Harare: The vision of the Industrial Development Policy 2011-2015: to transform Zimbabwe from a producer of primary goods into a producer of processed value-added goods for both the domestic and export market. The mission statement: to create a vibrant, self-sustaining and competitive economy through promotion of viable industrial and commercial sectors as well as domestic and international trade.
3.2.1 The overall objective is to restore the manufacturing sector’s contribution to GDP of Zimbabwe from the current 15% to 30% and its contribution to exports from 26% to 50% by 2015.An average real GDP growth of 15% is targeted under this Policy Framework of 2011-2015.
3.2.3 To create additional employment in the manufacturing sector on an incremental basis as compared to the previous planning period of 2004 to 2010.
3.2.4 Increase capacity utilization from the current levels of around 43% to 100% by the end of the planning period.
3.2.5 To re-equip and replace obsolete machinery and new technologies for import substitution and enhanced value addition.
3.2.7 To increase the manufactured exports to the SADC and COMESA regions and the rest of the world.
3.2.8 To promote utilisation of available local raw materials in the production of goods.
3.3.1 In view of the aforementioned objectives listed in 3.3 above, the strategies to be pursued in fulfillment of these objectives are as follows:
3.3.2 Creation of a Bank: Government will establish an institution in the form of a bank primarily dedicated to financing short and long term recapitalization of industry. Sources of funding and the modalities for the operationalisation of the institution will be completed within the first six months of the policy coming into force.
3.3.3 Lines of Credit: Government will identify additional lines of credit of a short to medium term with grace periods of 3-6months and a repayment period of over 12-24months and make them available to industry on priority basis. The target is to finance the procurement of raw materials, packaging materials, production consumables, laboratory chemicals, spare parts, repairs and maintenance of plant and equipment and other working capital costs.
3.3.4 Distressed Strategic Companies: As a short term measure, the Government will initiate revival packages for Distressed Companies with a clear-cut exit policy on the basis of a revolving fund.
3.3.5 Review of Import Tariffs: The Government will review the import tariffs structure on the customs duty and VAT on industrial raw materials and packaging to level the playing field for locally produced goods.
3.3.6 A Council for Technology Upgrades will be established to coordinate the crucial role of modernizing industry’s plant and equipment and to improve on its systems and quality of products in line with international best practice.
3.3.7 Trade Policy: A key strategic component of the IDP is the trade policy which will be advanced by a separate policy document to support the trading environment to maximize attractiveness of Zimbabwean products in the region and globally.
3.3.8 The Trade Policy will nurture private sector competitiveness and support the productive sectors of the economy to create wealth, employment and enhancing social welfare
3.3.9 Spatial Development Initiatives: Government will put in place a short term investment strategy (SDIs) to unlock latent economic potential in a specific geographical area. The programme is in line with the SADC Members States’ economic vision which aims at transforming the respective members states’ economics from operating as individual , fragmented markets into single , integrated , vibrant and globally competitive market , characterized by free movement of goods, services , capital as well as labour.
3.3.10 The Government will encourage the setting up of Partnerships’ and financing options for the development of infrastructure and liaise closely with Apex organizations / Chambers of Commerce and Industry/ Trade Bodies in order to set up and sustain a Market Intelligence network which will provide a continuous feedback on the status of the industry and proposals on the types and levels of interventions required.
3.3.11 The Government will improve the investment climate and the business environment through various intervention measures that will include a well coordinated brand management of the Government, the State and the Country.
3.3.12 The Government will promote /help/ facilitate specialized skill development institutions at strategic locations for the manufacturing industry and services sector through public-private partnerships. These initiatives will be further strengthened by collaboration of institutions’ such as ZIMDEF and SDF.
