Can industry survive SI 98 of 2022?

The list of the goods referred to in the SI is inclusive of rice, flour, cooking oil, margarine, salt, sugar, maize meal, milk powder, infant milk formula, tea, petroleum jelly, toothpaste, bath soap, laundry bars, and washing powder.

On May 17, 2022, the Ministry of Finance and Economic Development through SI 98 of 2022 announced the suspension of customs duty on cross-border trade on selected basic commodities in the country.

The list of the goods referred to in the SI is inclusive of rice, flour, cooking oil, margarine, salt, sugar, maize meal, milk powder, infant milk formula, tea, petroleum jelly, toothpaste, bath soap, laundry bars, and washing powder.

What this essentially means is that anyone with the funds is now free to import the above-mentioned goods into the country without the payment of customs duty regardless of their country of origin also with no restrictions on quantities.

To complement the move, the Ministry of Industry and Commerce through SI 103 of 2022 went on to remove the mandatory production of import licences on the same seven categories of the basic commodities covered by SI 98 of 2022.

According to the statement issued, the move was necessitated by the need to complement efforts to avert serious shortages of basic commodities in the economy

Though this concession is only applicable between May 17, 2022 and November 16, 2022 it has caused a lot of mixed discourse within different economic circles.

The removal of customs duty on the selected basic commodities has mostly been received with great excitement from the general populace as they feel that the government has made life easy for the majority of the citizens as the local prices of these goods were becoming unattainable to most of them.

Though there are some concerns from the local economic experts as to how this move might expose the local industry to severe unfavourable competition from foreign industries, there has been some sort of contentment as many feel that the local industry has been abusing the protection it has been receiving from the government.

It has been frequently argued that local prices of goods are pegged way too high beyond the reach of the majority of the populace in the country.

It is unreasonable for the economy to have duty protection while at the same time the same industry is creaming off consumers.

Also, even under tariff or trade protection, the local industries have not been able to produce goods up to decent levels to feed the consumer’s appetite as well as to be able to tame the export market. The industry remains inefficient and cannot effectively compete elsewhere except in the Zimbabwean market.

Both the quality and the pricing of goods are not competitive even on the local market. The government hence need not protect against such inefficiencies.

It is therefore prudent for one to believe or hope that this move will improve efficiency in the local market as the market hopefully will become more competitive as the opening of the market to foreign goods will increase the supply of these goods on the market and this should force or motivate the local producers to improve the quality of their products as well as review their pricing fundamentals so as to match the market competitive ones.

Though a lot of industry players have some reservations concerning the motives behind the suspension of duty on the basic commodities there are some genuine concerns that they bring to the table. Local industry representatives have expressed a lot of displeasure with the move as they fear that such moves will dampen the improvements that the sector has experienced while under the government trade protection.

In recent years, the ratio of local goods to that of imported ones on the market has been gradually improving.

It is feared that this move, though protecting the consumer, will dampen such strides that the local market has been experiencing.

For an economy that intends on growing, relying heavily on imports is not recommended and without such protectionism, the industry is poised to suffer.

Zimbabwe is a small open economy with little to no demand economies of scale and also with little technology for low production costs needed to match foreign competitiveness.

Therefore, opening up the market space to free imports might work against the local industry as consumers are likely to run for cheaper and probably better-quality goods.

The move is also likely to promote the use of the US Dollar within the economy and accelerate informal dollarisation.

Due to the volatility of the local currency, retailers may opt to sell their products in foreign currency as it does not make economic sense for one to import goods using foreign currency to then sell them in local currency which is volatile hence the imported goods might end up not being cheaper due to the excessive profiteering nature of businesses and our industries.

It is also noble to note and assume that outside the auction system no one sells cheaper than locally produced goods and still be able to convert their RTGS dollar into USD and recover the foreign currency used to import.

However, looking at this from a different point of view, this might serve as a wake-up call to the local industry as they need to put their acts together and start putting up business dynamics that make them competitive in the export market. Local producers and retailers have been reaping consumers off with their exorbitant pricing.

Many basic commodities have now gone beyond the reach of many consumers even though some of the producers/importers of these goods would have acquired foreign currency using the official rates on the auction market but end up pricing their products using the parallel exchange rates.

It is also high time that structures put in place by the government began to do the work that they were instituted for. Institutions such as Zimbabwe’s Competition and Tariff Commission should execute their jobs and put-up measures to break up the monopolies and oligopolies that have emerged in the basic commodities sector under their watch.

Proper market fundamentals must be put in place to pave the way for a fair market playing field that allows easy entry for the small players within the industries. This will go a long way in encouraging more market players which then can increase the supply of goods on the market hence pushing the price of the goods towards the equilibrium levels.

The auction system should also have motivated the local industry to be put to good use. Measures should have been put in place that in addition to ascertaining whether the funds obtained from the auction system had been used for the purposes they had been allocated for, systems should have been put in place to safeguard even the fair pricing of the final products that would have been produced using the auction acquired foreign currency.

Another strategy will be for the government authorities to have a sit down with industry players to find solutions to the problems that the local market is facing, hence the ever increasing prices of goods on the market.

Reversing the gains made so far will only open the economy to more vulnerabilities.

There is also a need to put up protection measures that even while the borders have been opened up to the free importation of basic commodities, local industries should be protected.

Quotas or restrictions can be put in place so that those with excess funds cannot manipulate the concession to the benefit of only a few.

Measures to distinguish between personal and commercial importation should be enacted as well as measures to limit the quantities that can be imported by a single entity so as to leave some room for the local industry to thrive.

Local production will also improve food security.

The problem of tax evasion will also be accelerated, not knowing if the authorities will be able to collect taxes from the sales.

  • Mapfiro is an economist. These weekly New Horizon articles published in the Zimbabwe Independent are coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zimbabwe). — [email protected] or mobile: +263 772 382 852.