'Cheap imports paralyse industry'

Published: 27 November 2013

Zimbabwe's manufacturing firms have recorded a slump in business as they are sitting on stocks of up to a year which they can’t sell, the Zimbabwe National Chamber of Commerce (ZNCC) has said.

The failure to sell products has resulted in companies downsizing and more job cuts looming.

The chamber said on Monday that while companies were holding on to stocks for nearly a year, wholesome protectionist measures may not be the way to go as cheap products being smuggled into the country had paralysed the manufacturing sector.

A push by local industry for government protectionist measures to shield the struggling sector from growing competition could further hurt the economy, a local brokerage and advisory firm has warned.

In its weekly research note, MMC Capital said government should instead craft policies which make local firms competitive both locally and globally.

Official figures show that imports were almost trebling exports as local companies remained in doldrums.

"Our view is that the policy, if not well crafted, can be inflationary and might end up failing to achieve its intended purpose.

"Contrary to the protectionism economic theory, under the principle of comparative advantage, gains from free trade outweigh any losses as free trade creates more jobs than it destroys because it allows countries to specialise in the production of goods and services in which they have a comparative advantage," MMC Capital read.

"The country needs to craft policies that facilitate the creation of comparative advantage by local manufacturers instead of protecting inefficient processes.

"The ideal thing is to refine the processes and make them competitive. This, in our view, will better the standards of living in the country and enhance economic growth as resources will be best used instead of creating dead weight losses."

Protectionism is the economic policy of restraining trade between economies through methods such as tariffs on imported goods, restrictive quotas and a variety of other government regulations designed to allow fair competition between imports and goods and service produced domestically.

Following a decline in capacity utilisation due to undercapitalisation of the manufacturing, government recently announced that it may introduce a raft of measures aimed at reversing de-industrialisation.

Capacity utilisation for the manufacturing sector this year declined to 33% from 49% last year as local companies continued to struggle under the post-dollarisation era.

Zimbabwe's gross domestic product is this year expected to grow by 3,4%, down from 4,4% in 2012.

The slowdown in growth, according to experts, was largely on the back of subdued performance in mining and agriculture.

In its submission to the Parliamentary Portfolio Committee on Industry and Commerce last week, Zimbabwe National Chamber of Commerce (ZNCC) said industrial policy should mainly focus on agriculture to ensure availability of inputs.

"The quality of the food being imported into Zimbabwe is unknown and, therefore, it is imperative that we safeguard the quality of products coming into the country and regulators such as the Standards Association of Zimbabwe and Food and Drug Control Council should be active.

"Whereas protectionism may not be right for regional integration, the ministers responsible for commerce and finance should introduce ‘smart tariffs' to restrict all unwarranted manufactured imports," ZNCC said.

- newsday

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