eBusiness Weekly
One of the biggest problems for a small and partially-closed economy, such as prevails in Zimbabwe, is the lack of competition at the producer level. When prices of a particular class of goods rise those who jump to conclusions blame the retailers, as if someone hired the National Sports Stadium and brought in tens of thousands of shopkeepers to fix prices.
The competition in the retail trade is now so intense that only the efficient can survive and special offers and tight margins prevail.
However, at the producer or importer level things can be very different. In many sectors there might be only one manufacturer, or one highly dominant manufacturer, or at best two or three dominant firms. At best this allows the inefficient to survive, since the capital costs of creating competing business are very high.
At worst it allows two or three people to sit in a very private place, or even just enjoy a round of golf, and collude.
If import tariffs are very low and foreign currency easily available there is a limit on just how inefficient a Zimbabwean manufacturer can be. We saw this is in the first few years of dollarization. But that period also saw the smarter businesses taking a deep breath and re-equipping, dumping the 40-year-old machinery they were using and importing and commissioning the latest technology while at the same time thinking carefully about their business and re-inventing it to be a competitive entity.
The Government for the past two years has been trying to help local manufacturers by making some imports more difficult. And in the past 18 months we have also seen far less easy availability of foreign currency, as the demand for imports, mainly raw materials, grows faster than exports.
Both trends have pushed Zimbabwean manufacturers, even if they are not totally efficient, back into profitability. Despite the continual whinging, the larger concerns, all listed on the Zimbabwe Stock Exchange, are forced to issue accurate accounts publically and the rising profits are there for all to see.
The best way forward is to ensure that as more people invest in Zimbabwe that competitive investment is encouraged. We want to have more stuff made in Zimbabwe, not necessarily have existing industries protected.
So the grand gesture made President Mnangagwa this week, formally commissioning the new $30 million “Pepsi plant” of Varun Beverages, sent a number of messages. The first obviously is that “Zimbabwe is open for business”, the President being very keen on encouraging everyone who wants to create jobs and pay taxes in Zimbabwe to come in.
But a second message was also clear, that one of Zimbabwe’s oldest and largest companies should be prepared to face competition. Varun’s main marketing strategy has been to fight Delta on price and when people are fingering a coin in their pocket, or filling a trolley in a supermarket, price is a factor and for some at least it is a major factor.
They will at least try out the new product if it seems to have similar ingredients and taste. Brand loyalty for many people tends to take a subsidiary position to wallet loyalty.
So as Zimbabwe continues to industrialise and the economy grows, we should see more and more competition. This moves us into the position most countries are in, with consumers offered a wide choice, tolerance of inefficiency is low and collusion is very difficult to impossible.
Zimbabwe did achieve significant industrialization during the UDI era and the first decade of independence by having what amounted to central planning of a controlled private sector. And two burst of moderate, not extreme, foreign competition during the ESAP of the 1990s and the dollarization of the 2010s showed just how fragile that model actually was, and how it encourage inefficient industries to peddle sub-standard goods at high prices with zero possibility of exports.
The new administration in its first six months has dumped most of these planned models and has adopted the simpler and more effective strategy of encouraging everyone, at home or outside, to create and open new businesses.
There will be casualties in such expansion, but at least the casualties are automatically replaced and for every job lost several new jobs are created. Such growth is viable and self-sustaining.
