Industry and Commerce minister Mike Bimha has over the past weekend revealed the government’s plans to dump the less-than-a-year-implemented Statutory Instrument 64, 2016. According to the minister, SI64, 2016 has achieved its objectives of boosting industry capacity utilisation; creating local employment; increasing government revenues; reducing the import bill and attracting new foreign direct investment (FDI). The implantation of SI64 even went on up to the extent of making other foreign firms that used to export goods into our country to set up manufacturing plants, hence creating employment.
guest column: BLESSING MACHIVA
One would want to question the rapid achievements of SI64 against its instant scrapping. If the policy was at a capacity of quickly achieving its set targets then why would the government have to quickly drop it in less than 12 months before the economy had fully harnessed all the potential possible positive benefits of such a policy?
The ultimate truth is SI64 failed to work and it was bringing so many negative effects to the economy of Zimbabwe.
The problems that are currently facing our country are seriously deep-seated in the structure of the economy and there is need to implement policies that will correct the errors that we made in the production sector of the economy.
Although protection measures are beneficial for economic growth, the minister had rushed to block the only surviving channel of the economy without first laying out the ground and sound policies to kickstart local production. Our local companies closed or are producing far below capacity because of obsolete equipment; unavailability of long-term and affordable funding; lack of raw materials due to the poor performance of the primary sector, especially the agricultural industry; lack of investor confidence; and poor external relations, among other factors. There is need to first of all address those problems and kick-start local production before we rush to block exports.
Although the minister had proudly alluded that SI64 quickly achieved its set targets; but then he poorly admitted the truth that the implementation of the policy faced serious challenges. The challenges include retaliation from trading partners, caused shortages in the local market, triggered inflation etc. This is another clear evidence that in Zimbabwe we have policy makers who would think of a policy, quickly implement it without prior evaluation and assessment of possible impacts; the policy fails or is heavily criticized by the public; then the policy maker makes a huge humiliating public turnaround.
In addition, the minister then intends to implement another new policy before even the benefits or demerits of SI64 are discussed or evaluated.
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These poor policy formulations and policy inconsistencies are the other major contributing factors in the negative performance of the economy as it causes confusion and uncertainty in the business environment hence loss of investor confidence.
Upon scrapping of the SI64, the minister then announced the government’s plans to introduce a “Local Content Policy” which is anchored on prescribing sectoral local content thresholds for goods purchased by the government departments, industrialists and retailers, among others. This can be considered to be a smart protection measure that would enable the Buy Zimbabwe concept.
Local content policy is a mechanism through which the benefits of a country’s endowed resources on economic development could be increased and trickling the wealth generated to the local people.
The benefits of local content policy include:
- Local value creation
- Increased participation of local firms in the supply chain of the sector
- Backward linkages, a means by which procurement of locally produced inputs and services is increased
- Forward linkages by processing the sector’s output before exporting
- Creating more employment opportunities for the local workforce
- Maintaining a social license to operate through giving communities a stake in the project Increasing the reliability of supply by having the supplier located nearby
This local content policy is a good move as compared to SI64, 2016. It would make a lot of sense for local companies, organisations and individuals to purchase the locally-produced products whenever they happen to be available locally without spoiling our relations with our trading partners who will be helping us in areas we would be failing to produce.
Local procurement can also stimulate economic activity and attract further investments, both through suppliers engaging other suppliers for inputs and through the multiplier effects of employees of local businesses spending some of their wages in their communities.
The benefits of local content policy can also be enhanced through the emergence of partnerships between government, support institutions and development agencies to establish supplier linkage programmes.
Local content policy should also ensure that foreign firms comply easily with formalised commitments; with a host government; an investment partner or an indigenous community. Compliance is deemed necessary in order to secure access to resources. Overtime, these companies can become increasingly motivated by the desire to establish and maintain enduring partnerships with local supplier for mutual benefit.
In order to make this policy successful, higher preference weightings should be assigned to local business in a competitive bidding process, sole sourcing arrangements with local suppliers, price matching by allowing local suppliers to match the price of other suppliers; breaking large contracts into smaller ones to create opportunities for smaller local suppliers; requiring non-local suppliers to sub-contract locally or enter joint ventures with local suppliers; providing technical and managerial training and mentoring and linking local business to other service providers and agencies that promote technological innovation and provide access to finance.
However, where production processes are technical and capital intensive, the policy might fail to benefit the local economy so much since we do not have significant industrial base. Low participation of local firms can also be attributed from the lack of capacity to compete and the inability to meet the industry requirements in services such as construction and fabrication.
Setting inappropriate key performance indicators and targets for local expenditure can encourage perverse behaviour e.g. fronting and this is whereby companies are established with the prescribed local ownership or address but the decision making or benefits are held by other individuals who are not target beneficiaries of the local content policy.
This local procurement policy also lead to community dissatisfaction that can result from seeing only menial works being given to the local people. Community perception that particular groups have been favoured in the allocation of business opportunities can negatively affect social cohesion as disputes might arise within groups over the distribution of profits and employment opportunities.
Another possible danger of this policy that is currently drawing back the possible benefits of the Buy Zimbabwe is failure by the local companies to produce quality products that will match the ones previously supplied by the foreign competitor. Due to lack of competition and protection by the local content policy laws, the local firms would relax and produce poor quality materials knowing that their products will be purchased since there are no better substitutes.
I have noted in the rural areas of Binga that the Rural Electrification Agency should nearly have to replace all the electric poles since they are quickly destroyed by termites due to lack of proper treatment. I had to question one of the workers the other time why their poles would not last longer as compared to the ones that were put in place long back in 90s in other areas then he alluded to the fact that the Buy Zimbabwe is forcing the company to purchase poor local supplies and it had to abandon importation of those electric poles.
This kind of practice is detrimental to the growth of the economy and there is also need for the government to craft quality standards that the local products should meet in order to discourage importation.
Blessing Machiva is an economist and writes in his own personal capacity. Comments and criticisms can be forwarded to the following email address [email protected] or WhatsApp number +263 774 601 040 or call 0773 836 435.
