adminWhen you find yourself stuck in a hole, the wise say dig no further. Such wisdom must be heeded by players in the manufacturing sector, where capacity utilisation has been perennially digging deep since 2011. And this year will be no exception.
Evidence of deindustrialisation lucidly manifests wherever one sets eyes on. We do not want to add petrol to this raging fire. When you add contract manufacturing to the whole thing, it becomes a disaster.
Which is why the thumbs up given to contract manufacturing by Reserve Bank of Zimbabwe’s economic research director, Mr Simon Nyarota, as was reported in a local daily last week, was much to the astonishment of those of us who believe otherwise.
“The success of contract farming tempts us to think that this concept can also be extended to the agro-manufacturing industries, with more downstream benefits to the economy”, said Mr Nyarota.
That we should go for contract manufacturing because of the “success” of contract farming is, to me, an oversimplification that ignores and overlooks a number of pertinent issues that I shall attempt to unravel here.
Toll or contract manufacturing (CM), is basically the outsourcing of the manufacturing of a product to a third party. I call it surrogate manufacturing. The surrogate, who is the contract manufacturer, bears it all, from morning sicknesses right up to labour pains, and surrenders the “baby” immediately upon delivery.
This graphic explanation pretty much sums up all there is to know about the benefits of CM. You get to have your products produced by someone else’s state of the art machinery, which means that you do not have to waste any penny on huge and expensive capital investments.
Your manufactured products tend to be price competitive, with quality also going in that same direction. I would like to suspect that Mr Nyarota casted his support for CM based on the above only.
But beyond that lies the painful realities that categorically speak to the context of Zimbabwe and why CM would be tantamount to a death sentence for her industry, which is often dubbed the engine of economic growth.
Bust the engine and the vehicle won’t move.
But it is important that we clearly understand that contract farming and CM are really like apples and oranges that can only be virtually contrasted and not compared.
You see, given the dilapidated and antiquated state of our local machinery (cited by CZI as one of the major constraints of capacity utilisation), it implies that any CM has to take place across our borders, in countries like South Africa.
This is where we see the crucial difference between contract farming and CM.
We also do not have dedicated contract manufacturers in Zimbabwe. The remnant fairly competitive manufacturing firms do not have the capacity to do contract manufacturing for others as they are focused on maximising their factory capacities on their own with a view to optimising their returns. I believe this is what companies like Schweppes, BAT and Bakers Inn are seized with as we speak.
CM, therefore, implies that we have to send our raw materials and formulae out of the country to be value added, and they come back as finished goods.
This is akin to tearing all the pages under “value addition” in the sacrosanct Zim-Asset.
Contract farming, on the other hand, happens here in Zimbabwe, as we cannot export our fertile lands outside the country. We also cannot export our Lake Chivero, Manjirenji Dam, Gwenhoro Dam, Mzingwane River, Lake Mtilikwe and the many other water bodies too. Even if it was possible, I would still have been a religious antagonist of that.
In light of the above, we should view contract farming differently from CM. You see, once we start to outsource our manufacturing abroad, we are doing that at the expense of the local industry. It means that we have to close the local plants and focus on just mobilising raw materials to send abroad, with the temptation of merely importing the already made products there-from.
Dairibord, for instance, turned to CM in March 2013, when it contracted a South African company to produce cartonised Chimombe on its behalf. Following that move, it started to shut down plants in Mutare, Bulawayo and Gweru. Now imagine what will happen if every company in the republic starts to practise CM! We will remain with smokeless industrial ruins. Maybe they will only be useful to Minister Walter Mzembi, if he can successfully “package” the idle factories for manufacturing tourism.
But America is doing it, some may want to argue. Yes, American companies such as Apple actually contract a Chinese company called Foxconn to cheaply manufacture its coveted iPads and iPhones.
But you don’t do that in a high unemployment environment such as ours. You don’t export jobs when you are on the road to try to create 2,2 million jobs.
America has the capacity to do so, given its low levels of unemployment (with unemployment benefits also flowing to those without jobs) and its deliberate move to outsource some manufacturing processes it regards as “dirty”, while empowering her citizens to wear the semi-white to white collars. But we can’t do that when we still have people willing to take up “rese rese.” Can we?
The above further clearly impresses the difference between CM and contract farming, as jobs under contract farming are created locally and benefit the locally unemployed.
While the argument of venturing into CM simply to reduce costs of production might make sense, given that a study undertaken by Government established that Zimbabwe’s production costs are higher than those of her regional counterparts, we however should rather place much emphasis on developing a holistic approach that promotes sustainable growth as inspired by the economic ideologies that we have mutually agreed upon in the constitution.
Section 13(c) of the constitution says that the State must take measures to “foster the development of industrial and commercial enterprises in order to empower Zimbabwean citizens.”
We cannot empower our citizens by CM, as it seeks only to grow other countries’ industries while condemning ourselves to mere primary producers. As the saying goes, hatipisi musha nekuti mapinda nyoka.
What the Government, employers, employees and citizens of Zimbabwe at large should focus on right now is to vigorously drive foreign investment into the country and remove all the roadblocks that stand in its path.
Why are we getting foreign investment of as little as half a billion per annum when we can draw as much as US$7 billion as the Zimbabwe Investment Authority says?
Why is it that countries with very low natural resources endowments are attracting more foreign investment than us?
Being the richest country in the world, in terms of natural resources per capita, should we have problems in attracting foreign investment? We should actually be an investment magnet.
We are a land of abundant opportunities and should therefore strive to get optimum return from the copious resources we have been blessed with.
We should be inspired by the investment frenzy we are currently witnessing, whereby various countries from all over the world are coming to make investment enquiries, to vigorously work on improving our business environment.
As was noted by the British embassy’s recent publication “Zimbabwe: Commercial opportunities”, “A number of international firms have begun to make serious investment into Zimbabwe, given high return opportunities.”
There are high return opportunities in Zimbabwe which we must not sacrifice on the altar of contract manufacturing.
Online Reporter