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Manufacturers battle ‘unfair’ competition

ZIMBABWE’S manufacturing sector, still smarting from a decade-old economic crisis that ended with dollarisation last year, is now battling the dominance of South African peers as it struggles to turn around.

Chinese imports have also weighed in heavily on a sector seen as key to Zimbabwe’s economic turnaround.
But South Africa, the continent’s economic powerhouse, has emerged as the single most powerful threat to Zimbabwe’s industries due to technological advances, analysts and industry players say.
Local industries, say operators, have to contend with huge utility bills for power and water as well as other amenities. Besides, power and water supplies remain unreliable, with blackouts militating against improved capacity utilisation.
The economic crisis of the past decade, which brought industry to a standstill, came soon after a period of great stress for the local manufacturing sector under an economic reform programme called Economic Structural Adjustment Programme (Esap).
Esap, adopted by the Zimbabwe government between 1990 and 1995, saw the manufacturing sector contracting significantly as domestic demand stagnated while competition from imports intensified, according to a survey by the United Nations Industrial Development Organisation.
The survey, titled “Contribution of the manufacturing sector to sustainable development in Zimbabwe”, noted: “In this respect Esap failed to deliver efficiency and competitiveness of the economy. Furthermore there were serious flaws in the management of Esap by government and the respective sequencing of policy instruments. The government of Zimbabwe response was inadequate in putting in place coherent policies to restore macro-economic stability and fundamentals that would spur growth in production.”
Soon after that phase, which was worsened by drought, the manufacturing sector was caught up in an unprecedented crisis, spawned largely by agrarian reforms which triggered a collapse of the agricultural sector. Those companies that remained operational suffered extensively from a foreign currency crisis — they could neither import raw materials nor spares, grounding operations.
The decline meant that local manufacturing processes became inefficient against competition from more developed and modern processes from manufacturing plants in South Africa and other parts of the world.
Although research has indicated that there was a slight improvement in capacity utilisation within the manufacturing sector last year to around 30%, local industries remain under significant stress. Some industry players contend that they are unable to recover without some form of protection.
Zimbabwe’s retail outlets, which mirror the state of Zimbabwe’s manufacturing sector, are still largely reliant on imports from South Africa.
Instead of pinning their hopes on the resurgence of the manufacturing sector, they are already hoping that a trade pact between Zimbabwe and South Africa –– the bilateral investment protection and trade promotion agreement –– will unlock credit facilities to ramp up imports on favourable terms from South Africa.
Willowvale Mazda Motor Industries (WMMI), an assembly plant for Mazda vehicles, has brought to the fore the threat of imports to struggling industrial operations after government reduced duty on vehicle imports.
The company alleges that its vehicles have been under more threat from South African-made vehicles, which allegedly receive export subsidies to make their prices cheaper in importing countries.
WMMI has therefore insisted on government providing “duty protection until the playing field has been leveled”.
However, the case of WMMI has also brought another perspective to protection with some questioning the comparative and competitive capacity of local car assemblies and the cost of such protection to individual consumers and the rest of the economy.
There are other players who have called for some form of protection. For instance, the Zimbabwe Poultry Association has called for a three month ban on chicken imports.
Chairman George Nare says farmers had 1 400 tonnes of frozen poultry in stock because South African and South American imports had priced them out of the market.
According to the association, monthly production of broiler day-old chicks stood at 2,5 million, surpassing average historic production figures of 2,3 million between 2002 and 2007, meaning the local industry can produce sufficient stock to meet demand for chickens on the local market with a better quality product.
Moreover, industry players argue that they can prove that most of the imported chickens are cheaper because they do not meet the required minimum standards, thereby creating a platform for unfair competition against locally produced poultry products.  If this is allowed to continue, the consequences to the industry, farmers and employment in the livestock sector will be catastrophic.
In October 2009, the Livestock & Meat Advisory Council recommended, after a meeting with the Tariffs and Competition Commission, a set of tariff measures to help protect the industry from South African imports. The tariffs, which were to start at 15% last year, were to be phased down to zero percent by 2012.
The local milling industry and farmers have suffered from cheap maize meal imports from South Africa; the local milling industry argue that for some time it was only allowed to use organic maize, while their counterparts in South Africa use GMO grains, a development that creates unfair competition.
Since producing organic maize is estimated to now cost about 50% more than GMO maize, the producer of GMO maize meal in South Africa will have a 50% price advantage over the local miller in the absence of some form of protection.
This also affects farmers who are required to produce organic maize while in South Africa and some other countries they are free to produce GMO maize.  The result is that the local producer has higher costs compared to South African farmers. The South African farmers can be able to sell the maize at a much lower price than their Zimbabwean counterparts.
However, the local market accepts the selling of GMO maize meal from South Africa which is much cheaper than locally produced organic maize meal. Given a choice, local millers would buy GMO maize from South Africa for milling, leaving the locally produced organic which is more expensive. –– CZI Business Intelligence Report.

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