EDITORIAL COMMENT: Wrinkles in local content need ironing out 

Source: EDITORIAL COMMENT: Wrinkles in local content need ironing out | The Herald

EDITORIAL COMMENT: Wrinkles in local content need ironing out
Zimbabweans should give priority to local products

Zimbabwean-made products are now starting to dominate shop shelves and generally tend to be less expensive because of tax breaks, local raw materials and other purely business reasons.

So as President Mnangagwa urged last week when he opened the latest session of Parliament, we should be buying these goods.

The Government, through its general policies on import substitution local content and the specific policies, such as the priority list of imports used with the foreign exchange auctions and the dramatic upgrade in investment policy, has been opening practical doors for Zimbabwean industry to make more and more.

The policies have not only seen a greater range of locally produced goods, but have also introduced a growing level of completion, so that for many products there are now a number of manufacturers and a number of brands, offering ever more choice to the consumer.

That competition also tends to produce gains on pricing, since only monopolies or cartels can fix prices and profiteer.

Sometimes the competition and price differences are based on differences in quality or ingredients, but with modern consumer law insisting on proper labelling the consumer can make choices intelligently.

There are also some manufacturers, especially those more established and who once did hold something close to a monopoly, to trade heavily on their brand. But again this is fair enough so long as they are not trashing identical products made by someone else.

In any case, more and more Zimbabweans are now thinking about their wallets when they buy, and even the most brand conscious consumers are usually willing to give the less-expensive alternative a trial run.

Again this is something where good labelling can win, and something consumer protection organisations need to press hard.

But there are some problems that hinder the local content strategy. You can get Zimbabwean-made products that are more expensive than identical or almost identical imports. Yet they should always be cheaper.

Even if there is a high percentage of imported raw materials in the local product, the tax system treats raw materials differently from finished consumer goods and foreign currency is easier to obtain at official rates.

Perhaps the Zimbabwean factory is incredibly inefficient or perhaps the Zimbabwean company wants a higher profit margin. In either case there appears to be an opening for another investor, local or foreign, to move in and introduce greater efficiency or lower margins.

At times, the problem arises with the owner of a global brand. Some of these brand owners, while franchising for local production around the world, set the price in each country on what they reckon people can afford to pay, rather than on what a competing brand might cost.

Here the local franchise holder needs to explain, in words of one syllable, to their brand manager that volume at moderate profit beats restricted sales at high profits.

A second problem is that sometimes the local product, or some of the local versions of a particular product, are not stocked by some outlets, including major outlets.

This is highly unlikely to be a decision by the manufacturer, who obvious wants as many customers as possible and as many selling points as possible.

It is difficult to understand why a particular supermarket chain should be reluctant to stock some products, especially local products or the least expensive local products.

At one stage there was a link between a major manufacturing group and a leading supermarket chain, and the favouritism shown some of the products made sense, even if it was reprehensible, but no such links now exist.

Again it is up to consumers to combat this, simply by shopping where they feel they are given maximum choice. In the end the message will get though.

Once again a better quality of consumer organisation is needed since often it is a problem of information, that the consumer is not aware of what is available and at what price in other outlets.

There can also be problems of a larger manufacturer faced with serious competition from a newcomer will be tempted to try and buy out the newcomer, and restore pricing to their traditional levels.

And again it is obvious for some products that there is regrettably collusion and something close to a cartel.

This requires strengthening of our laws on monopolies and closer monitoring where reasonable suspicion exists. That has already produced some welcome changes, for example in bread pricing where the major manufacturers no longer pretend their costs are identical.

But these sort of problems are also a sign of success of the Government’s policies. The Government has been doing it right, pressing for local content and local manufacturing, but not worried about who is doing that manufacturing.

Previous local content policies, dating right back to the UDI era, saw favouritism for established companies and tended to limit competition. Monopolies and duopolies were in effect encouraged.

And this is why when the economy opened to imports so many local manufacturers, used to providing high-priced inferior products, came short. This is one reason why some still are willing to pay more for imports, having been bitten so badly in the past.

The new system of allowing imports, but encouraging local content makes far more sense and provides sustainable industrial growth. The inefficient and the profiteers will be winnowed out, by the consumers, and those who give good value for money on quality and price will be the big winners.

This is simply the emergence of Zimbabwe into the normal economy. It needs to be backed by consumer information and the like, but generally we are now finally on the right path.