4.0 RATIONALE FOR NEW INDUSTRIAL DEVELOPMENT POLICY
4.1 The Government of Zimbabwe launched the Short Term Emergency Recovery Programme (STERP 1) in February 2009 which was followed by the Three (3) Year Macro-Economic Policy and Budget Framework 2010-2012 (STERP II) on the 23rd December 2009. The key objective of both STERP 1 and STERP II is to resuscitate manufacturing activity and increase capacity utilisation levels from the low levels of approximately 5% in 2008 to around 80% by 2012. The manufacturing sector at its peak, contributed 23% to GDP. That level has gone down to about 12%. The manufacturing sector is diversified and well integrated with the rest of the Zimbabwean economy, exhibiting, particularly, strong linkages with agriculture, mining, construction and commerce. Zimbabwe’s manufacturing sector is well known for the diversity of its products.
4.2 The sector is an important contributor to the country’s domestic supplies and export activities, with markets in America, Europe, Africa and the Far East. The sectors’ exports are a reflection of the agricultural and mining foundations of the national economy and the extent to which manufacturing beneficiates products from the extractive and agricultural sectors. The principal manufactured exports include Ferro-alloys, clothing, metal products, chemicals, plastics and cotton- lint.
4.3 The economy has been facing severe challenges, with the annual real GDP growth suffering declines averaging -5.9% since 2004. Cumulatively, output declined by more than 40% during that period. The deepening economic crisis is reflected in Sectoral performance, which followed the same trend. Since 2006, virtually all sectors recorded declines in output with agriculture, manufacturing and mining estimated to have declined by 7.3%, 73.3%, and 53.3 respectively in 2008. Currently, average capacity utilisation in most industries is between 30% and 45%. Hence, while some progress has been realised across some sub-sectors, during this policy framework period Government will continue instituting measures to further raise capacity utilisation to 100% by 2015.
4.4 Since 2006, unemployment and poverty levels increased sharply. Ironically Zimbabwe’s economic decline occurred at a time when most African countries were achieving reasonable annual growth rates averaging 4.8% and mainly driven by sound and sustained macro-economic policies which contained annual inflation at low levels averaging 10%.
4.5 Evaluation of the 2004-2010 Industrial Development Policy
4.5.1 It will be noted that post the crafting of the IDP 2004-2010, the manufacturing sector’s contribution to GDP, continued to decline in spite of implementation of appropriate interventions such as assistance to distressed and closed companies, Import Substitution and Value Addition, development of integrated industrial clusters and the creation of subsector task forces that were developing detailed action plans for each subsector.
4.5.2 This downward trend was further compounded by the drying up of lines of credit owing to a number of macro-economic reasons, but also due to the impact of sanctions. Industry itself was operating at low capacity utilisation across the board which reached record lows of 5% on average in 2008. Furthermore, the country suffered an exodus of qualified and technical personnel who were emigrating to greener pastures in neighbouring countries. Raw material shortages owing to low agricultural productivity and foreign currency shortages also played their part in contributing to the manufacturing sector’s woes. The situation was made worse by the poor performance of and delivery by, utilities such as telecommunications, water, electricity and rail transport. The sum total of these woes has been the informalization of the economy.
4.5.3 Although on the surface it might appear that there are similarities in the situation currently faced by the manufacturing industries in Zimbabwe and those that existed both at independence, post ESAP and IDP 2004-2010, the policy document being revised and reviewed, given the evaluation outlined above, cannot therefore simply be extrapolated from current and past performance.
4.5.4 It now needs to be integrated with other National Economic Policies such as STERP I AND STERP II, the Medium -Term Plan, the Indigenization and Economic Empowerment Policy and more critically the current political, social and economic dynamics.
4.5.5 The Government recognizes the role that industry plays in making contributions to the quick turnaround of the economy subject to the availability of resources to re-equip and retool industrial machinery and the provision of working capital for the procurement of raw materials and other inputs in the short to medium term. The Government has incorporated industrial development and trade policy strategies in STERP II.
4.5.6 It will therefore take strategic note of the need to develop and implement a National Trade Policy including a National Export Promotion & Development Strategy.
4.5.7 There will be a focus on exports promotion as an integral part of the Industrial Development Policy.
4.5.8 Above all the current policy is being crafted on the basis of key and fundamental principles that will inform and direct the implementation of this vital economic growth and development vehicle.
