Cheap imports: ‘Protectionism not the solution’

via Cheap imports: ‘Protectionism not the solution’ – The Zimbabwe Independent February 28, 2014 by Kudzai Kuwaza

WHILE Zimbabwe’s adoption of the multi-currency regime in 2009 reversed the record hyperinflation that had rendered the local currency useless and brought a modicum of economic recovery, it however spawned a plethora of problems including the crippling of the local industry through an influx of cheap imports onto the market.

The use of foreign currency has seen an deluge of cheap imported products compound the woes of industry battling myriad challenges that include outdated equipment, unreliable and expensive utilities such as electricity, lack of long term funding to sustain operations and low capacity utilisation which plunged from 57,2% in 2011 to 39,6% last year.

The importation of the cheap, often substandard goods has sparked an outcry from the business community that faces the threat of collapse and has had to resort to retrenchments and other unpopular measures to retain viability in an economy starved of foreign direct investment.

The scourge of cheap imports has prompted calls from business for government to implement measures to protect them from the products’ devastating effects which have also negatively impacted on the country’s worrisome trade deficit.

A trade deficit is an economic measure in which a country’s imports exceed its exports, representing an outflow of domestic currency to foreign markets.

Zimbabwe’s gap widened on the back of declining exports which fell 10% to US$3,51 billion in 2013 from US$3,88 billion in 2012. Imports increased by 3% to US$7,7 billion from US$7,48 billion.

Zimbabwe imported goods worth US$3,66 billion from South Africa — 47% of total imports last year. Exports to South Africa totalled US$2,6 billion.

Imports from China amounted to US$438,8 million, while exports to that country stood at US$30,9 million. While ideas to reverse the damaging effects of cheap imports have been mooted which include mandating retail outlets to ensure that 50% of the products they sell are locally produced, government has yet to come up with effective policies to counter the problem. Quite simply there is no ready, sure-fire solution.

Former Finance minister and MDC-T shadow finance and economic development minister Tendai Biti said protectionism is not the answer to the woes bedeviling industry.

“Protectionism is not the solution to Zimbabwe’s economy,” Biti said. “The country must produce and produce competitively.”
Biti said China, for instance, was producing slippers 12 times cheaper than those produced in Zimbabwe.

He said exorbitant costs for inputs such as electricity and labour hindered the country’s ability to be competitive.

Zimbabweans are bracing for an increase in electricity tariffs as the Zimbabwe Energy Regulatory Authority is currently making consultations over a tariff raise. At its meeting in Davos Switzerland last year, the World Economic Forum (WEF) expressed concern over Zimbabwe’s competitiveness as it has slipped down the rankings from 119th in 2011 to 128th in 2012 mainly due to antiquated equipment.

“Policymakers may also work on innovation and technological advancement rankings, especially in upgrading industry equipment as Zimbabwe declined from 119 in 2011 to 128 in 2012,” noted the WEF, which is an independent international organisation committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas.

“The direction of the movement (of Zimbabwe’s economy) is worrisome with de-industrialisation of the economy implying a slipping backwards in structural terms.”

Speaking at the Mandel/Gibs economic symposium last month, Industry and Commerce minister Mike Bimha said there was need to strike a balance between protecting industry and protecting consumers. He said Zimbabwe had to guard against protecting an inefficient industry as well as protecting an industry that would charge exorbitant prices for their products.

Most Zimbabweans are currently eking out a living well below the poverty datum line of about US$570, with only about 20% employed formally.

Economist Godfrey Kanyenze this week said there was need for dialogue between government and various stakeholders that include industry.

“I think what is critical is dialogue with key stakeholders especially industry as they are the ones who know where the shoe pinches,” Kanyenze said.

He said protecting industry cannot be a long-term solution as there was a need to deal with teething problems such as outdated equipment, power and water shortages.

This, he said, would ensure industry “is not protected in perpetuity”.

Kanyenze also said moves to protect industry need to be short term with constant supervision to avoid “people sleeping on the job”, while government should provide policies that provide an enabling environment for industry to regain its footing.

“There is no point in setting targets or putting measures when you do not have the productive capacity. There is need to work on the issues of firm level competitiveness,” Kanyenze said.

Zimbabwe Stock Exchange chairperson and Standards Association of Zimbabwe director general Eve Gadzikwa recently illustrated the tough, durable problems facing industry following a more than decade-long socio-economic crisis.

“There is the problem within the manufacturing sector about the uneven playing field,” Gadzikwa told delegates at the Institute of Chartered Accountants of Zimbabwe’s 95th anniversary congress in Victoria Falls last year.

“I think what companies are calling for is an even playing field. In other words can they compete with the imports that are coming in from outside. That is where the problem is. That is where the bone of contention is.”

Gadzikwa pointed out that some imported products such as shoes which were being sold at ridiculously low prices further endangered the survival of the sector. This she attributed to various factors that include weak control mechanisms at the country’s borders. The country needs to recreate its manufacturing base and competitive edge to remain relevant and ward of cheap imports, former Zimbabwe National Chamber of Commerce president Oswald Binha feels.

“There is certain phenomenon happening in the world which will mean physical boundaries will not be an issue,” Binha warned, adding that the country’s policies did not reflect the current situation on the ground. He said there was need to improve the quality of local products to give them a competitive edge over imports.

There is need to revive ailing institutions such as Hwange, Sable Chemicals and Ziscosteel to help resuscitate industry and improve capacity utilisation — a development that would have attendant benefits including employment creation.

Binha summed it aptly when he said: “We cannot safeguard inefficient industry at the expense of competitiveness. We must go back to the drawing bord to identify our competitive edge and comparative advantage.”