via Emerging radical views on industrial recovery November 14, 2013 NewsDay
AS the liquidity crunch tightens and the resource envelop dwindles, radical views on how to save collapsing industries and reinvigorate the growth trajectory are also emerging.
While we are generally in the mood for bailouts, these emerging views buck this trend and suggest that bailout funds could be put to better use.
Don’t flog dead horses
After several years of trying desperately to resuscitate ailing industries through facilities such as the $40 million Distressed Industries and Marginalised Areas Facility without much success, an emerging view highlights the need to accept that certain companies are beyond saving and should therefore be allowed to quietly wind up operations.
In other words, in order to rebuild meaningfully, some things need to be utterly destroyed first. Instead of trying to paper the industrial cracks, the focus should be on creating new smaller companies that are more competitive in terms of cost structure and product quality.
Size is no longer everything, apparently
“It does not help to keep pumping scarce resources into uncompetitive firms when the same funds can be deployed in SMEs that are more competitive and have potential to create more jobs,” Gilbert Muponda of GMRI Capital, says.
This immediately reminded me of Peter Drucker’s views on whether size matters or not.
“There is no virtue in a company’s getting bigger,” he says.
“The right goal is to become better.”
Focus on cash cows
ZNCC macro-economics committee chairperson Brains Muchemwa concurs and recently encouraged government to focus on companies that are “still viable”, rather than distressed industries.
His argument is that most companies are partly distressed because they contracted a lot of debt which they are now failing to service.
As such, creating a fund or funds targeted at distressed industries would only allow them to refinance their sizeable debts without a commensurate or notable impact on productivity.
Don’t protect local industries, make them more competitive
Given the competitive threat paused by the tsunami of imported goods, the temptation (in fact the reflex action) to protect the local manufacturing sector can be quite strong, if not entirely overwhelming.
However, MMC Capital sounds a note of caution and argues that government should instead craft policies which make local firms more competitive both locally and globally.
“The country needs to craft policies that facilitate the creation of comparative advantage by local manufacturers instead of protecting inefficient processes.
“The ideal thing is to refine the processes and make them competitive. This, in our view, will better the standards of living in the country and enhance economic growth as resources will be best used instead of creating dead weight losses,” MMC Capital stated in a recent research note.
The big question
The effects of letting distressed companies fail on the one hand and resisting the temptation to protect manufacturing companies from marauding imports on the other, are manifold.
First, there definitely will be a loss of existing jobs and we will continue to export potential job growth to the likes of South Africa, Zambia and China where most of our imports now originate.
Second, there will be a loss of value as the manufacturing base shrinks, with predictable consequences on gross domestic product growth.
The big question is whether these emerging views warrant more attention at a time when protectionist tendencies appear to be gaining ground as the default mode.
If indeed these insights deserve further exploration, is there sufficient political will to do what is necessary, at a time when the pressure to create more jobs and reinvigorate the growth trajectory is probably at its peak?
Do we have the time — and courage — to destroy in order to rebuild?