5.0 Fundamental Principles of the New Industrial Development Policy 2011-2015
5.1 The Process
5.1.1 This Industrial Development Policy Framework has been drawn up through a process which has involved key and relevant stakeholders in both the initial consultative process and the development of practical policy interventions to be pursued.
5.1.2 The consultative process was intended to provide for a full buy-in of the final document.
5.2 Industrial Finance Institutions
5.2.1 The absence of an institutional funding mechanism that is well resourced and specifically targeted to the manufacturing sector was the biggest drawback of the IDP 2004-2010.This new IDP can therefore only succeed on a principle of an institutional framework that will not only provide the turnaround plan, but will harness and provide the required resources for the successful implementation of the IDP 2011-2015. There will be establishment of a dedicated and well-resourced institutional framework in the form of an Industrial Development Bank (IDB) that will drive the IDP throughout its duration. It is essential that the IDP be an active component of the manufacturing sector with the necessary high level support from government. That institution will be accountable to the Ministry in terms of its key result areas.
5.2.2 The Industrial Development Bank (IDB) activities will transcend the confines of pure long-term lending to industry and encompass, among others, balanced industrial growth through development of backward areas, modernization of specific industries, employment generation and entrepreneurship development along with support services for creating a deep and vibrant domestic capital market, including the development of apposite institutional framework.
5.2.3 However, taking into account the time it will take to set up such an institution, the Government will in the short term use existing institutions such as the Infrastructure Development Bank of Zimbabwe (IDBZ) to channel funding under the Critical Programmes Projects in the Three Year Macro-Economic Policy and Budget Framework 2010-2012 (STERP II) to the productive sectors of the economy.
5.2.4 Modalities for the establishment and operationalization of the Industrial Development Bank will be finalized during the first six months of the launch of the IDP 2011 - 2015.
5.3 Policy Certainty
5.3.1 Entrepreneurs perform effectively when they are operating in an environment which is predictable and stable. It is, therefore, critical that the IDP be implemented in an atmosphere which exudes a positive image and confidence that the government is keen to realise the vision of an industrialized economy. The Principle of Policy Certainty which avoids sudden changes to investment regimes will greatly contribute towards the successful implementation of the new IDP. This principle will embody the existing legal instruments which protect the value and ownership rights of the investors as well as on the principle of local ownership of the means of production as per the existing Indigenization laws.
5.3.2 It is imperative for technical partners in the manufacturing sector to be aware of the legislation on property rights, indigenization and empowerment and to make adjustments accordingly.
5.4 Plant, Equipment and Skills Audit
5.4.1 A critical imperative for the recovery of the manufacturing sector is the refurbishment, modernization and upgrading of plant, machinery and equipment, as well as the luring of diaspora skills to replace those lost through brain drain.
5.4.2 The new IDP will address the issue of the situation on the ground with regards to assessing the status, technology and availability of capital equipment in industry and match the audit to the IDP and MTP targets as envisaged for the period 2011-2015. It will also take stock of the skills available in industry as a basis for evaluating the feasibility of the stated targets vis-à-vis the available manpower and concurrently in order to identify the manpower training needs for the tenure of the plan. The principle will enable the IDP for 2011-2015 to be implemented while at the same time the local industry will be upgrading its skills, technology and machinery to match the competition.
5.4.3 In order to encourage industry to re-equip and re-tool, Government will remove duty on all capital equipment with a component of value addition.
5.4.4 With regard to skills retention, Government will provide incentives such as student grants to Universities and colleges in order for them to produce the necessary skills needed by industry.
5.5 Import Substitution
5.5.1 Whilst the principle of Import Substitution is sometimes viewed in a retrogressive manner in that it is seen as being counter to the central tenets of globalisation, the situation in Zimbabwe demands that we rely on it to offer temporary protection for our industry to counter the surge in the disruptive imports of cheap and 'dumped' goods which can easily be produced locally.
5.6 Value Addition
5.6.1 Whilst in Zimbabwe it might appear that the industrial value chain is complete; in sectors such as cotton, iron and steel and sugar, the level of transformation beyond primary processing still needs to be enhanced. For example, in the cotton sector, the complete chain will require investment into the establishment of de-linters and de-hullers to further process the cotton by-products into special papers, inks, emulsifiers and paint undercoats.
