Protectionism unsustainable, addressing key issues necessary to revive Zim industry

The US government recently caught the ire of its trading partners from the EU, China, Canada and Mexico, after it proposed tariff increases of 25 percent on all steel products and 10 percent on aluminium imports into their country. But China the world’s second-largest economy has retaliated  through taxing US agricultural and industrial products, from soybeans, pork and cotton to aeroplanes, cars and steel pipes. Simmering discord between three major economies has set markets on edge, and the Dow Jones has fallen more than 2.5 percent since the tariffs were first suggested. European, U.S and Asian stock markets are also feeling the pinch.

Africa, relatively isolated from the machinations of the financial markets, might not yet feel the ill effects of Trump’s tariff proposal, but the continent stands to lose far more than most should a trade war become a reality. Last year was the first since 2008 that the world’s key economies advanced at a similar pace; a trade war would likely end this positive economic growth. A global trade war could hurt consumers around the world by making it harder for all companies to operate, forcing them to push higher prices onto their customers.

Locally, Zimbabwe in recent years promulgated a number of statutory instruments aimed at safeguarding local producers from foreign competition. Statutory Instrument 64 (SI 64) of 2016 attracted a lot of attention both locally and regionally. Notwithstanding the controversy, the impact of the instrument together with previous measures; for example, measures which were previously applied to the cooking oil and dairy sectors, have yielded positive results which include; an increase in capacity utilisation and employment. However, the protectionist import restriction was meant to be a temporary measure. The long-term solution is the ramping up of production in line with far-reaching structural reforms.

The key question remains; which policy is best for our local industry? What level of equilibrium should be hit so as to grow the local industry while maintaining the inflation rate and availability of key products on the local market?

What is imperative, r, is to boost the capacity of the home industries that stand to benefit from the same restrictions so that growth is sustainable and beneficial to the entire market. In order to attain increased capacity, the following are some critical features which need attention.

Focus on the power sector: The power sector impacts the manufacturing sector’s growth in more ways than the obvious. Take for example the steel/metals industry which supplies the auto sector with critical parts and is dependent in turn on smaller processes such as fettling being done by the small-scale sector. If for example the fettling process is interrupted by the lack and high cost of power, then the consequences affect the supply of parts to the automobile sector. The lack and high cost of power in one part of the manufacturing sector effectively “robs” capacity in the entire manufacturing sector.

Encourage alternative technologies and Incentivize production. One key point that tax policy framers may well keep in mind is that corporates understand the need to be taxed. Similarly corporates need to keep in mind that from a societal standpoint the need to create and maintain jobs are key determinants in their bid to build sustainable businesses. In order to achieve these objectives, sometimes competing but often complementary, the government may well consider a framework that incentivizes production while continuing to tax profits.

With the myriad of problems in the manufacturing industry, it is doubtful that Zimbabwe can achieve the overall objective of restoring the manufacturing sectors to GDP to 30 percent without concerted efforts from government, policy makers, industry and other interested holders. All sectors of the economy including the manufacturing sector must redefine the key economic drivers which will be necessary to take Zimbabwe to the next level of economic growth. The limited resources available should be carefully channelled towards those sectors with potential to compete on the international market.

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