eBusiness Weekly
HARARE – Zimbabwe’s Statutory Instrument 64 of 2016, the broader trade implications of ‘Brexit’, and United States president Donald Trump’s protectionism…..is this the future of trade?
It appears the wave of protectionism is again sweeping across the globe. Post-World War II, most countries decided to eliminate protectionism through free trade policies enforced by international treaties and organisations such as the World Trade Organisation (WTO).
It is said protectionist policies were one of the major causes of World War II.
Protectionism basically refers to an economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations.
Do they work? Well, with Zimbabwe’s SI-64 as a case in point, although the policy limited the number of products that could be imported into the country, figures on the ground do not show much improvement.
Official statistics show that the country’s imports increased by 5 percent from $4, 7 billion in 2016 to $5 billion in 2017.
There were however other gains of SI-64.
For instance, according to a research published in the International Journal of Management and Commerce Innovations (April to September, 2017) by Stanley Murangwa and Tavonga Njaya, the enactment of SI-64 prompted some South African companies to invest in Zimbabwe for the first time or expand existing operations or establish partnerships with local companies.
“Willowton Zimbabwe, a wholly owned subsidiary of the South Africa based Willowton Group recently injected $40 million in the construction of cooking oil and soap manufacturing plants in Mutare to circumvent the provisions of Statutory Instrument 64 of 2016 as stated in the Manica Post of 23 September 2016. The Willowton Group also produces candles, yoghurts, margarines, spreads, chocolates, bathing soaps, baking and industrial fats in South Africa. The researchers realised that Pick n Pay, a South Africa-based retail company, was increasing its investment in TM Supermarkets through the expansion of the supermarket chain’s branch network which now stands at 58 stores with 15 of these operating under the Pick n Pay banner,” reads part of the report.
Notwithstanding the gains from SI-64, the question remains: Is protectionism ideal?
Trade Development & Investment Promotion Standing Committee chairman Henry Nemaire says protectionist policies have their role in the economy, but they are not a long-term solution.
“They are necessary, but not sustainable. In the long-term we need to open up, because when you open up you are going to trade, and trade is not one-sided.
“Protectionism is all over the world, the Trump example is a good one, but all over the world countries have trade protection in one way or the other, whether it’s the non-tariff barriers that South Africa had previously placed on our products or our own reactionary import restrictions.”
The general consensus is that SI-64 was a ‘necessary evil’ considering Zimbabwe’s special circumstances. The country’s manufacturing sector is lagging behind its regional counterparts in terms of competitiveness due to a number of inherent structural weaknesses in the economy.
Some of the structural challenges include: inconsistent and inadequate power supplies, high tariffs and utility charges, the lack of long term finance at reasonable interest rates, and unjustifiable wage demands.
Industrialist Charles Msipa says notwithstanding the challenges faced by the local economy, Zimbabwe cannot afford to shut itself off.
“We had an unusual situation where we had to impose an import management system, but we want to grow our exports and that also implies that we need to be open to other countries. We can’t be driving our own exports strategy while keeping everyone else out. Trade and lowering the barriers to trade is inevitable.
“Government and the private sector needs to come up with solutions to how the country can become truly competitive.’
Msipa’s argument makes sense, at least to the extent that Zimbabwe is a member of SADC, and is a signatory to the SADC Protocol on Trade.
The protocol seeks to promote regional integration through free trade. Zimbabwe has specific bilateral trade agreements with specific SADC members which seek to promote free trade under the banner of the SADC Protocol on Trade.
The country is also a member of the Common Market for Eastern and Southern Africa (COMESA).
But is lowering barriers to trade really inevitable?
Two weeks ago, President Emmerson Mnangagwa joined other African Heads of State and Government in signing the African Continental Free Trade Area (AfCFTA) agreement.
The historic signing of the agreement will result in the operationalisation of the AfCFTA to make the continent the largest free trade area created since the formation of the World Trade Organisation.
The AfCFTA has the potential to create an African market of over 1, 2 billion people with a Gross Domestic Product (GDP) of $2, 5 trillion.
But 44 out of 55 countries signed the framework, with some of the continent’s biggest economies namely South Africa, Nigeria and Egypt choosing not to. What does it say about these countries’ commitment to free trade?
And besides that Ministry of Industry, Commerce and Enterprise Development Permanent Secretary Abigail Shonhiwa has admitted that it might still be a long way to go before the AfCFTA is fully implemented.
Although there were timelines provided from the African Union on procedures towards implementation of the AfCFTA, Shonhiwa said there was still work to be done, including negotiations and ratification of the annexes before it is taken to Parliament as a full package.
One of the sticky areas to be addressed include the Rules of Origin which will be one of the annexes for the agreement.
And it is also understood Zimbabwe still requires some policy space to enable the country to re-industrialise and make its products competitive on the continental market.
The modalities on the tariff negotiations were adopted with the level of ambition of 90 percent to be liberalised over a five-year period.
However, Zimbabwe and six other member countries, that is Eritrea, Ethiopia, Madagascar, Malawi, Sudan and Zambia had reservations on the 90 percent and favoured 85 percent as a starting point as they industrialise.
Given the above, the jury is still out on the ‘protectionism-free trade’ debate.
