are unpriced is an important in order to correct economic decisions which treat natural environments as if they are free goods and services hence overuse and misuse. . The indiscriminate clearing of forests for curing tobacco if unchecked are ecological and environmental time bombs for Zimbabwe. Intensive and poorly timed application of fertilizers and pesticides often results in` high run off into rivers and ground waters whereas intensive stocking of livestock which give rise to overgrazing and the creation of animal slurry which pollutes rivers.

There is an urgent need for a national trajectory that seeks to improve the lives of all citizens, have an acute awareness that our actions today have a bearing on future generations and whilst doing all this ensure that an economically efficient society is created. There should be a commitment uphold uprightness and contribute to economic development of Zimbabwe while improving the welfare of society at large. It is every Zimbabwean’s duty to play their part in maintaining that balance.

Bernard Bwoni on twitter@bernardbwoni/ www.bernardbwoni.blogspot.com