adminEconomic Focus, Dr Bongani Ngwenya
Preamble:
I HOPE I am not going to be accused of being controversial here. The question is, is Statutory Instrument (SI) 64 of 2016 working or achieving its intended objective? Are we seeing our local manufacturing industry gaining that capacity to meet domestic supply of goods? Are we seeing an improvement in the balance of trade? Maybe it is still premature for the impact of the statutory instrument to be measurable in that regard.
However, it is very true that at individual manufacturing company level there has been quite significant improvement on the performance of such individual companies as a result of the protection that the instrument has afforded to such companies.
This is economics at micro level. My argument, particularly in the other Sunday’s instalment has been that Zimbabwe’s economic situation now requires bold structural economic reforms, that are targeting macro-economic policies. This is the reason why I am posing these questions above. Reiterating what I have said before, the current heavy and unsustainable import bill is not a result of the influx of cheap goods from South Africa and the rest of the world, but a result of lack of domestic production capacity and competitiveness to meet local demand of these goods.
As a result, to fill that gap, there would always be an influx of cheaper imports until a certain level of import substitution has been reached in the domestic market and economy. It is when that level of import substitution has been reached that protectionism can achieve the intended purpose. The intended purpose of increased domestic competitiveness as a result of the effect of tariffs that make domestic products more price competitive relative to the foreign products in the home market.
This gives rise to a process of import substitution in domestic production and consumption. Thus, domestic production would be expected to be at levels that would be able to meet domestic consumption demand.
Is SI 64 of 2016 working?
I have acknowledged above that the import restriction on certain goods has benefited some of our manufacturing firms, that is, at the level. It is my observation that, if the instrument was introduced for protecting certain manufacturing companies in this country, and no more, then to an extent the objective has been achieved. However, if the other reason was an attempt to deal with the problem of sustained negative balance of trade because of the huge import bill, I am afraid to say that the instrument is not working.
So far data released by our own Zimstat and the South Africa’s department of trade and industry indicate that for the month of August 2016, which is a month after the introduction of SI 64 of 2016, which restricts imports onto the local market, South African imports into Zimbabwe alone have risen by more than US$22 million, which is about 13 percent increase from July to $190 million (R2,6 billion) in August. This contributed to the total imports increase for the month of August 2016 to $443,85 million from the month of July 2016’s $394,22 million.
Zimbabwe also imports from Singapore, which accounted for $1,3 billion in exports to Zimbabwe, and was the second-biggest source of imports, followed by China ($458 million), Zambia ($277 million) and India ($238 million) in that order in 2015 for example. But South Africa has always remained the country’s biggest import and export destination as it bought or imported 71 percent of the country’s total exports in 2015 at $1,9 billion for example.
Unfortunately, in the same month, exports from Zimbabwe to South Africa fell from US$11,2 million (R153 million) in July 2016 to $9,2 million (R127 million) in August 2016. Zimbabwe has cumulatively imported $1,4 billion (R19 billion) from South Africa alone, in the period from January to August 2016.
Although the total exports from Zimbabwe to South Africa and to other trading countries marginally increased in the month of August 2016 to $202,58 million in August from $183,66 million in July of 2016, Zimbabwe recorded a trade deficit increase to $241,27 million in August of 2016 from $210,56 million in July of 2016. The country is still averaging a current account deficit of about 17,80 percent of the Gross Domestic Product.
The other important factor that may cast doubt on the effectiveness of the statutory instrument 64 of 2016 is the regional and international trade treaties and agreements that Zimbabwe must honour regardless of the painful reality that some of those trades remain skewed in the other partners’ favour, such as South Africa for example as the bulk of the goods finding their way into the country are for consumption purposes. The argument is, can Zimbabwe bar South Africa in the light of the free trade regional treaties by imposing the statutory instrument 64 of 2016?
Not mentioning what is obtaining in our mining sector for example, one of South Africa’s biggest supermarket brands, Pick n Pay, has been spreading its footprint in Zimbabwe since 2013 through its partnership with TM Supermarkets. Statistics reveals that as at 28 August 2016, Pick n Pay had 58 stores in Zimbabwe already. Fifteen of these stores trade under the Pick n Pay banner. The massive outward investment drive by this supermarket brand has seen earnings attributable to this Johannesburg Stock Exchange listed retailer for the six-month period to 28 August 2016 rising by 81,5 percent to R29 million from the same period in 2015.
Earlier than this period, that is, in 2010, South Africa’s equity fund, Investec Africa Frontier Private Equity Fund, bought a 7 percent stake in OK Zimbabwe for example. South Africa has so far accounted for a significant share of the local market.
However, it is still pushing for some of its products that have been affected by the SI 64 of 2016 to be removed from the classified list, as the restrictive measure is being considered counter-productive to free trade that the global world is moving towards.
Some of the trade and business links date as far back as 1954. For example, the Tongaat Hulett which saw South African businessman Mr Guy Hulett acquiring the company, which had temporarily been taken over by the Rhodesian government in 1944. The company currently wholly owns 30 000-hectares of Triangle Sugar Estates and has a 50,3 percent shareholding in the Hippo Valley Estates. There is quite a lot that other analysts have mentioned with respect to South Africa’s investments in Zimbabwe, especially in the mining sector, which I have not delved into in this article.
In conclusion, the imposition of the SI 64 of 2016 is part of the tinkering approach to solving Zimbabwe’s economic problem I mentioned in the other Sunday’s article. In my opinion, the restrictive measures can only benefit individual manufacturing companies, at that level, that is, at micro-economic level. Zimbabwe’s current economic problems cannot be solved by micro-economic policies, but macro-economic targeted policies.
Dr Bongani Ngwenya is a Bulawayo-based economist and senior lecturer at Solusi University’s Post-Graduate School of Business. mailto:[email protected]/[email protected]
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