5.6.2 In the same vein, more advanced level of transformation beyond primary processing is also required in the iron and steel and sugar sectors. For example, in the steel industry, where ZISCOSTEEL is being comprehensively revived there will be need to advance production from simple long products to ultimately special steels. In the sugar industry, ethanol can be further beneficiated into pharmaceutical products and industrial chemicals.
5.7 Tariff Regime
5.7.1 The principle of Import Substitution in 5.5 above will have to be applied in conjunction with an alignment of our tariff regime which will be primarily an instrument of industrialization with revenue aspects being secondary. The proposed tariff policy will aim at simplifying the tariff headings, rationalizing the tariffs to eliminate all anti-export distortions and contradictions and ensure that industry gets the necessary protection as per WTO rules.
5.7.2 The adjustments sought, will in the majority of cases, require a raise in tariff levels. Whilst this upward revision might seem to be inconsistent with our obligations under the WTO, ACP-EU, SADC and COMESA treaties, there are nonetheless allowable remedies that the Government intends to invoke. It is therefore proposed that Zimbabwe’s industry be offered temporary protection through tariffs during a Three-Year period of the IDP’s implementation.
5.8 Technology Transfer & Research and Development
5.8.1 This principle is a key success factor for a competitive and vibrant industry for attaining the set export targets of the IDP and MTP, which envisage the sector to grow by 40% over the plan period. The current stocks of capital equipment are not able to meet the export target as studies have revealed that there is need for an overhaul of capital equipment to match the global technology and developments and improvements.
5.8.2 In addition, it is also proposed that industry invests in Research and Development on new processes and products which will result in competitive and cost effective products. It is therefore proposed that Technology Transfer be incorporated into the IDP Document as a central element not only to ensure growth and development, but more critically to attain global competitiveness of our goods and services.
5.8.3 Greater financial support for innovation and technology is necessary in order to contribute to the national target of increasing and sustaining Research and Development (R&D) expenditure to 2% of GDP.
5.9 The Cluster Initiative
5.9.1 Whilst the cluster concept was briefly dealt with in the previous Industrial Development Policy document, this new IDP will include and prioritise it as one of the key strategies to drive the 2011-2015 IDP. The motive for adopting such a strategy is, based on the proven benefits accruing in terms of attainment of economies of scale, enhanced value addition, global competitiveness and development of comparative advantages.
5.9.2 The concept itself which is intended to capitalize on proximity to production, procurement and marketing synergies is facilitated through agglomeration of interlinked production activities comprising industries, their suppliers, critical supporting business activities, requisite infrastructure, institutions and the associated policy framework.
5.9.3 The principle seeks to identify sectors with synergies and promote them to operate in a specific geographic area, for instance the clothing and textile industry can establish factories in cotton growing areas such as Gokwe and the engineering and steel firms can establish operations in the Midlands Province.
5.9.4 There is empirical evidence which proves that where this principle was adopted and implemented, there have been substantial benefits derived in terms of economic growth and development e.g. in Pakistan, Malaysia and Republic of Korea. Examples in Zimbabwe where this strategy could be adopted and implemented are in the clothing and textiles, chemicals and pharmaceuticals and agro-processing industries.
6.0 PRIORITIZED SECTORS
6.1 The Government has identified four (4) priority sectors as the pillars and engine for this IDP 2011 - 2015, namely Agro-processing (Food and beverages, Clothing and Textiles, Wood and Furniture), Fertilizer Industry, Pharmaceuticals, Metals & Electricals. These are sectors which can be developed without the need for massive amounts of capital resources, but which can be partly re-capitalized from the country’s own resources, including the remainder of the Special Drawing Rights (SDRs) and local lines of credit being offered by local financial institutions.
