adminAs Zimbabwe seeks to diversify her economy and exports, it may have to rely on tariff protection to develop infant industries.
International trade has brought different dynamics for different nations. To manage its different consequences, various measures have been put in place.
If, for instance, a company producing a certain product receives huge government subsidies and tries to export that product to another country, the receiving country can impose a countervailing duty.
This is done to protect the local industry in that receiving country.
Again, if country X is selling a certain product in country Y at a price lower than is charged in country X, it is called dumping. If country Y proves to the World Trade Organisation that dumping has taken place, it will be granted the green-light to impose anti-dumping duty on country X.
Again, this is done to protect the local industry of country Y.
Even in cases where foreign products are observed to be fiercely competing with local substitute goods, tariff protection may be effected. And this is where I want to dwell much on.
You see, all countries have different sectors that anchor their economies. They are often referred to as “sensitive sectors.” An assault on those sectors has irreparable economic consequences, which may include job losses, falling tax revenues, compromised export revenue, to say the least.
The protagonists of protection largely base their argument for protecting strategic industries on the above. Even in regional integration settings, where they talk about “duty free quota free trade,” countries are actually allowed to come up with sensitive lists containing products that they will not open for free trade.
Just as much as there is no such thing as free lunch, much can be said about “free trade”.
What must be understood is that the idea behind protecting local industries, by imposing high import tariffs, is not really that it should stay that way in perpetuity.
No, it is to give temporary reprieve to the local industry and allow it to grow, become competitive and be at par with her international peers.
That is why some call it “incubation”.
An incubated egg is given the warmth and all it needs to make sure that one day it hatches and become a big chicken.
However, most protected companies miss this reality.
An egg must hatch at some point. It cannot stay in the incubator forever. If it doesn’t, there is something wrong with it.
However, you find companies being protected for a decade, but remaining as infants.
As Zimbabwe seeks to diversify her economy and exports, it may have to rely on tariff protection to develop infant industries.
And that has been happening.
What must be emphasised here is that there is a tendency for protected companies to relax, as they know that they are not in competition with imported substitutes.
Their products will be bought anyway. So they stay in the incubator as chicks inside the crust of an egg, quite ignorant about the cut-throat world that lies outside.
There are also instances where companies that have been protected start to smuggle the very cheaper substitutes in bulk into the country, repack them and dress them with their own packages, brand names — with the “Proudly Zimbabwean” banner ashamedly flying thereon – and put them on the market.
Come the day of reckoning – they will still be the very adolescents they were forever ago. Young forever, and so much for protection!
We must really be pragmatic when we are talking about protecting some sub-sectors of the local industry. The private sector players are driven by self interest, and the desire to maximise profits.
Everything else comes secondary. That’s a fact of life.
Protection might actually cause market failure, if Government takes a back seat immediately after granting it, much to the detriment of the consumer.
So much for the “consumer is king” mantra.
You see, the consumer is the grass that suffers when the two elephants, Government and business, fight or make love. During a period of protection, the consumer make sacrifices of being deprived the cheaper imported substitutes, and consume the expensive local product – while waiting for that kingdom to come.
Consumers, therefore, play an integral role in the protection of local industries.
And they need to be meaningfully rewarded with enhanced quality local products at lower prices, with the passage of time.
That kingdom must come.
Sadly, we see the opposite actually happening in many cases.
Government should never grant tariff protection unmethodical. It should only be granted to companies with concrete plans to become competitive after a specified period of time.
The companies or sector seeking protection must submit comprehensive plans indicating the specific measures that they will implement in order to become competitive.
Only companies with convincing plans should be granted protection.
After a company has been granted protection, it is also very important for Government to put in place real time monitoring and evaluation mechanisms to make sure that the protected company does not abuse it.
Companies that don’t live up to their promises should be removed from the incubator and made to feel how cold it is out there.
Online Reporter