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Are import restrictions a solution to curbing flooding of restricted products?

By Dr Bongani Ngwenya

The Confederation of Zimbabwe Industries recently lamented that restricted products were still finding their way into the country’s domestic market, albeit illegally, making the competition in the domestic market unfair for the local manufacturers of goods and affecting the performance of the local industry.

Dr Bongani Ngwenya
Dr Bongani Ngwenya

“Our borders remain porous and measures must be put in place for the establishment of strict monitoring controls on issuance of import licences and enforcement controls at points of entry to eliminate entry of cheap imports of goods that are manufactured locally,” CZI Matabeleland Chapter president, Mr Joseph Gunda was quoted saying.

“We are facing challenges of competition from imported but restricted products that are still finding their way through the porous borders. Complete revival of existing industries and those that are closed but remain low hanging fruits and potential subjects of quick resuscitation can only be achieved through enforcement of laws and policies.”

Convinced that the imposition of import restrictions through statutory instruments would help to boost the domestic industry capacity utilisation and performance, Government, in 2016 introduced import restriction measures that were meant to specifically restrict and control the importation of goods that are available in the domestic market. In other words and in simple terms, the goods that the local industry is able to produce. We saw the regulations gazetted under the Statutory Instrument (SI) 64 of 2016 by the Ministry of Industry and Commerce.

The Government has however, now repealed SI 64 of 2016 and consolidated the various import licensing regulations under the newly gazetted Statutory Instrument 122 of 2017 in an effort to enhance ease of doing business and address regulatory bottlenecks that are blamed for inhibiting exports.

Statutory Instrument (SI) 122 of 2017 has seen the removal of all the restricted products from the export licensing requirements, except for the four designated strategic products — fertilisers, second-hand equipment, sugar, and gypsum, notwithstanding the fact that SI 122 is still not fully implemented.

The CZI has recently appealed to the Government for the speedy full implementation of the new instrument, as local manufacturers face challenges of delays in clearance of raw materials and spares at the country’s ports of entry, thus exacerbating the challenge of ease of doing business in the manufacturing sector in particular.

The CZI boss also raised concern over the shortage of foreign currency that has contributed to the distortions in pricing of goods on the market as industry is struggling to supply local products consistently due to raw material shortages.

Companies are resorting to source foreign currency on the parallel market, a situation which is unsustainable as the companies cannot absorb the additional cost and they end up passing that cost down to the consumers.

The question is, why are restricted products flooding the market?

The answer is very simple, the country’s industrial capacity utilisation is not yet built up enough from the period of economic meltdown to enable domestic production to meet domestic demand for goods.

All these issues raised above are quite pertinent. The local industry is facing stiff competition from cheaper imports, not necessarily because of delays in clearance of raw materials and spares at the country’s ports of entry and the rest of ease of doing business challenges.

These are compounded problems of course. The bureaucracy in the operations of the country’s ports of entry, while they add to the cost of doing business in this country and justifiably need to be seriously looked at and dealt with in order to facilitate ease of doing business does not justify the imposition of import restriction in the form of statutory instruments.

In fact, the poor performance of our local industry is not caused by the influx of cheaper import products. I have said it before, and I am saying it again, import restriction alone cannot solve Zimbabwe’s industrial problems of deindustrialisation.

Imports are in fluxing our domestic market because our local industry falls way short in capacity utilisation to meet the demand for goods.

The country’s propensity for aggregate demand though suppressed by the poor performance of the economy in general, cannot be matched by the current industry capacity utilisation. In other words there is a disequilibrium between domestic demand and domestic supply for goods in the economy.

If we were to eliminate all the imports today from the equation — certainly there would be no domestic industry to talk about. I am not justifying imports at all because they are hurting the economy. The country is in serious liquidity crisis today largely because of the unsustainable import bill that has mopped up the foreign currency.

I have said it in the past, the foreign currency that is mopped up for import purposes does not find its way back into circulation in the country’s economy, bearing in mind that Zimbabwe does not have the sovereign control of the supply of the multi-currencies that we are using through money-creating power and quantitative easing.

However, my argument is very simple — we cannot deal with challenges of deindustrialisation through the imposition of import restrictions in the form of statutory instruments. Import restriction mechanisms such as the statutory instruments give an impression that the country has enough industrial capacity to produce consumer goods locally and can be able to meet the domestic demand for those goods without the supplement of imports. Which is not the case with Zimbabwe.

The case for Zimbabwe is that of deindustrialisation that has been deliberately ignored for too long. We have seen in the past that the IS 64 of 2016 for example invited problems for the country that is, the country’s regional trading partners, especially South Africa threatening to retaliate.

There have been misconstrued sentiments and misdirected line of thinking in the past, that any attempt to resuscitate the ailing companies in the industry was just as good as trying to flog a dead donkey. Yes, there were attempts to come up with financial support at Government level for the resuscitation of the ailing companies through the Distressed and Marginalised Areas Fund (Dimaf).

In addition to the amount committed in terms of the budget vote to the fund that was not adequate enough, the noble initiative also lacked political will and commitment that it deserved and as a result died a natural death. Had those dead donkeys been flogged good enough, who knows, they could have been resuscitated by now.

Estimations are that for example in 2013 the industry needed about $2 billion to be resuscitated. It would have been strategically wise for the Government to commit to the investment into the resuscitation of the industry to help it recover from the hyperinflation era.

An investment of $2 billion would obviously, through proper management and the multiplier effect, result in more than double the amount of the investment capital outlay in terms of industrial capacity utilisation and performance output, just to be conservative.

In conclusion, this strategy of tinkering by way of trying to select individual companies from the industry for protection through statutory instruments of import restriction does not work for an industry such as ours that needs to recover from an economic meltdown.

As Zimbabwe is now open for business the Government needs to reconsider the strategy of investing in the resuscitation of the county’s industry through measures similar to Dimaf initiatives. In fact it is evident beyond any reasonable doubt that the country’s entire industry has become a distressed and marginalised area that can only be addressed through focused domestic and foreign direct investment and not through import restriction mechanisms.

-Dr Bongani Ngwenya is based at the University of KwaZulu-Natal as a Post-doctoral Research Fellow. [email protected]