6.1.1 In view of the fact that resources for the provision of supporting infrastructure and other requirements for the implementation of this Industrial Development Policy, there is need to prioritize the development of the sectors for the realization of maximum output. The aforementioned priority sectors, therefore, need to be trimmed and sequenced in priority of implementation. The qualifying criteria for prioritization include the sector’s contribution to Gross Domestic Product (GDP); employment creation and retention; export earnings and potential for value addition as well as forward and backward linkages with other sectors of the economy.
6.2.1 The sector should also have a quick turnaround period where policy initiatives can be felt in both levels of the industry; potential to grow its capacity utilisation levels to an internationally competitive level and capacity to fulfill objectives of the Medium Term Plan and hence contribute to the manufacturing sector’s growth objectives.
6.2.2 The prioritization of these sectors does not mean that the Government is neglecting all other important sectors and concentrating on only these four. Other sectors that the Government has identified as equally important and would also get support include the Motor Industry; Paper and Packaging; Rubber and Tyre; Jewelry; Construction; Tourism Services and Mining Products.
6.3 Government has also identified new projects with growth potential such as the Avocado processing, manufacture of batteries from Lithium, Coal Bed methane for industrial gas and fertilizer production and mango processing.
6.4 While Government will source short term financing in order to facilitate the above mentioned prioritized sectors, the private sector is also urged to contribute meaningfully to its operations through sourcing additional resources on its own. Government will also source funding for research and development, technology transfer and skills development in these sectors.
6.5 Agro - Processing Subsector
6.5.1 With regard to the above prioritized sectors, the Government has prioritized the Agro-processing subsector (consisting of food, beverages and tobacco; clothing and textiles; leather and leather products; wood and furniture) given their importance in the agricultural sector in Zimbabwe. The agro- industries, for example, dominate the manufacturing sector of the country in terms of both output and employment accounting for approximately 60% of manufacturing value added and about 30% to employment.
6.5.2 Food and Beverages: The food sub sector is very broad consisting of cane, oil seed, grain, vegetable, meat production and processing. This sector has operations which run from small, medium to large scale. This industry has a high potential for growth and has its back bone in the Agricultural sector which provides 60% of its raw material requirements. Besides playing a major role in the value addition of agricultural produce, food processing companies directly contribute to the survival of other industries such as those in the agro-based raw material supply (seed, chemicals, fertilizers, equipment and spares, e.t.c) printing and packaging, milling, energy and retail sectors, thereby contributing to the nation’s Gross Domestic Product (GDP) in a significant way.
6.5.3 The beverage industry is divided into two categories namely alcoholic and non-alcoholic beverages. The non carbonated drinks market is highly competitive. Oranges, grapefruits, lemons, naartjies, nectarines and oranges are some of the citrus fruits grown in Zimbabwe. Out of the total production, 50% of these fruits are exported as fresh fruit while the other 50% is consumed by the local market. However, a large portion goes to waste either through failure to get to the markets or simply due to oversupply. Various fruits that include oranges and mangoes that abound in areas such as Murehwa, Mutoko and Mvurwi are not being value added. The Government will put in place measures and incentives that will encourage enhanced value addition of these products.
6.5.4 The policy will address the issue of finished products that are currently all zero rated for customs duty purposes, under either the SADC or COMESA trade regimes or through SI 119 of 2009, whilst raw material inputs into their production have duties levied on them. The current scenario where 80% of food retail shelf space is taken up by imports with only 20% filled by local products has resulted in local companies closing their manufacturing operations preferring to take advantage of the absence of duties and/or outsourcing their operations to South African companies.
6.5.5 Government will put in place tariff structures that promote the recovery of the local food processing industry through levying customs duties on all imported non basic food stuffs and exempt local food manufacturers from paying duties for raw materials and packaging irrespective of the country of origin.
6.5.6 Given the submissions made by the industry, and the acknowledgement of the resources required by the sector in the both STERP I and STERP II, the Agro-processing sector requires a resource envelope of about USD110 million in the short to medium term for recapitalization and working capital purposes.
