Govt should not protect bad industry, poor quality

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Albert Norumedzo In the Money
For its part, the Zimbabwean Government has come up with more measures to boost local industrial production and economic growth. But Zimbabwe needs to impose tough quality standards on manufacturers and service providers to compete regionally and globally.

The theme of the last Budget Statement was anchored on capacitating production frontiers across all sectors of the economic spectrum. This is achievable through paying greater and more urgent attention to supply side interventions which are geared towards enhancing production across all sectors of the economy.

The Government has in recent policy moves, made deliberate efforts to revive ailing industries from a prolonged season of gradual deterioration at the mercy of waning economic fundamentals across all key sectors.

The latest measures include a host of protectionism policies meant to protect local manufacturers from total eclipse by competitive regional and international manufacturers flooding the country since the introduction of the multi-currency system.

Among the major challenges cited as major contributors to industrial decline were, antiquated machinery, rigid labour laws and high input costs from supply chain industries coupled with deteriorating consumer disposable incomes.

Despite the numerous policy measures implemented by the authorities, revival of local industry will need more than protection measures. External factors such as global commodity market developments have also had a significant impact on the recovery of the local industry.

Notwithstanding the challenges that still antagonise recovery efforts across industry, Government has shown dedication to improving the ease of doing business and has taken commendable steps to protect local industry with direct market interventions.

Protectionism is, however, temporary and in the long run economic theory has proved that direct market interventions are less effective compared to indirect market driven interventions.

Instead of price controls and restrictions, it is more effective to raise competitiveness of local products and services by improving their quality and appeal in order to protect their market share against regional and international competition.

In its effort to promote local products uptake in the local market, the government introduced Statutory Instrument 64 which basically stipulated that one would have to prove that a product was not locally produced in order to import it under the open general import licence.

The desired outcome of this initiative was largely to protect local industries thereby creating employment and enhancing consumer disposable incomes across the economy. Protection of local industry is not peculiar to Zimbabwe alone.

Many countries around the world have policies in place to protect their local industries.

The expectation from industry was that, production would increase and with it investment into capacity enhancement and production efficiencies, bearing in mind that protectionism was only a reprieve aimed at giving local industry a head start to enable it to survive cut throat competition from well capitalised and advanced regional and foreign competition.

This discussion also extends to services as well and is not limited to products alone although there hasn’t been much protectionism on services from foreign countries the same principle applies.

Contrary to the expectations of consumers and Government, industry has barely put in its fair share of effort to seize the opportunity and move in the desired direction. A report by Buy Zimbabwe reveals that of the 46 products protected under Statutory Instrument 64, only 5 percent are certified and among the producers of those protected products only 14 percent have certified management systems in place.

Protection of local industry should not be at the expense of consumers, consumer expectations should not be sacrificed in order to protect industry, rather the local product should match top quality foreign products, pound for pound, to meet consumer expectations.

Cheating on Quality, Prices

In a move that defies the initial logic behind protectionism, instead of investing in capacity, efficiencies and cost effective production and systems, local industry has in fact taken the opportunity to in some cases increase prices of local goods without improving quality and  capacity.

As a consumer myself I felt short-changed when my wife purchased a local dish washing liquid at a higher cost than the foreign equivalent product, only to discover that you have to use twice as much of the local product for a given amount of the foreign equivalent to achieve the same result.

Consumers cannot be at the mercy of an unrepented industry which is in perpetual moaning for protection when the best form of protection required is upgrading of standards to match international levels.

There are countries which are going through worse economic and political times than Zimbabwe but their industries produce better quality products and services compared to the local product, some countries which are going through civil wars still manage to produce products that are better in quality and international appeal than Zimbabwe.

It is high time industry wakes up from its perpetual honeymoon which has left many SMEs as backyard businesses with no proper management systems and realise that the world is a global village that rewards quality and punishes ineffectiveness regardless of station.

The Government cannot protect local industry forever. Industry has to play its part and increase its capacity to compete at the global stage, shape up or ship out. It is the law of the Yukon that only the strong shall survive and surely the weak shall perish. There are no charity cases in business, you either adapt or die.

Industry, Consumers and Government must set certified standards which must be met before any product or service enjoys incentives, fiscal or otherwise, meant to promote local industry.

A majority of local companies have felt the negative impact of deteriorating local economic fundamentals which have left them uncompetitive on the international market.

Most companies are producing goods with ready export markets, there is a market for everything in the global village, but for one to export to the respective markets like Europe, one has to meet the expected quality standards there.

Instead of crying over a declining disposable income base in the local market why not export products and services to neighbouring countries. Why is it easier for foreign companies to come and uproot local companies?

The economic space is a ruthless jungle where only the strong survive. No matter how much protection we afford our local industry it will not be enough to protect it from superior products and services, the free market system allows market forces to prevail in the long run. It’s time for local industries to invest in capacity building, proper research and development and cost effective production.

Some are still using pre-colonial equipment and expect to be competitive, come on!

  • Albert Norumedzo is an Equity and Alternative Investment Analyst who writes in his own capacity.

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