Protectionism or free market: Zimbabwe dilemma
FACED with a deepening liquidity situation, government has resorted to desperate measures to mitigate the crisis.Last month, Statutory Instrument (SI) 64 of 2016 was gazetted.
The instrument, which has caused so must consternation locally and in the southern African region, lists products that will now require licences to be imported into the country.
On that schedule is a list of mostly basic commodities that is as long as the original snake.
This has courted the ire of largely cross-border traders who were now eking out a living from buying and selling an assortment of goods from neighbouring countries, notably South Africa, Botswana and Zambia.
South Africa, Africa’s second largest economy, has been the largest exporter of goods to Zimbabwe.
Stung by these new measures, riots broke out in the border town of Beitbridge a fortnight ago as traders vented out their frustrations at the authorities for destroying what had become their only means of survival.
Across the border in Musina, South Africa, riots had broken out earlier.
Reports suggest that Musina, which thrived from cross-border traders buying merchandise for resell in Zimbabwe as well as individuals crossing the border for cheap groceries, has already become a ghost town due to dwindling business since the import ban.
The basis of the anger in Zimbabwe and South Africa is not difficult to understand.
Locally, the collapse of local industries has resulted in unemployment spiking to 90 percent.
In order to make ends meet, most people are now into cross-border trading, with estimates putting their number at 200 000 people.
In a way, the influx of imported products has meant a boon for the exporting countries, with South Africa being the largest beneficiary.
Naturally, this has not gone down well with local companies that have been putting pressure on their government to either seal the country’s borders or make it an exercise in futility to import products into the country.
While it has taken ages for government to act, SI 64 of 2016 has come as a huge relief to local manufacturers many of who were teetering on the verge of collapse.
The argument being advanced by government is that it can no longer continue to look the other side while local industries are collapsing, having failed to withstand competition from the region and beyond.
Indeed, the past two decades have been difficult for Zimbabwean companies.
Between 2000 and 2008, they went through an episode of hyperinflation, which resulted in the Zimbabwe dollar disappearing from the market, having lost its intrinsic value.
In between these years, there were price controls and other unpalatable restrictive policies that made it extremely difficult for businesses to function.
And when the authorities finally deregulated the market in 2009, with the key feature of that dispensation being the introduction of a multi-currency regime, many people thought the worst was over.
The market had appeared to have responded positively to an uneasy government of national unity (GNU) that took effect in 2009, before it ran its full course in 2013.
Thereafter, all hell broke loose.
Companies have been unable to retool and re-capitalise because of the prohibitive cost of money, which is largely short-term.
Demand is also extremely weak on the back of cathartic job losses and illiquid market conditions that have not been helped by the export of cash.
With the resource sector sneezing owing to poor international metal prices and a punitive tax regime, not much revenue is reaching the fiscus, resulting in government battling to meet its obligations.
Only last week, civil servants had to down their tools after failing to receive their salaries on time.
It has been argued before that Zimbabwe has now been reduced into a supermarket economy, an uncomplimentary statement that has now jolted government into action.
Already there is backlash from not only cross-border traders, but Zimbabwe’s regional partners as well who feel that their neighbour is now acting outside existing trade arrangements.
As of last week, Zimbabwe was trying to diplomatically manage a potentially devastating regional trade fallout from SI 64 of 2016.
The ban obviously falls foul of Zimbabwe’s commitment to free trade within the region under Southern African Development Community (SADC) as well as the Common Market for East and Southern Africa (COMESA) treaties.
On the one hand, the SADC protocol on Trade was signed and adopted by SADC member states in 1996 and implemented in 2000.
It facilitates the free movement of goods and services across the region, with 12 members of the region, including Zimbabwe, fully participating.
By placing a ban on imports, Zimbabwe is now reneging on its commitments under SADC and is likely to court a backlash for that.
On the other hand, COMESA was formed in 1994 and has 20 member states from northern, eastern and southern Africa.
Zimbabwe has been active in COMESA and had hitherto managed to implement most of the major trade obligations and regulatory requirements.
Under COMESA it had committed to the proposed common external tariff based on the principle of the degree of processing capital (zero percent), raw material (five percent), intermediate inputs (15 percent) and finished goods (30 percent).
