HomeBusinessAfrican trade bombshell

African trade bombshell

BY SHAME MAKOSHORI

THE Confederation of Zimbabwe Industries (CZI) has given its first elaborate indication that domestic manufacturing firms are too weak to handle a glut of imports from big guns under the African Continental Free Trade Area (AfCFTA).

AfCFTA rolled into life this January, with 54 of the 55 African Union (AU) member states rallying firms to line up exportation strategies and reach out to Africa’s 1,3 billion people.

However, it is not all about exports.

Companies are bracing for higher volumes of cheap imports originating within the AU, which will pile pressure on industries in struggling markets like Zimbabwe.

On paper, the AfCFTA agreement presents an opportunity for Zimbabwe to rebuild its industries after haemorrhaging for 21 years due to diminishing spending power, a grinding foreign currency crisis and bottlenecks in power supply.

These hurdles were amplified by last year’s outbreak of the Covid-19 pandemic, which compounded a crisis that was already worsening.

In an analysis of prospects under the bloc that widely liberalises the African market eliminating tariffs in 90% of the region’s merchandise, CZI said the US$3,4 trillion bloc presents setbacks to local firms that lack economies of scale to produce at less costs and export competitively priced products.

CZI said instead of joining the campaign to scale up intra Africa trade, government should negotiate with peers to defer trade liberalisation while scour the markets to raise US$2 billion and reposition for an overflow of merchandise from big guns.

“The biggest question is on whether Zimbabwe, and the industry in particular are ready to take advantage of the AfCFTA?” CZI asked in the second quarter Business and Economic Intelligence Report released last Thursday.

“As things stand now, the simple answer is no. Given years of de-industrialisation, decline in local value chains and limited retooling, the local industry is constrained to take full advantage of the AfCFTA.

“Thus, the industry needs to come up with long-term export strategies that take the AfCFTA into consideration such as growing export markets and retooling/upgrading production processes to become efficient and be able to competitively compete with the rest of the continent.”

CZI added: “Negotiate for more time in AfCFTA for liberalisation to allow for domestic industry to retool and upgrade production processes.

“The operating environment remains far from ideal, especially faced with the implementation of AfCFTA, which requires a determined approach to enterprise level and business environment- driven competitiveness, to ward off competition from impending imports and to compete on the continental market.”

It said capacity to participate in AfCFTA had been undermined by lack of investment.

Constraints to investment include challenges for foreign investors to remit dividends through banks, liquidity constraints, risky exchange control regulations, negative country perception, punitive taxes and a complex business climate.

“Current capacity utilisation of 47% in industry is significantly low, meaning that firms are not operating at optimal levels to enjoy economies of scale that reduce per unit cost of production to render export price competitive,” said the report.

“The high cost of doing business environment emanating from over-regulation, heavy taxation, complex import and export procedures, utility and infrastructure deficiencies further constrains AfCFTA readiness for business.

“The country also needs to develop its local value chains to ensure that most of the raw materials needed for industry are sourced locally and not rely on importation from countries that would also be competitors. Government must tax for growth, not for revenue collection,” CZI added.

Recent Posts

Stories you will enjoy

Recommended reading