12 May 2017

Zimbabwe: Paradox of Re-Industrialisation in Zim

analysis

Just last week the President of Namibia Hage Geingob spoke passionately about industrialisation, value-addition and beneficiation and regional integration among African countries for them to develop their economies when he officially opened the damp squib Zimbabwe International Trade Fair (ZITF) in Bulawayo.

The question is: how well does Zimbabwe fare on re-industrialisation as the country seems to be shooting in the dark and hobknobbing from pillar to post in search of a silver bullet to its current economic recessionary mode and de-industrialisation that has reduced the country to an industrial scrapyard and dumpsite for cheap imports, especially from the East?

This article will look at Zimbabwe's industrialisation drive, what has gone wrong and the current flirtation with Special Economic Zones (SEZs) to see if the latter can revive the former "Jewel of Africa" status this country which was prophetically named after ruins, once enjoyed.

Zim industry after 1980

After the attainment of independence in 1980, Zimbabwe embraced two fundamentally distinct policy regimes. An inward-looking interventionist approach was in place during the 1980s.

Since 1970, manufacturing accounted for approximately 25% of the country's Gross Domestic Product (GDP). By 1987, it had become the second largest employer of labour; with a total of 175 000 people employed in the sector, representing 16% of the labour force in the formal sector. The size of the manufacturing labour force grew to 205 000 workers in 1991 before a decline began to set in. In 1991, the country's manufacturing GDP was put at just under US$150 per capita; the corresponding figure for Kenya was US$36, Nigeria US$21 and South Africa US$566. In 1985, manufactured exports accounted for almost 50% of total exports.

Following independence, the sub-sectors which grew more rapidly between 1981 and 1991 were textiles, drinks and tobacco. Clothing and footwear, chemical and petroleum products, non-metallic mineral products and transport equipment also grew rapidly in the late 1980s. The sub-sectors where employment growth expanded fastest were clothing and footwear, paper, printing and publishing, chemical and petroleum products and transport equipment.

The preceding profile of the manufacturing sector needs to be viewed against some of the limitations of local producers some of which became manifest in the 1980s and they were related to competitiveness, especially in the export sector, access to investment, responsiveness to the changing incentive regime, and capacity for expanded employment creation.

Thus, although the sector played a crucial role in the creation of backward and forward linkages in the economy for example, it supplied most of the inputs required in agriculture and processed much of the output from that sector its export competitiveness was quite limited in the 1980s.

In 1991, the country shifted to a market-based policy approach, the Economic Structural Adjustment Programme (Esap). However, despite the extensive policy initiatives under the auspices of Esap, doubts have lingered concerning the extent to which these policy approaches managed to propel the economy in the intended direction. In particular, the ability of the policy mix to resolve the internal-external imbalance that existed from the 1980s remains debatable. Esap was then formally abandoned in early 2002.

By 1990, the Zimbabwean manufacturing sector had expanded over a time span of more than 60 years to become one of the most advanced and diversified in Sub-Saharan Africa (SSA). Indeed, the sophistication of the economy and the pivotal place occupied by its manufacturing industry had led to the suggestion that with favorable domestic policies and a supportive external environment, Zimbabwe could (perhaps with South Africa) be the first country in SSA to join the ranks of the handful of Newly Industrialising Countries (NICs), currently confined to Asia and Latin America.

However, these postulations have since been overtaken by time and events and policies introduced especially after 1990 have led to economic collapse and the shrinking of the manufacturing sector and a downward revision and contraction of the industrial capacity utilisation from 90% in 1981 to the current 34% in 2017.

Special Economic Zones

In the economic blueprint, ZimAsset, SEZs are some of the options availed as the panacea to the de-industrialisation, job creation, wooing of foreign direct investment and economic stabilisation problems bedeviling the country.

Sadly though, four years after the pomp and fanfare that accompanied the launch of the ZimAsset document, it is only now that the government has declared such places as Bulawayo to become a hub for textiles and the leather industry, with Victoria Falls becoming a banking and tourism hub. The main objective of the SEZs policy is to diversify the economic and export base of Zimbabwe into sectors that will continue to grow long after the diamonds, gold, platinum and other natural resources that the country prides itself with have run out. The policy provides for the development of public sector, private sector and public-private sector partnership SEZs across the country and sectors, as the market would dictate.

The main questions to be asked is whether the Zimbabwe Investment Authority which is tasked with luring investors into the country is sufficiently prepared with legislative and administrative capabilities to undertake such work given the failure by the office to follow up on potential investors, most of who sign plenty of memoranda of understanding and trade deals with various government ministries, but most of these deals never see the light of day to final fruition (and the Chinese mega-deals and Nigerian magnate Aliko Dangote's deals immediately come to mind) in the form of the intended projects taking shape in the country and actually leading to the much-needed foreign direct investment (FDI) and job creation.

A shining example of the positive impact of SEZs is in China with its meteoric economic rise in the past 40 years being an unprecedented "growth miracle" in human history. Since the open-door policy that began with Deng Xiaoping in 1978, China's GDP has been growing at more than 9% annually, with its global share increasing from 1% in 1980 to 6,5% in 2008 and its per capita GDP increasing from US$193 to US$3 263. Total exports have been growing at an annual rate of 13% (21,5% from 1998-2007), with China's share of total exports increasing from 1,7% in 1980 to 9,5% in 2008. Rapid growth in the past decades has helped lift more than 400 million people out of poverty.

However, whether the Zimbabwean SEZs can also create such economic miracles becomes doubtful as it will be very difficult if not impossible to compete with textiles and leather products from the East that have invaded the local market.

For instance, local industry has raised concerns over rampant violation of rules of origin, misclassification of goods when charging duty by customs officials, smuggling of goods into the country, under-invoicing on imported products, outdated duty schedules as well as general corruption.

An examination done by the Standards Association of Zimbabwe (SAZ:2015) had shown that some of the imported products indicated that there are goods that are benefiting from the Sadc and Comesa preferential arrangements when they are not supposed to. These goods are manufactured outside the region and packed or repacked in the region in order to benefit from trade arrangements within the region.

An example is product whose carton had allegedly indicated that it originated from a Sadc member state, but upon opening the carton, the smaller packets in the carton indicated that it originated somewhere else faraway from Sadc.

In the leather industry, it was noted that the failure to absorb hides and skins produced locally by the country's ailing leather industry remained a major stumbling block to value-addition initiatives in the sector. Most of the hides and skins ended up being exported in their raw form, resulting in the loss of jobs. The troubled leather industry is operating at less than 30% capacity, with availability and cost of electricity being one of the impediments to increased capacity utilisation.

In 2011, a total of 5 440 tonnes of raw hide including crocodile skins worth US$28 million was exported between January 2011 and December 2011. During the same year, 2,2 million pairs of footwear were produced while four million pairs of mainly cheap synthetic shoes were imported, essentially making Zimbabwe a net importer of footwear.

The Leather and Allied Industry Federation of Zimbabwe noted that an estimated 3,4 million pairs of shoes are imported mainly from Far East. The duty is 40%, plus US$5 per pair plus 15% VAT thus the minimum retail price should be US$7 per pair. However, shoes were being sold for as little as US$1,50 per pair, a ridiculously low price that is a sure sign that the smuggling of finished goods is at play through the country's porous borders, thereby rendering Zimbabwean leather and textiles industry uncompetitive, leading mass closures and turning the factories into mega churches' venues as the new normal.

In my next installment I will strive to look at what options exist for the Zimbabwean model of SEZs outside of the current breed being championed by government which might be more of trying to flog a dead donkey.

Tambo is a policy analyst who works for the Centre for Public Engagement. 

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