adminThe country’s Industrial Policy, which is awaiting implementation, needs to acknowledge certain realities and practical challenges such as the lack of Foreign Direct Investment and economic sanctions, which have made it difficult to produce competitive products for export.
In addition, there is need to accept the fact that certain companies are beyond saving and should be allowed to wind up operations.
It is better to focus on creating new smaller companies that are more competitive in terms of cost structure and product quality.
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.
There is need to retool these companies and retrain their staff to ensure that the companies become competitive.
The Industrial Policy (IP) of any country is the official strategic effort to encourage the development and growth of the manufacturing sector of the economy.
Industrial policies have been in use around the globe for many years. For instance, the Japanese government developed a complicated system of industrial policies after World War II, especially in the 1950s and 1960s.
The goal was to promote industrial development and the Japanese government worked with private firms to realise this goal.
The objective of the industrial policy was to shift resources to specific industries in order to gain international competitive advantage for Japan.
These policies and methods were used primarily to increase the productivity of inputs and to influence industrial investment directly or indirectly.
A country’s infrastructure (transportation, telecommunications and energy industry) is a major part of the manufacturing sector that usually has a key role in the policy.
This concept is accurately captured in the ZimAsset programme. Modern and effective industrial policies are sector specific, unlike broader macro-economic policies.
They are sometimes labelled as interventionist as opposed to laissez-faire/free-for-all economics.
Examples of horizontal, economy wide policies are tightening credit or taxing capital gain, while examples of vertical, sector-specific policies comprise protecting textiles from imports or subsidising export industries.
Many types of industrial policies contain common elements with other types of interventionist practices such as trade and fiscal policies.
An example of a typical industrial policy is import-substitution industrialisation, where trade barriers are temporarily imposed on some key sectors, such as manufacturing.
Selectively protecting a certain sector gives companies or industries in that sector time to learn (learning by doing) and upgrade.
Once the companies have achieved a competitive edge, the restrictions are then lifted for the companies to compete on the international market.
Many of these domestic policy choices, however, are now seen as detrimental to free trade and are hence limited by various international agreements such as World Trade Organisation, TRIM or TRIPS.
The focus of industrial policies has in recent times shifted towards the promotion of local business clusters and the integration into global value chains.
In August 2010, The Economist highlighted a renewed trend in industrial policies adopted by rich countries, which involves active government intervention.
This has already happened in the United States, Britain, France, Germany, Japan and South Korea.
The revival has been driven by four main forces: pressure to reduce unemployment and stimulate growth, a desire to “rebalance” certain economies away from financial services, popular demands for increased government action and the perceived need to respond to apparently successful policies being pursued in China.
While the East Asian Tigers provided successful examples of heterodox interventions and protectionist industrial policies, industrial policies such as import-substitution industrialisation has failed in many other regions such as Latin America and sub-Saharan Africa.
Governments, in making decisions with regard to electoral or personal incentives, can be captured by vested interests, leading to industrial policy only supporting the rent-seeking political elite while distorting the efficient allocation of resources by market forces at the same time.
Administrative guidance is a principal instrument of enforcement used extensively throughout the Japanese government to support a wide range of policies.
Influence, prestige, advice and persuasion are used to encourage both corporations and individuals to work in directions judged desirable.
The persuasion is exerted and advice is given by public officials, who often have the power to provide or to withhold loans, grants, subsidies, licences, tax concessions, government contracts, import permits, foreign exchange and approval of cartel arrangements.
Mechanisms used by the Japanese government to influence economic growth typically relate to trade, labour markets, competition and tax incentives.
They include a broad range of trade protection measures, subsidies, de jure and de facto exemptions from anti-trust statutes, labour market adjustments, and industry-specific assistance to enhance the use of new technology.
Rather than producing a broad range of goods, the Japanese selected a few areas in which they can develop high-quality goods that they can produce in vast quantities at competitive prices.
A good example is the camera industry, which since the 1960s has been dominated by Japan.
Disclaimer: This article is provided “as is” for informational purposes only, not intended for trading purposes or advice. Neither GMRI Capital nor any independent provider is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein.
Contact: Facebook: http://www.facebook.com/GMRICAPITAL; Twitter: @capital_gmri
WhatsApp ; +263 778 409 875
Online Reporter