By Bernard bwoni
In Africa, if you mention the word ‘protectionism’ you are immediately branded
‘anti-progress’, you will have statements like ‘build up competitiveness’
hurled at you and end of story. Well, the more I look into the history of
Africa’s economic development or lack of, the more I am convinced that a period
of infant industry protection and promotion is exactly what is required to get
to that stage where domestic industry can effectively compete on the global stage.
Zimbabwe is my point of focus and when protectionism is used in this article
this is not to suggest that the country should seal off all its borders to all foreign
imports, but rather adopt strategies for imports and exports that facilitates
domestic production to build up capacity. The government has to continue considering
protectionist policies in specific sectors where the country has the greatest
potential to develop comparative advantage and eventually economies of scale. The
key terms are strategic and selective protection and promotion. Our neighbours
in South Africa have similar protectionist provisions on their key strategic
industries and these industries are heavily protected by the country’s domestic
procurement threshold policy. There is absolutely no reason why Zimbabwe should
not provide this initial period of systematic protection of domestic industry
and allow them time to absorb new technologies, build on capacity and thus be
able to compete on the global stage.
The infant industry protection debate in Zimbabwe is often limited to
the competitiveness argument without further exploration and in-depth analysis of
the many crippling constraints domestic producers and industry face. Zimbabwean
industries are currently operating at below 40% capacity utilization and it is unrealistic
to expect domestic manufacturing to build capacity amid unrestrained
competition from cheap foreign imports in sectors where products could easily
be produced locally. This then begs the question, where is the sense in
exposing fledgling domestic industries to competition from more established
external producers who already benefit from greater economies of scale? A good
example is the Zimbabwe tea blenders and packers who have been facing stiff
competition from cheap imports, which constitutes 25% of the domestic market
share. Tanganda Tea Company and Arda Katiyo Tea produces 15000 tonnes of tea
against local consumption of 4000 tonnes and about 3000 tonnes are supplied to
the local market whilst the rest is exported. Local tea blenders and packers
have however lost 25% of this market share to imported teas that have flooded
the market. The irony is that the imported tea, which constitutes this 25%, is
originally Zimbabwe, which is, exported as bulk tea. What this basically means
is that the country exports raw tea and then imports that very same tea
packaged and more expensive. Now here is an opportunity for the country to
protect such a specific sector to allow them time to build capacity and
competiveness. Zimbabwe currently has no tariffs on imported packaged tea
products from South Africa yet the South Africans have a number of heavy
duties, local content provisions and government procurement provisions all that
makes it very expensive for Zimbabwe to put her tea products on South African
shelves. These are concerns that have been repeatedly raised by relevant
stakeholders in these sectors and such concerns have to be taken seriously.
The case for strategic, selective and systematic infant industry
protection remains very relevant in the context of Zimbabwe. The South African
auto assembling industry is heavily protected and industries such as clothing
and textiles are also strategically protected and have been designated under
the country’s local content protectionist policies. In Zimbabwe the local car
assemblers such as Willowvale and Quest do not appear to benefit from the same
South African-style protection and promotion strategies, which is unfortunate. In 2011, President Mugabe gave a clear
directive that all government institutions should buy their vehicles locally in
order to support the local industry and preserve the country’s limited foreign
reserves. The recent case of the State Procurement Board (SPB) awarding the
tender for the purchase of 139 pick-up trucks at a cost in excess of US$3
million for the Zimbabwe Electricity Transmission and Distribution Company
(ZETDC) to Croco Motors and Paza Buster (PVT) Ltd certainly goes against infant
industry protection. This is a clear case for domestic industry promotion where
Willowvale or Quest would have been given the tender to assemble these vehicles
and the knock-on effect on employment creation and on GDP would have been
significant. The idea of awarding the tender to a car import company at the
expense of local assemblers goes directly against infant industry protection.
