HomeOpinion & AnalysisUrgent economic structural transformation necessary

Urgent economic structural transformation necessary

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THERE is no doubt that without a fundamental structural transformation of our economy from a dualistic enclave economy, whose activity is mainly driven by the production of primary products to an industrialised economic base, we will remain unable to meet the growing needs of our population and to create sustainable higher incomes.

Although Zimbabwe has had a number of industrialisation policies, the lack of political traction, access to long-term capital and strong aggressive leadership from the private sector has resulted in de facto de-industrialisation and the proliferation of cheap imports while thousands of jobs and incomes have been lost.

This is evidenced by empty factories and a bourgeoning informal sector which now accounts for an estimated 80% of economic activity and employment.

Radical Economic Structural Transformation (Rest) is now necessary to reinvent and modernise our industrial base. In doing so we have to take account of both our history and the future. Our new industrial policy must learn from the past while embracing the fourth industrial revolution so that we may leapfrog and utilise technological advancement to recreate our economy.

We must learn from our past. The industrialisation of the economy under Ian Smith is such a past. A key policy was that of vertical integration of industry which ensured that no raw material left the country as a matter of policy which meant that the country had to develop the capacity to process them first.

This was achieved by investing heavily in infrastructure, especially in the railway network, power and water.

Our lesson here is that we need an informed and holistic strategy on vertical integration of industry that is not implemented ad hoc, but takes into account what needs to be in place first. In many instances, this government announces good projects without first ensuring that we have the capacity to implement them.

It also does not do enough homework to make sure that implementation does not create negative unintended consequences that derail or immunise the intended results. We need to think clearly and anticipate before we act. Inconsistent government policy clouded by hidden vested interests remains our core problem.

We must embrace the future. It is fact that the industrial world is in the midst of a significant revolution regarding the way products are manufactured mainly due to the digitisation of the manufacturing process.

The fourth industrial revolution, or simply Industry 4.0 (coined in 2011 by a German initiative of the federal government with universities and private companies), is currently occurring in manufacturing. We, therefore, need to take note of it and anticipate its potential impact on our developmental plans and prepare ourselves accordingly so that we are not left behind.

Import substitution is critical and must be a deliberate and clinical strategy with given timelines. We cannot create a new economy while importing things that can be manufactured here.

However, an import substitution strategy can only be successful when there is full co-operation between government and the business sector.

A symbiotic relationship between government and the business sector is always a critical success factor where government facilitates and makes easy the implementation of economic projects of national interest and the private sector leads through investment and capacity building in the targeted sectors.

Our local companies must only import where there is proof that they cannot source inputs locally, as this will further encourage local supply companies to grow.

On the issue of access to capital, we must ensure that those who seek to replace imports get access to patient capital without undue pressure and at reasonable cost. An import substitution fund, for example, with favourable repayment terms would work well.

The five key principles and rest include:

First it is important to target support and protection of economic activities which render increasing returns. The export of primary products to developed economies keeps poor countries poor and they must move away from such economic activities which create decreasing returns and move towards manufacturing and services sectors which create increasing returns.

Decreasing returns occur when unit costs of production increase with increased volumes while increasing returns are those activities where unit costs decrease with increasing in volumes.

Second, temporary monopoly rights, patents and protection must be provided for local companies which are involved in increasing return activities including geographical exclusivity.

It is necessary to provide all the necessary support and to protect such economic activities from foreign competition until such time as these sectors are able to compete globally

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