Why imports ban had to go

Source: Why imports ban had to go – The Standard October 28, 2018

IN a bid to revive the local industry, government in 2016 introduced Statutory Instrument (SI) 64, before reinforcing it with SI 122, to control the importation of goods that were also being produced locally.

BY MTHANDAZO NYONI

Finance minister Mthuli Ncube

The restrictions removed a range of products from the Open General Import Licence in a desperate move by government to protect the local industry.

But last week government suspended SI 122 indefinitely to increase the flow of basic goods into the market ahead of the festive season, a move which it said was meant to ease pressure of foreign currency demand on the Reserve Bank of Zimbabwe.

Import embargoes were lifted on animal oils, baked beans, body creams, cooking oil, cereals, cement, cheese, coffee creamers, fertilisers, steel roofing sheets, ice cream, margarine, packaging materials, peanut butter, potato crisps, shoe polish, soap, synthetic hair and yogurt, among others.

The suspension came at a time basic commodities were in short supply due to the speculative behaviour of local retailers and panic buying by consumers. This also resulted in escalation of prices for such goods.

The move, Finance minister Mthuli Ncube said, would increase the supply of goods in the market and force prices down.

Ncube described the price hikes as rent-seeking behaviour by companies.

But was the lifting of the import ban justified?

Analysts argued that trade protectionism, which is a type of policy that limits unfair competition from imports, would weaken industry in the long run.

It only works as a stop-gap measure.

Without competition, companies have no incentive to innovate and eventually, the domestic product will decline in quality and be more expensive than what foreign competitors produce.

This is what was happening in Zimbabwe as some companies relaxed and started producing products of poor quality, thereby short-changing the consumers.

According to the World Bank, only 9,7% of firms in Zimbabwe have an internationally recognised quality certificate, a situation that puts local firms on the negative with regard to global competitiveness.

“A unique feature about Zimbabwe is that local investors, especially in the secondary areas and tertiary spaces, have long been insulated from significant competition due to Zimbabwe’s historic isolation and protectionist measures of the past,” BMI Research senior operational risk analyst Chiedza Madzima said while quoting World Bank figures.

“Businesses operating in these sectors need to now assess their competitiveness in what will be a more open environment in the years ahead. As it stands, according to the World Bank, only 9,7% of firms in Zimbabwe have an internationally recognised quality certificate.”

The import restrictions could not be sustained in their proposed format and had to be lifted outright in some instances as prices started to skyrocket towards year end.

Zimbabwe’s annual inflation rate closed the year 2017 at 3,5% and increased to 5,39% in September of 2018 from 4,83% in August. It was the highest inflation rate since 2009.

So, trade protectionism had started ripping off consumers, reducing their spending power by more than half. For instance, prices of cooking oil increased from around $4 to $15 on the parallel market. The commodity became scarce in the formal market.

Simply put, Zimbabwe’s local products are not priced competitively and this is the reason why retailers and local consumers still find it cheaper to import most products or raw materials from Asia and neighbouring countries even after absorbing unreasonable costs of road transportation.

Confederation of Zimbabwe Retailers president Denford Mutashu said in light of the growing list of shortages, price hikes and failure by local manufacturers to supply owing to various supply constraints, it was increasingly becoming difficult for the retail sector to remain viable.

“The temporary move is a great relief to the sector and the general public as we approach the festive season,” he said.

“Many retailers and wholesalers had even adjusted operating hours due to lack of products and empty shelves yet costs remained a constant.”

Zimbabwe National Chamber of Commerce (Matabeleland Chapter) chairperson Golden Muoni weighed in, saying the move by government was justified given that Zimbabwe was sliding back to the 2008 era.

“We are in a situation which needs to be managed. We don’t want to go back to the 2008 scenario,” he said.

“So I think it was justified. The move also gives manufacturers time to produce and restock.”

Economic commentator Reginald Shoko said as a stop-gap measure, the development was the best way to reduce the burden on treasury to source foreign currency for almost all sectors of the economy.

He said the situation had led to speculation and hoarding of basic commodities.

Imports restrictions also saw the value of the bond note — Zimbabwe’s surrogate currency — plummeting to alarming levels leading to price distortions on the market.

For instance, just recently, the value of bond notes was downgraded by more than 500% against United States dollar.

Retailers also resorted to the three-tier payment model, adversely impacting on consumers who were already struggling to contain the effects of the prevailing liquidity crunch in the country.

The three-tier or multi-tier pricing system is a situation whereby retailers and other businesspeople charge extra for payments made in bond notes or bank cards and less for US dollar transactions.

The practice, however, violates the Bank Use Promotion Act.

Despite the promulgation of these import restrictions, companies are still battling issues of cost of production.

They are still struggling to compete competitively in the region and beyond.

Very few companies retooled between 2016 and to date. Some of them are still using obsolete equipment and have no means of acquiring modern machinery.

Muoni said industry was struggling due to a number of challenges, chief among them the shortage of foreign currency.

He said they were still licking wounds inflicted to them during the 2008 hyper-inflation.

Shoko said, on the other hand, the development might increase demand for foreign exchange on the parallel market.

He said slowly all products from the private sector would be sold in hard currency.

In the middle of the storm, Buy Zimbabwe urged all stakeholders to immediately adopt a credible local content policy buttressed by an industrial and trade policy that recognises the primacy of agriculture and mining in resuscitating the economy.

Muoni said the solution to Zimbabwe’s woes was to retool industry.

“The solution is to retool our industry and have the best technology. We need to look at the long-term solution, not short-term,” he said.
Shoko said industry did not take advantage of SI 122 even after accessing over $4 billion in bank loans.

“But in the long-term we need to grow industry and some measure of protection must be implemented to achieve such,” he said.

Above all, government should move with haste and right economic fundamentals.

COMMENTS

WORDPRESS: 1
  • comment-avatar
    Morty Smith 1 year ago

    How about this idea.

    Ban the Government of Zimbabwe from any interference whatsoever in the area of money. They should not control forex. They should not print any kind of money or any money like instruments. They should not run any kind of deficit. The reserve bank should be closed.

    Implement these measure and all the other problems will solve themselves.

    If you want to put a cherry on the cake free up the gold sector. Allow all Zimbabweans to own and trade in gold. You will see gold production shoot through the roof.