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Prosper Ndlovu, Business Editor
EACH day Zimbabweans cross the borders to do shopping, mainly in neighbouring South Africa, Zambia and Botswana while others go as far as Asia and beyond. Local businesses also frequent these routes for bulk purchase of finished products to stock their outlets across the country.
Despite the tightening of import regulations, the trend continues with some products finding their way through smuggling. With local manufacturing capacity utilisation at 34 percent, according to the Confederation of Zimbabwe Industries (CZI), import substitution initiatives seem less effective as foreign products continue to dominate Zimbabwe’s market.
This includes importation of products that are available locally. Second hand clothing continues to flood the market despite the ban last year. It is not strange for one to walk into a supermarket and find imported toothpicks, mahewu, biscuits, sweets and cakes. Horticultural products, dough by the confectionary industry, pharmaceutical products, bricks and vehicles, form part of the import bracket.
The economy is losing critical liquidity through continued importation of cheap finished products, says CZI president and United Refineries Limited chief executive officer Busisa Moyo.
“Probably the time has come for us to be bold about localising demand because the country technically can’t afford to continue on a $3.3 billion trade deficit annually without creating serious economic problems,” he says.
Whether this is just an obsession with imports or not is not the question. Statistics from ZimTrade indicate Zimbabwe exported goods worth $3 billion in 2015 compared to $6,3 billion worth of imports resulting in the $3,3 billion trade deficit. The trend has been consistent since the adoption of the multiple currency system in 2009 – an indication of an anomaly in the domestic economy.
Economic experts point to productivity handicap as the major catalyst behind the influx of imports, which they blame for the demise of local firms. A host of factors exist to explain the dearth of the manufacturing sector. Independent surveys have also shown that regionally, the cost of production is generally high in Zimbabwe as reflected in expensive product pricing. This makes local produce relatively unattractive for both domestic and export markets as consumers consider affordability in their spending patterns.
“Pricing is not the real problem but a symptom of a root cause. We need to understand that root cause, which is giving this price dilemma,” says Gift Mugano, a trade expert and consultant.
“There’s an identity between pricing and productivity. The high price we’ve is a function and a symptom of low capacity utilisation.
“We’re pumping air in the industry yet we’re using electricity, paying rentals and pay employees who’re doing 30 percent of the work. All this is reflected in our pricing. The root cause here is lack of productivity.”
In the absence of a robust domestic manufacturing sector, Zimbabwe would continue to battle the import scourge says Mugano, a member of the advisory committee to the government responsible for drafting the national competitiveness report on the ease of doing business. The competiveness report recommends the establishment of the national productivity institute to understand the causal link between productivity and competitiveness.
“Our average output per labour in Zimbabwe is very low compared to South Africa, which is five times more than what we do. Hence South African goods, before you even factor the rand fall, would be cheaper than us because one worker produces more than we do,” said Mugano.
The same applies to agriculture, which has the highest employment at 67 percent but suffers low output per labour, he added. Experts say the underperforming agricultural sector contributes to industry demise given that 70 percent of raw materials for processing companies come from agriculture.
Economists say competitiveness can be achieved through embracing the value chain approach and increasing funding for synergies in productive sectors synergies. This also includes embracing new production technology that is cost effective. With increased productivity there will be competition.
“The price will cut itself if we address the root problem. We need to address productivity and one of the ways of doing this is to work along value chains. The focus now is to look at how we raise productivity and solutions around value chains and business linkages,” said Mugano.
Case studies from the food processing industries such cooking oil manufacturers, Colcom, Innscor and National Foods, are positive proof.
“Judging by their improved financial performance, these industries have steadily reduced prices and posted profits riding on increased volumes.
Such progress needs to be ring fenced by enactment of a Buy Zimbabwe Act to enforce local consumption,” says Moyo.
The reduction in pricing dovetail the ideals of internal devaluation, an economic and social policy option whose aim is to restore the international competitiveness of some country mainly by reducing its labour costs – either wages or the indirect costs of employers.
Industry executives and economic researchers are lobbying for the adoption of this approach riding on successful examples of its application in the European countries during depression.
While some have advocated for a temporary shutdown at the borders to reduce imports, Moyo warned the country could not afford a do so considering that Zimbabwe is a signatory to several bilateral trade agreements with regional members in the SADC and Comesa for instance.
ZimTrade chief executive Sithembile Pilime believes Zimbabwe has the capacity to balance its trade on condition it addresses cumbersome export licence processes. The country needs to reduce the number of export regulations and levies, which are currently limiting different companies’ exporting levels, she said.
As a result the number of exporters has shrunk and the value of exports has declined. Closely related is the need to develop reliable enablers such as adequate water supply, the right infrastructure and electricity, which also impinge on volumes and pricing structures.
Online Reporter