Harare: Very correctly, although unjustifiably belatedly, government has recognised that there is a critical need to extend protection to Zimbabwe's manufacturing sector, and to facilitate and aid its survival, recovery, and growth. It is a harsh and tragic reality that, over the last three years, industry has been afflicted by innumerable negative factors of such magnitude that a very great number of manufacturing enterprises have ceased operations, an even greater number have had to resort to extensive downsizing, and almost all that still exist are confronted by a myriad of negative circumstances which place their survival in great jeopardy.
The causes of the gargantuan constraints which have confronted industry (and still do so) are manifold. They include pronounced under-capitalisation and critical illiquidity, primarily occasioned by the intense hyperinflation that prevailed in 2008 and the subsequent demonetisation of Zimbabwe's currency.
Another of the principal constraints has been, and continues to be, the grossly inadequate service delivery by essential parastatals such as the Zimbabwe Electricity Supply Authority, National Railways of Zimbabwe, Air Zimbabwe, and TelOne.
The cataclysmically poor operations of those entities very severely jeopardise industrial productivity and viability of manufacturing operations.
Also impacting adversely on industrial operations is wideranging, ongoing conflict between employers and labour; the latter struggling to maintain themselves, their families, and their dependants, on wages very markedly below the poverty datum line, but employers' circumstances precluding wage enhancement. The consequence is very diminished productivity on the part of the demoralised labour force, further jeopardising the viability and continuance of manufacturing operations.
Yet a further constraint upon the continuance of manufacturing is the increasing inability of most enterprises to be export-competitive. The industrialists are unable to achieve value production to an extent as yields the economies of scale which are attained by manufacturers in the Far East, Europe and South Africa, resulting in much higher unit costs than those sustained by competitors abroad, and therefore being a barrier to the penetration of export markets. This also impacts negatively against competing in the domestic market, with imports being available at significantly lower prices (and especially so when those imports are smuggled into Zimbabwe in order to avoid customs duty and other imposts).
Government has for some time recognised and acknowledged the ongoing and accelerating decline of the manufacturing sector, with the concomitant negative effects upon employment, the economy in general and revenue flows to the fiscus, but has been extraordinarily tardy in addressing the causes or in seeking to reverse industrial collapse. It has done nothing of substance to enhance money market liquidity, thereby enabling industry to access funding, nor to create a conducive, secure investment environment which can facilitate industry recapitalisation.
Admittedly, almost four months ago, it created the Distressed Industries and Marginalised Areas Fund to give financial aid to manufacturers, but on the one hand the provided funding, being a niggardly US$40 million, cannot achieve anything meaningful; for the capital resources needed to revitalise the manufacturing sector exceed US$1 billion and, on the other hand, no funding has been released by the fund to date.
Government has similarly done nothing to resolve the gross inadequacies of parastatal service delivery, nor to achieve reconciliation between employers and labour. It has also failed to provide any meaningful support and incentives to enable manufacturers to effect viable exports. Until recently, its only industry-related action was to ban the export of certain unprocessed minerals (primarily chrome), but that was an exercise in the pointless for, although it was government's wish to benefit the economy by ensuring local value-addition to primary products, the reality was that existing industry did not have the capacity to effect such value-addition beneficiation to any material extent in relation to the production volumes of the primary products. That has resulted in a negative effect of a marked decline in the production of those products, and a concomitant lessening of exports.
However, despite its extreme tardiness in addressing the issues afflicting industrial survival, suddenly government decided to act in one respect, ie to protect industries from competition in the domestic market. Commendably, it imposed substantially increased customs duty on clothing and footwear, having a partial effect in eroding the price advantages attained by foreign manufacturers whose governments accord them massive export subsidies, far in excess of those prescribed in terms of the international general agreement on tariffs and trade. It has also banned the importation of second hand underwear.
Having witnessed some positive results from its action on duties on clothing and footwear imports, (although only of some limited benefit to manufacturers because of the magnitude of other operational constraints), government decided -- without due and proper consideration -- to impose increased duties on numerous other products, believing that doing so would beneficiate many Zimbabwean producers. It enforced, with effect from January 1, a surtax of 25% on 108 different products, ranging from poultry and fish, to dairy products, fruit and vegetables, meat products, a vast range of groceries, aerated cool drinks and alcohol, certain toiletries and cosmetics, refrigerators, stoves, certain motor vehicles, and many other products.
In principle, the imposition of the surtax has merit and will motivate greater consumer recourse to various locally-produced products, but it is blatantly clear that no consideration was given as to which of those products are currently available from domestic suppliers in sufficient volumes. Many of the specified products are presently being locally produced in low volumes, including diverse fruit, vegetables, and essential groceries.
As a result, insofar as those products are concerned, Zimbabwe will need to continue importing for the foreseeable future, and that importation will attract the 25% surtax. This will further impair the fiscal liquidity of many wholesalers and retailers, thereby constraining the extent of their operations. Furthermore, the surtax will have a marked impact upon inflation, with consequential further decline in consumer spending power, and intensification of consumer hardships.
None can credibly argue that the surtax should not be applied on such products as are sufficiently produced in Zimbabwe, provided that those products would be price- competitive or comparable with like imported products, but the surtax should not apply to products in short supply from domestic sources, or where the consequence will be surging inflation.
Instead of acting unilaterally, thoughtlessly and destructively, government needs to have meaningful dialogue with local producers and their representative bodies, in order to determine measures that would be economically constructive, and to avoid those as would be prejudicial. Acting in the manner that it has done, both in seeking to enhance local value-addition to primary products, and maximisation of market demand for locally-produced products'1 is grievously misdirected and counterproductive.
