Infrastructure development Zim’s path to re-industrialisation

08 Jun, 2018 - 00:06 0 Views
Infrastructure development Zim’s path to re-industrialisation Special Economic Zone

eBusiness Weekly

Zimbabwe GDP growth since the mid 1950s has been fraught with challenges and characterized by extremely volatility. From around 1955, when the massive Kariba Dam project was completed, the economy enjoyed spurts of rapid infrastructure led growth, interspersed with disruptions due to sociopolitical developments.

However, the lessons from this era for the modern policy planner, are very clear. There is a very direct and obvious link between development of infrastructure and industrialization.
Many of Zimbabwe’s strongest and largest companies were born between 1955 and 1980, largely because there was a sustained programme to drive infrastructure investment.

Post the 80’s Zimbabwe economy shifted its focus from infrastructure development to natural resources, with the result that manufacturing began to take a back seat.

Whilst manufacturing output peaked in 1996-basically after the implementation of the first phase of the IMF-led Economic Structural Adjustment programme, we have since that time only experienced volatile GDP cycles as a direct result of focus on primary commodity exports.

The economic effects of this unbalanced growth are readily discernible in our economy today. There has been very little if any significant industrial growth since then. The result is we now have an economy that is heavily reliant on imports of manufactured end use products and intermediate goods, hence the perennial external sector imbalances and continual balance of payments challenges.

To get out of this trap, the country must urgently and deliberately re-industrialise.
How easy will it be for Zimbabwe to industrialise or re-industrialise, as some call it? This is not an easy question and there is no single or simple answer really. To try and engage in a meaningful discourse we need to follow a thought pattern that tries to rationalise a few key issues.
Why and how do countries on economies industrialise?
Are there key events in history that have influenced the dynamics of industrialization?
Where did we miss the boat? And can we catch up? If so how?

Industrialisation is defined as the state of social and economic change during which a social group, country or economy transforms or emerges from an agrarian society and graduates into an industrial society.

This process involves an extensive re-organisation of the economy away from extractive (primary) industries to industries based on manufacturing of intermediate and finished consumer goods.

As a country industrialises, workers’ incomes rise rapidly and markets for consumer goods and services of all kinds tend to expand and provide the stimulus for further industrial development, investment and economic growth.

The main point to understand is that industrialisation is driven by two key factors.
Firstly, there must be a deliberate strategic shift from primarily extractive process activities to value adding manufacturing based processes.

Secondly, there must be scope to grow own (internal) markets or develop new markets to absorb the higher levels of production. Subsumed in these two points is the fact that for a country to industrialise, there must be an increase in both productivity and incomes.

Most industrialists of our time tend to propose that competitiveness is predicated on suppressing costs of production with a particular focus on labour.

However, a careful analysis of the world’s most advanced economies tends to suggest that it is productivity of labour, not just its cost that is key to driving the industrialisation agenda.

Productivity is an input/output relationship that should bear little on the unit cost of each input but rather the relative costs of various inputs into production processes.

To explain this simple fact one can use the example of cotton, which is produced in Zimbabwe at between 30 and 40 cents per kilogramme ($300 to $400 per tonne). Cotton production is highly labour intensive, time consuming exercise.

As such a typical household in Gokwe or Muzarabani or Chiredzi will produce between three and 10 tonnes of cotton after a year’s labour. Earning the producers between $1 000 and $4 000 for a years toil.

Consider than a hypothetical country, let’s call it Futurius (actuatually adapted from Mauritius) on the other hand will take the cotton, apply an industrial process to it for just a week or two, and produce textiles and garments whose value is at least 30 times the value of raw cotton.

That transformative process takes a raw commodity and earns a massive multiplier. It doesn’t end there, the manufacturing jobs in the Futurian textile industry not only generate more value for the earners in terms of being higher wage jobs, but the value chains from processing cotton to fabric employ thousands upon thousands of workers all earning significantly more than the $1 000 to $4000 per year earned by the primary producers.
There is thus increased demand for other goods and services from the Futurian workers, such as banking and insurance services etc which they can actually afford.

It get better still, most of the output is actually exported to high value markets in the US and Europe earning the Futurian economy a tidy flow of foreign currency. The point of this example is Futurius does not produce any cotton.
We can draw from this simple lesson a few conclusions.

To even begin to industrialise Zimbabwe needs to make a series of deliberate decisions.
Firstly, we need to do a careful analysis of what industries or value chains will underpin our industrialisation or re industrialisation agenda.
To do this we need to take the following immediate steps.

We must first look into history and study the pathways that the current highly industrialised countries followed to reach where they are, realising of course that slavery and colonization are no longer options!!!

There is no need to reinvent the wheel, we simply need to take what has worked before, refine it, customise it, contextualise it and implement.

Define clear value chain strategies in terms of raw materials, intermediate goods, machinery and equipment, supportive technology and services required for a successful re-industrialisation agenda.

Define an appropriate mix of strategic industries that will hold the base for the industrilisation strategy. One of the key factors in this area is energy supply.
The country will not industrialise unless a clear strategy to be self sufficient in reliable, low cost and abundant energy is put in place.

We must carefully define our energy mix in terms of renewable and non-renewable. We have plenty of gas and coal to last us three hundred years and potentially limitless opportunity to harness hydro electric and solar power. This is the time to put these opportunities on the table.

We need to refine our policy making frameworks. We must discard the idea of short term plans and begin to run the economy on the basis of 20, 30, 50 and 100-year plans.
The provision of infrastructure can lead industrialisation. Large infrastructure projects can create the basis for the development of sub-sectors along the value chain.

A good example is the DIDG transnet NRZ recapitalisation deal where a condition is inbuilt that the new concrete railway sleepers will be manufactured by local industry using local materials, technology and labour. This will create thousands and thousands of jobs.
We need to create a ubiquitous Special Economic Zone. I am not a fan of economic enclaves. I believe SEZs have worked elsewhere.

Instead of creating enclaves, lets simply take what has worked in SEZs in China, Mauritius, Singapore Malaysia, customise, contextualise and implement across the whole country.
Ethiopia for example, has utilised the concept for Special Economic Zones to great positive effect, managing to lower production costs across many economic sectors through a sound infrastructure investment programme. The benefits for the textile and leather sectors have been immense.

We also need to harness the power of trade blocks. We need to realise that industrialisation and economic development are a non-starter when they are left to be dependent on internal market size.

Thus interaction within and outside of the region is therefore vital.
We need to look at our regional blocks both in terms of providing market access but also as a potential source of imports of raw materials and intermediate goods.
Regional integration should therefore be considered as instrumental in enabling further economic development and international competitiveness.

Regional integration does increase market size, even if it represents the integration of small economies.

The writer is an economist. The views expressed in this article are his personal opinions and should in no way be interpreted to represent the views of any organisations that the writer is associated with.

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