Private sector role in poverty reduction

Source: Private sector role in poverty reduction | The Sunday Mail August 7, 2016

Sifelani Jabangwe

The private sector plays a key role in poverty reduction through employment and engaging communities via inclusive business models. This approach is different from just social corporate responsibility as it brings community members into the value chain thus making it a more sustainable relationship.

The Zimbabwean economy has high unemployment levels and low gross national income per capita earnings of US$840 as at 2014.

About one million people are in formal employment out of a population of about 13 million people. This is at a time when imports per year are hovering between US$6 billion and US$7 billion against exports averaging US$3 billion.

Industrial capacity utilisation is around 34 percent (Confederation of Zimbabwe Industries 2015 Survey), with formal employment below 10 percent.

The imports can be taken to represent the portion of our national consumption satisfied by external suppliers. These goods and services are produced by people working in the countries of that supply. In other words, we are creating jobs in other countries.

If these goods and services were to be produced locally, more jobs would be created, distributing incomes and reducing poverty domestically.

If more value chains for supplying goods consumed by Zimbabweans are directed inwardly, then every dollar would circulate several times before going towards imports.

This demand for goods and services emanates from sub-sectors such as mining, tourism, agriculture and manufacturing and directly from consumers.

The July 2016 Confederation of Zimbabwe Industries congress centred on the “Value Chain Approach” as an inclusive tool for re-industrialisation.

The poultry, dairy, baking, milling and edible oils sub-sectors were at one point supported by Government incubation and all responded favourably with their capacity utilisation increasing from around 30 percent to above 60 percent.

In poultry, support sectors such as feed and chicken house accessories have registered increased activity, resulting in rapid new job creation.

Major chicken breeders like Irvine’s are developing outgrower programmes to increase supply, and this gives incomes to many homes.

The sector is generating demand for stockfeed inputs such as soya- beans which are in short supply and thus farmers who grow the crop have guaranteed demand.

There has also been increased demand for raw milk, and some enterprises in this sector have been importing cows to increase their herds, resulting in incomes flowing to rural communities.

Further, the improvement in the edible oils sector has triggered great demand for soya; therefore soyabean production will also improve.

This is another example of a consumer value chain that is stretching as far as the farm and then back to industry for agro suppliers.

An example of a value chain is baked bean production.

To produce a can of baked beans, one needs a can, preservatives, the label, a carton, a pallet, the beans, the seed, agro-chemicals and fertilisers.

With companies such as Cairns now doing outgrower programmes for the beans they are canning, there is now inclusive growth and industrialisation.

Value chain model for inclusive economic, industrial

development

The model that CZI is pushing for in some sectors will have a lead firm which supports other economic players through linkages.

An example is the sugar milling plant in the Lowveld that supports sugarcane production not only at Hippo Valley and Triangle Estates, but also in outgrowers areas.

Import substitution is a model that CZI is advocating to resuscitate industry, create jobs and subsequently reduce poverty.

So, you start with products that you want to manufacture locally, and develop value chains that deliver them.

Statutory Instrument 64 is temporary as an implementation tool for import substitution. We need to move towards local content-based legislation to promote industrialisation and job-creation.

The Norton Juicing plant, a joint venture between Schweppes and the Agricultural and Rural Development Authority (ArDA), requires tomatoes, lemons, granadillas, avocados, mangoes and guavas.

Thus, this is a lead company for the value chains for these fruits that various communities in Zimbabwe can benefit from by being suppliers.

Other lead firms include retail outlets that procure vegetables from local suppliers.

It’s also the same when they buy other locally produced goods.

The Unido programme launched for Zimbabwe at the 2016 CZI congress will follow the value chain approach, while CZI also has a linkages programme supported by the European Union for linking large corporates with small and medium enterprises.

In addition, CZI also has a agro value chain sub-committee for linking agro-processors with suppliers.

Examples of some private sector initiatives that are making a difference in poverty eradication include:

◆ United Refineries soya out-grower programme;

◆ National Foods soya outgrower programme;

◆ Irvine’s chicken production out-grower programme;

◆ Dairy industry herd restocking programme;

◆ Delta sorghum outgrower programme;

◆ Outgrower programmes by seed houses;

◆ Matanuska banana outgrower programme in Honde Valley;

◆ Cotton industry cotton out-grower programmes;

◆ Contract tobacco grower programme; and

◆ Contract potato grower programme.

Linkages with sub-sectors

When tourists come to Zimbabwe, they add to the population that requires consumer goods and services.

If one million people come to Zimbabwe, then at that point, the population of consumers would have increased by one million, thereby increasing demand.

And if this demand is met domestically, it results in increased activity levels for local industry.

Further, if industry also has strong linkages with communities and supplies some of its inputs to them, then the benefits of tourism are spread to more people.

The mining sector spends about US$700 million on inputs each year, but only about 11 percent is supplied by local manufacturers.

Thus there is a huge opportunity for local industry and an equally huge opportunity for spreading the benefits of this consumption to various communities through linkages.

Though we have low levels of foreign direct investment, we do have inflows of tobacco revenues, Diaspora remittances and mineral exports.

CZI recommends using a combination of local content thresholds in procurement and inclusive value chain approaches to improve industrialisation to create jobs and reduce poverty.

An added tool is linkages between manufacturing industry and sub-sectors such as mining and tourism.

These local content approaches are used by Nigeria, South Africa, Norway, Russia, Brazil, Zambia and Botswana, among other countries.

◆ Mr Sifelani Jabangwe is the deputy president of the Confederation of Zimbabwe Industries (CZI) and wrote this article for The Sunday Mail in his personal capacity