Maravi

(HERALD) Manufacturing sector needs protection

Manufacturing sector needs protection
By Tawanda Musarurwa

Zimbabwe’s economy — as most other economic entities — consists of two basic sectors, the manufacturing and the service sectors.

Ultimately the effective and efficient functioning of any single economy depends on the policies and regulative mechanisms that give guidance to how the sectors operate, respectively and in tandem.

However, more importantly the Government should put in place policies and regulations that focus on the effective operation of the manufacturing industry because it is the wealth-generating sector of the economy, as opposed to the service industry, which is largely wealth consuming.

It is important to appreciate that the effective management of such an important sector as manufacturing begins with the implementation of broad-based economic policies.

To that extent, at least, the recent dismissal by the Cabinet of a draft proposal of the Mid-term plan by the Ministry of Economic Planning and Investment Promotion, although apparently a step backwards, was one such move in the direction of formulating an appropriate macro-economic policy.

In the long term the spiking of that version of the draft proposal should lead to a re-drafting of a plan that will yield significant benefits to the country in the medium-to-long term. Necessarily also, the adoption of appropriate economic policies by the State must be complemented by the adoption of parallel and relevant regulative mechanisms.

The proposal by the Ministry of Economic Planning and Investment Promotion was fundamentally flawed at two principal levels.

Firstly, the proposal assumed that Zimbabwe would attract significant foreign direct investment, which goes against the current indigenisation drive by the Government meant to reduce foreign influences in the local economy.

For instance, full implementation of the proposed Mid Term Plan was said to require US$11 billion between this year and 2015.

Secondly, the draft proposal ignored the important contributions that the manufacturing sector can make to overall national development.

First things first, it is absolutely crucial that the Government plays a leading role in ensuring that manufacturers across the board, especially indigenous enterprises are capitalised so that they can maximise their productive capacities.

A clear case in point is Dairibord Zimbabwe Limited, which is operating way below capacity and has had to close some of its plants to survive in an environment where cheap dairy products, especially from neighboring South Africa, have flooded the local market.

Following a decade of economic stagnancy in the country, most companies are still grappling with establishing a strong financial base for their operations, with some opting to retrench as a means to make the most of their capital output.

Initially, direct subsidies from the Government can be an effective way to ensure that new indigenous manufacturing enterprises emerge and continue to operate viably within the prevailing economic dispensation that largely seems to favour cheaper imported products.

However, the companies quickly need to wean themselves from such dependency if they are to grow.

Perhaps what is more important is for the Government to adopt a protectionist approach to local productive industries if they are to remain competitive in this day and age when the forces of capitalism and globalisation are bludgeoning the industries of developing nations.

Zimbabwe’s current rate of importation of ready-made goods is tantamount to de-industrialisation as the local industry is failing to cope with the foreign competition, especially as it relates to the issue of prices.

Basically, protectionist policies include customs tariffs, exchange rate regulations, direct subsidies, and import quotas, and they function to protect local manufacturers and at the same time encourage import substitution.

Although protectionism has lost favour of recent, it should be categorically stated that it is still the best economic approach that can be taken by developing countries such as Zimbabwe.

One may note, for example, that most of the areas in which the country has competency in manufacturing are facing stiff competition from cheap imports available on the market; some of these include foodstuffs, drink and tobacco, clothing and footwear, chemicals and petroleum products, and metals and metal products.

What is more, protectionist policies are relatively easier to implement in a situation as we are currently facing as a nation, that is, with imposed economic sanctions. Sanctions, more than debilitate an economy, they actually drive it towards self-sufficiency.

Compared to most developing countries Zimbabwe has well-developed infrastructure (requiring maintenance and upgrade, of course), has abundant raw materials and has over the years expanded the range of products that can be produced locally, all of which bode well for the local manufacturing sector’s long-term future.

Crucially, the Government should ensure that the operations of the local manufacturing sector are systemic in terms of the general economy: a system is a set of interrelated elements functioning as a whole to achieve a common end.

That is, the sector acquires inputs (raw materials, labour, capital) from the country’s environment, hence its outputs should be distributed in such a way that the external environment benefits.

The work being done by the Industrial Development Corporation of Zimbabwe provides a microcosmic illustration of the larger concept.

The corporation has established a wide range of partnerships with smaller manufacturing companies both locally and abroad, and is involved in the manufacturing of products from textiles to motor vehicles.

It is important to appreciate here that the IDC helps small indigenous enterprises in establishing themselves, but essentially the output of the corporation are planted back into industry for further growth.

The manufacturing industry should adopt a such-like systematic approach if it is to achieve its full potential.

Labels: MANUFACTURING, TARIFFS

posted by MrK @ 4:13 PM