Obviously SI 64 of 2016 comes as a slap in the face for the other member States within COMESA.
There is also another dimension to it.
Zimbabwe is signatory to a number of bilateral trade agreements with countries such as Zambia, Botswana, Namibia, Malawi, South Africa and Mozambique.
The country ratified its bilateral trade agreement with Botswana in 1988 which allows for reciprocal duty free trade on all products grown, wholly produced, or manufactured wholly or partly from imported inputs subject to a 25 percent local content requirement.
With regards to Namibia, Zimbabwe operates a reciprocal agreement which has been in effect since 1992 which require at least 25 percent local content for manufactured goods and that both countries should, as exporters, be the last place of substantial manufacturing.
Products that are eligible under the deal include mineral and vegetable products, live animals and their products.
Another significant bilateral agreement is that between Zimbabwe and South Africa.
In terms of this agreement, a duty free regime or preferential tariff quota applies to items including dairy products, potatoes, birds and eggs.
Specified types of woven fabric, for example cotton, are subject to concessional tariff rates when they meet the specified levels of Zimbabwean content: 75 percent in most cases.
The most recent version of the agreement was signed in August 1996 between Zimbabwe and South Africa at which time the tariffs and quotas on textile imports into South Africa were lowered.
In light of the latest developments, Zimbabwe should prepare for a long drawn trade fight with its southern neighbour.
Last year, South Africa had already informally complained about import duties levied on certain products by Zimbabwe.
Industry and Commerce Minister, Mike Bimha, had told stakeholders: “South Africa has complained that we have put in place protectionist policies. Our argument with South Africa was that our industry has gone through a bad patch and we want them to grow.”
So the latest measure is likely to upset the regional neighbour, whose industries supply at least 60 percent of local products across sectors of the economy.
This week, South Africa’s Department of International Trade (dti) said it was concerned by Zimbabwe’s decision.
“The adverse impact on South African exporters cannot be underestimated and the dti continues to be responsive to affected exporters and to make representations to the government of Zimbabwe,” the dti said in a statement.
It said South Africa was sensitive to the need for Zimbabwe to nurture its fragile industries but indicated that Zimbabwe had an obligation to abide by the SADC Trade Protocol.
The dti said that at a recent meeting of the SADC Committee of Trade Ministers, South Africa and Zimbabwe were asked to explain the implications of these measures to the Trade Protocol.
“On behalf of the South African government, Minister of Trade and Industry Rob Davies has been engaging the Zimbabwean government bilaterally and through the SADC structures to find an amicable solution that is in accordance with Zimbabwe’s obligations to the SADC Protocol on Trade, while at the same time being sensitive to Zimbabwe’s industrial development and balance of payments challenges,” the dti said.
Zimbabwe’s permanent secretary in the Ministry of Industry and Commerce, Abigail Shonhiwa, admitted at a Buy Zimbabwe Conference last week that the new measures by Zimbabwe had affected South African companies the most.
“We are also going to have discussions with South Africa and I think that is the way to go. We are mindful of our obligations in the region,” Shonhiwa said.
Shonhiwa said the ban was a temporary arrangement affecting only commercial imports not those made by individuals.
“The SI impacted on the ordinary person bringing in few items for the family, but it’s supposed to impact on commercial imports and that issue has been reviewed,” she said.
Predictably, Zimbabwe’s industries have welcomed the ban.
Buy Zimbabwe deputy chairman, Oswell Binha, the former president of the Zimbabwe National Chamber of Commerce, said the gazetting of SI 64 was “a historic milestone since the inception of Buy Zimbabwe (in 2011)”.
“(But) more needs to be done,” said Binha.
Joseph Mavhu, the general manager of Cairns Holdings’ Mutare unit, commended government for the move.
“We have looked at the competition that we had and we discovered that it was not real but artificial,” said Mavhu.
“It was coming from people who want the dollar. These people were prepared to dump products here and to continue to land the products here below cost and in turn will gain on the exchange rate. We need to industrialise so that we don’t allow them to dump their products in this country.”