6.6 Clothing & Textiles
6.6.1 The clothing industry is one of the sectors that the Government has focused on as one of the vehicles for the development of manufacturing due to its quick turnaround from investment to production. The sector is highly adaptable and can operate from the level of SMEs to bigger corporates and can also employ more people at various skill levels. Furthermore, the sector has other attractive features such as the low level of capital commitment required, low energy user, huge scope for value addition, huge scope for backward and forward integration and fast adaptation to consumer demands.
6.6.2 This sector still boasts of much diversity which includes cotton, polyester, acrylic, and other non- made fibre production bases installed in the country. The products range from various yarns, shoe laces, twines, cords, school uniforms, socks and hosiery, sanitary pads, cotton wool, under- garments, clothing, outer garments, blankets and carpets to name but a few. This sector has the potential to fully utilize input from the cotton farming sector and export the intermediary produce from the various stages of production from ginning, spinning, weaving of textile produce to the processing of fabric for the clothing manufacturing sector.
6.6.3 Zimbabwe has preferential access on clothing to most parts of the world on a 'single transformation' basis. This means that manufacturing of the garment must occur in Zimbabwe, but the fabric can originate from anywhere. This principle applies to COMESA, EU and the US (for members of AGOA, of which we are not). However, there is a restrictive Rule of Origin in SADC which maintains a 'double transformation' rule on clothing i.e. In order to participate in preferential access, clothing must not only be manufactured within Zimbabwe, but it must also be manufactured from fabric which was manufactured within SADC, to enjoy duty free access.
6.6.4 The current policy seeks to relax this rule under SADC through request for waivers and derogation in the fulfillment of our commitment under the protocol.
6.6.5 Lack of adequate control of incoming goods at border posts is allowing a lot of imports to be brought in without paying duties. This deprives the Government of the much needed revenue and also renders locally manufactured goods uncompetitive. Government will tighten the boarders and close the loopholes on smuggling. The new policy will also review duties on a number of these products and duty free allowance that individuals can bring into the country.
6.6.6 During the currency of this policy it is intended to enforce quality standards for incoming as well as pre and post shipment inspection in accordance with WTO provisions. Checks will also be conducted on the authenticity of certificates of origin and clothing and blankets in transit to ensure that they do not end up being offloaded in Zimbabwe.
6.6.7 The sector needs approximately USD50 million for recapitalization and working capital.
6.7 Wood & Timber
6.7.1 The sector contributes 4% of total value of agro-industrial products and employs about 25000 employees. The furniture industry is expanding rapidly (especially the home industries). Zimbabwe has a wide variety of both exotic and indigenous hardwoods and softwoods. There is potential to establish a niche in the global market. The country produces high quality timber products which meets ISO Quality Standards. There is room for value-addition to enable exports to the COMESA and SADC regions. Government is committed to support reforestation and value addition of timber. The Government will recapitalize the industry’s projects by providing resources to those companies under the Critical Projects Programme.
6.7.2 Given the submissions made by the industry, and the acknowledgement of the resources required by the sector in the both STERP I and STERP II, the wood and timber sector requires a resource envelope of about USD10 million in the short to medium term for recapitalization and working capital purposes
6.8 Fertilizer Industry
6.8.1 The fertilizer and chemical industry has a strong impact on the manufacturing sector’s performance and the Zimbabwean economy in general, by virtue of it being one of the key drivers of the agricultural sector, which in turn is the main source of the country’s industrial sector inputs. Currently about 32% of fertilizer and chemicals supplies is produced locally, while about 68% are imports. Zimbabwe has a well developed fertilizer industry whose ownership structure is cross linked.
6.8.2 Government will support fertilizer production through newer technologies such as coal gasification and coal bed methane gas. With regard to coal-bed methane a favourable legislative and regulatory framework will be created to promote exploitation of the resource. A number of investors have expressed interest to venture into coal-bed methane, which will transform the face of the manufacturing sector through production of industrial gas and fertilizer which will easily generate approximately USD1billion to USD2billion per annum.
6.8.3 Government will also prioritize support for the local industry by ensuring that local fertilizer is ordered on state sponsored schemes and imports made as supplements when local capacity is constrained.
6.8.4 To encourage local manufacture