Emerging radical views on industrial recovery

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?

 

COMMENTS

WORDPRESS: 6
  • comment-avatar

    Methinks the destruction is well under way, not because of any government action but inaction (or ability and political will). Consequently, as the “pot” shrinks the ability to encourage new growth is severely limited to the point of being effective. Government will have to beg from the world banks which does not help one iota. Over to you Mr Mugabe; oops forgot he is attending his daughter’s graduation; far more important.

  • comment-avatar

    This has got to be somebodies fault surely.How can zanupf find the culprits?Please help them.

  • comment-avatar
    Shebah 8 years ago

    The idea is very noble. We operate under acres of space the European way, but we hardly afford rentals to Old Mutual who own more than half the factory space. The Chinese have come with space utilisation in retail. A single floor now accommodates over 10 retailers. Even where the Chinese are making shoes, their factory size is just like a retail shop. Compare that with Bata shoe of Gweru.

  • comment-avatar
    Shebah 8 years ago

    Are you not aware Bata has a factory shop in Gweru over more than 5 hactres of land

  • comment-avatar
    Ndlovu Kayisa 8 years ago

    I go further to say lets open up makes further and make Zimbabwe a Dubai of africa. look at Dubai its completely an open economy. the point ia protecting ineffiecient firms is wasting resources. they will never stand up unless some assessment of potential is done. in short lets open up and turn zim into the Dubai of sadc. we let goods come in zero duty and from here as a Dubai all others countries come to buy. in other words we shift into service sector. some manufacturing can still emerge. that’s what I would have done.