Buy Zimbabwe chief executive officer, Munyaradzi Hwengwere, said: “Generally, it’s a good programme, (but) poorly communicated and a lot needs to be improved. It has been misconstrued as a ban. No it’s not; we are managing our imports which are definitely unsustainable and everyone must understand that.
“We need not to see informal traders or vendors as enemies of Zimbabwe. They are currently looking for a living getting into SA and importing stuff.”
“Let’s create a fund that can then support informal traders to be able to procure goods and services from the local market or become entrepreneurs. For me, the whole agenda is not to serve few local importing companies but to ensure that Zimbabwe saves money. That money should be used to support growth of the industry. We need a total holistic framework then of course the monitoring of it because if we have import entrepreneurs, people will take advantage of that import licence in order to survive.”
The Confederation of Zimbabwe Industries (CZI) also supported the ban, saying such measures would help revive struggling local industries.
It said in a statement issued on Sunday: “CZI is in full support of this measure which is part of a cocktail of measures to drive Zimbabwe’s industrialisation and economic growth agenda.”
The statement applauded “government for this policy measure which was in response to industry’s recommendations on what needs to be done to improve the ease of doing business and to claw back on the trade deficit.”
“The list of products covered by SI 64 was a recommendation from industry which was based on an extensive study and consultations with the respective sector players on the locally available manufacturing capacities. CZI believes that the measure taken by government will go a long way in stemming deindustrialisation, creating jobs, building industry capacity for exports and reducing cost of production to competitive levels on the back of improved economies of scale,” it added.
CZI said the manufacturing sector’s capacity utilisation would rise from 34 percent if the policy was fully and diligently implemented.
“Industry has been making strides towards retooling in spite of the difficult economic environment, and there is therefore need to acknowledge and support these efforts by creating an environment that favours the revival, resuscitation and development of local industry. This in fact is in line with the country’s industrialisation and beneficiation agenda,” the CZI said.
It said the economy required huge sums of money to develop industry and create jobs and therefore the new measures provided “that opportunity to utilise our current consumption to revive industry”.
“Since dollarisation, Zimbabweans have been importing goods worth an average of US$6 billion annually. Cumulatively, this means as a nation, we have spent a total of US$36 billion on goods made by other countries. Not only have we deprived our economy of this spending power but we have literally exported jobs to other countries.”
“CZI acknowledges that we cannot manufacture everything locally, and where goods cannot be produced locally or where there is no capacity, imports should be allowed. This is why the SI is not a ban, but a control measure where import permits are issued to allow for necessary imports. We would want to highlight that corruption and smuggling at the borders must not be allowed to increase as a result of the measures,” CZI, which represents the interests of large scale manufacturers, said.
It added: “CZI is calling for monitoring and evaluation process on a periodic basis to assess capacity, demand, in order to avert any potential shortages.
CZI acknowledges the role of cross border traders especially during the period prior to 2009, and we believe they can still play a role in covering the gaps through importation of products in areas where there is no capacity; market sourcing for locally manufactured products; as well as sourcing inputs that cannot be manufactured locally.
“It is for this reason that CZI has embarked dialogue with these traders to explore business opportunities that are mutually beneficial to all value chain players. Given the serious nature of challenges that our economy is facing, and the retooling that has taken place since dollarisation, CZI believes that the nation’s imports strategy should shift from importation of finished products to importation of materials used as inputs by local manufacturers.”
While industry has taken a predictable view, the biggest question is whether it will respond positively to these measures?
Without adequate capital to retool factories and deliberate policies to make the country a competitive producer, these measures may not help much.
If anything, it is the consumer who is likely to shoulder the burden of taking care of uncompetitive producers without recourse to cheaper imports.
Another question is whether protectionist measures still have a place in a world where borders are being erased in favour of free trade?
The pressure from South Africa suggests that Zimbabwe is slowly being viewed as a hostile neighbour.
The rest of the region might therefore gang up against Harare.
Unfortunately, back home, the authorities are not singing on the same hymn sheet with civic society and opposition political parties.
Recently, the Movement for Democratic Change (MDC-T) party urged the powers-that-be to suspend the SI.
“The Statutory Instrument 64 of 2016 should be repealed as a matter of urgency as it is unconstitutional and total violation of people’s fundamental rights of livelihood,” the MDC-T concluded.
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