Local companies should brace for massive competition from foreign firms as Government opens up the economy amid indications continued protection has potential to breed more inefficiency and uncompetitiveness.
Special Advisor to the President, Christopher Mutsvangwa, said President Mnangagwa had declared that Zimbabwe is Open for Business and to date $11 billion in firm investment commitments had been realised, setting the stage for cut throat competition in all sectors of the economy.
Economists weighed in arguing the era of protectionism should come to an end as consumers have for long been forced to pay for industries’ lack of competitiveness and poor administration.
This comes as Zimbabwe’s industries say they require at least $1,5 billion to retool and replenish aging equipment to withstand competition from multi-national companies likely to flood Zimbabwe following the new dispensations’ pro-business policies. However, Mutsvangwa said most companies in Zimbabwe were created and grew under sanctions after the Unilateral Declaration of Independence (UDI) was declared in 1965 and have been enjoying over protection.
“For that reason, their capital base is shallow. These companies should now think outside the box. If they want protection from Government, who will pay for that, obviously, the consumer. The Government does not have money to protect them, neither do the taxpayers.
“They should go into the global capital market, identify the money and bring it home. The President has opened the country for investment and likewise these firms should be innovative and go global,” he said.
Mutsvangwa said local firms should market themselves and their products globally in markets where there are billions of customers in markets such as China and India.
“These companies requesting protection are selling substandard products that are not competitive on the global markets and we do not want our consumers to pay for their incompetence.
“These companies should be innovative, look for foreign capital, foreign and local markets for their products . . . that’s the mark of a businessman. You cannot form a company to survive on Government protection,” he said.
Protection Since 2000
Prominent economist and Oxlink Capital CEO, Brains Muchemwa, concurred with Mutsvangwa that local firms had been enjoying protection since 2000, but results on the ground showed a different picture.
“Notwithstanding local companies having enjoyed direct and indirect government protectionist policies since early 2000, competitiveness has remained elusive. And the thinking that local companies should continue getting this support is patently faulty. Protectionism continues to impose unnecessary burdens on value chain customers and final consumers who continue to be denied the right to affordable goods and services at the expense of ailing corporates that should be left to die in the face of competition,” he said.
Local companies say they face a herculean task of mobilising capital in a country where there are lending rates are steep, high unemployment, expensive utilities such as water and electricity and foreign currency shortages.
For a while now, retail shops and some individuals have been importing substitute goods from mainly South Africa, but acquiring foreign currency has been a mammoth task as the Reserve Bank of Zimbabwe prioritised certain companies.
Confederation of Zimbabwe Industry (CZI) Bulawayo chapter president Joseph Gunda, said while it was imperative for Government to avail cheap capital for local companies to retool, there was need for policy shift that emphasises the creation of foreign local/joint ventures.
“The country’s industries need at least $1,5 billion for retooling that should be accessed at concessionary rates. Some companies in South Africa that we compete with get the money at between 6 and 7 percent (in rand currency), but here it’s above 12 percent.
“I need to emphasise the need for thorough due diligence on foreign investors and in particular, encouraging formation of technical partnerships with local players to preserve already existing infrastructure in the various sectors for the benefit of the whole value chain. Foreign Direct Investment in virgin or green fields is much welcome but in existing operations/sectors, it would not be good for the country to see them extinct, hence our position to lobby for a fund for re-tooling to resuscitate closed, potential and existing factories and sectors,” he said.
Many firms that could not make it to the RBZ priority list, ended up buying the money at high premiums on the parallel market, thereby creating pricing headaches for Central Authorities.
As such, there are different schools of thought being proffered with some calling for deliberate Government policies to protect struggling local companies, while others argue that partnering foreign companies might be one of the most viable options.
Statutory Instrument 64 of 2016
Government introduced SI 64 of 2016 for a period of between two and three years and that removed 42 products from the open general import licence, restricting their importation into Zimbabwe, as it was felt that local industry has capacity to produce them.
The legislation controls a wide array of imports, among them coffee creamers, camphor creams, white petroleum jellies, body lotions, builders’ ware such as wheelbarrows, structures and parts of structures of iron or steel, bridges and bridge sections, lock gates, lattice masts, roof, roof frameworks and doors.
However, there are fears that some local companies that have been struggling for the past decade, and have failed to raise their capacity utilization are likely to be dislodged by some international giants that have responded to President Mnangagwa call.
Zimbabwe Is Open for Business
The interpretation of the phrase that Zimbabwe is open for business is that it is also open for business to foreign investors as it is to locals too.
Said Gunda: “Once we say it is open to foreigners only, it means we are going to destroy local companies. What is critical to me when we say that is how locals will benefit from the value chains that are going to be created when new companies come in?
“However, we call for some checks and balances to be created, assessing if the value chains created are going to benefit local businesses. For example, we have a Chinese company that is interested in setting up leather tanning business to manufacture many leather related products. The company needs to know where we get our cattle and that something must happen on the ground,” he said.
The New Economic Order
As the country basks in the glory of the new economic order, authorities should be mindful not to sideline companies that toiled hard to provide goods and services under difficult circumstances that can easily be destroyed in the face of competition from firms with access to heap capital.
Industry argue that structures should be designed in a manner that does not sideline local companies because the new entrants are going to bring new technologies that will make retooling by some indigenous companies difficult without Government and local banks’ support.
Hence to avoid wiping out local firms, Government should encourage the new companies to create partnerships and in some cases work with some local players who are already there.
“There must be some serious adjudication that will flush out some investors bent on quick gains at the expense of locals. We have to look at the lifespans of the projects before approval.
“What the people must understand is that we are not starting a new Zimbabwe. There is already infrastructures in place. Let us avail a fund for retooling that will benefit all sectors. If we do serious lobbying, we will get funding towards infrastructure improvements that will help improve on our competitiveness and intern the quality of the products we make.