In 2014 Zimbabwe imported close to US$500 million worth of cars mainly
from Japan, South Africa and UK at a time when Willowvale and Quest local
assemblers are operating at below 10% capacity utilization. Of that US$500
million, how much goes towards the national GDP and how many jobs are created
from that? If strategic protectionist policies are implemented and assemblers
such as Willowvale and Quest are cushioned from competition to enable them to
increase their capacity utilization the gains in GDP terms and employment
creation would be significant. Sometimes policy makers have to bite the bullet
to forge ahead with certain policies for society to realize the gains of such
policies.
Zimbabwe’s borders are way too wide open to facilitate domestic industry
revival and growth. There are a number of key sectors that require strategic
protection and promotion to enable them to build their capacity. Protection and
promotion will have the long-term effects of increased employment creation in
local industry and tariffs can help offset foreign dumping and help industries
like the clothing and textiles and car assembly industry. Protection in the
right sectors will boost domestic industry rather stifle it as many have argued
otherwise.
During the Ministry of Finance’s First Quarter Treasury Bulletin of
2015, exports for January 2015 alone amounted to US$276 million and imports
amounted to US$538.1 million creating a trade gap of US$262.1 million.
Merchandise imports, excluding fuel and electricity and services account for
60% of the country’s import bill, indicating the country’s over-reliance on
imported goods and services that can easily be produced locally. There is a
highly unbalanced relationship between the country’s exports and imports hence
the huge trade deficit. The First Quarter Treasury Bulletin of 2014 from
January to June the country’s total exports stood at US$1.2 billion down from
US$1.5 billion in the same period in 2013. During the same quarter of January
to June 2014 the total import bill stood at US$3 billion, down from US$3.9
billion during the same period in 2013. The major imports for the period
January to June 2014 were fuel, food, machinery and equipment, wood, paper and plastic
and motor vehicles. Fuel accounted for 25.2% of total imports, machinery and
equipment 16.5%, food and beverages 16%, wood, paper and plastic products 12%,
motor vehicles 8.2%, metal products 6%, fertilizers and chemicals 4.6%, other
manufactured goods 2.7%, clothing and fabrics 2.4%, building materials 1% and
transport equipment 0.3%. The 16% share of food and beverages in total imports
for this First Quarter of 2014 clearly indicates that the country is importing
items that can be made locally and in so doing promote the revival and growth
of domestic industry. This is where the infant industry protection argument
continues to be relevant and this is not just about protecting everything but
rather gradual and strategic opening of the economy.
The First Quarter Treasury Bulletin from January to March 2015 clearly
highlights the issue of constraints that impact on competitiveness of domestic
industry and hence the urgent need for strategic infant industry protection and
promotion. Domestic manufacturing remains severely depressed due to
infrastructure and financial constraints. The period from January to March 2015,
exports amounted to US$716 million compared to US$627 million in the same
quarter in 2014. The import bill for the quarter January to March 2015 stood at
US$1.5 billion and the major imports were fuel, food, clothes and textiles and
motor accessories. The export of textiles and clothing from Zimbabwe has
remained constant at around US$25 million over the period from 2005-2015.
Zimbabwe has exported over 74000 tonnes of cotton lint on average over the last
25 years, which is reflective of a lack of value addition and transformation
domestically. Fabric exports from Zimbabwe represented total earnings of
US$24.4 million between 2009 and 2013. In 2013 alone the fabric export value reached about
US$4.2 million. The value of import of fabrics into Zimbabwe between 2009 and
2013 was US$221 million. This trade deficit of US$196.6 million is
unsustainable and makes a very strong case for infant industry protection and
promotion. The export of clothing from Zimbabwe amounted to US$42.6 million
between 2009 and 2013 and during the same period imports of clothes amounted to
a total value of US$98.5 million.
There are many examples in Zimbabwe where protectionism would facilitate
growth if guided by specific indicators and guidelines. Domestic industry
protection has to be combined with a robust export strategy. There is however
the counter argument against protectionism.
Bernard Bwoni
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