The Short Term Emergency Recovery Programme, for example, was hoping to increase capacity utilisation in the manufacturing sector from 10%, during the period of its launch in March 2009, to 60% by September 2009. Unfortunately, that didn’t happen, as capacity utilisation only increased to 32.3%.
Since the IDP monster comes from the very womb that gave birth to STERP, I think it’s fair to question just how capable the IDPis of restoring the manufacturing sector’s contribution to GDP from the current 15% to 30%, its contribution to exports from 26% to 50%, and capacity utilization from 57.3% to100% – by 2015!
An industrial policy is an official strategic effort to encourage the development and growth of the economy’s manufacturing sector. Industrialization has been the anchor of many African countries’ recent national development programmes, and Zimbabwe has not been an exception.
Inevitable limitations
The IDP was approved by Cabinet last year, following the expiry of the previous one in 2010. The policy’s mission is to create a vibrant, self-sustaining and competitive economy through the promotion of viable industrial and commercial sectors as well as domestic and international trade. The IDP is going to run concurrently with its siblings, namely, Medium Term Plan, Zimbabwe National Trade Policy, and the Trade Policy Review.
No matter how concrete the industrial policy instruments and strategies are, there will be inevitable limitations. These limitations take place in the context of regional and global integration.
Zimbabwe’s industrialization is taking place in an environment in which the use of some very effective industrial policy instruments applied by the developed and emerging economies, in order to be where they are today, are now either banned or regulated.
The rules of the World Trade Organization, of which Zimbabwe is a member, prohibit the use of industrial policy instruments such as quotas and local content requirement. Zimbabwe is coming from a decade of economic meltdown, and her real GDP growth was falling by an average of -5.9% between 2004 and 2008.
Manufacturing is estimated to have declined by 73.3% in 2008, and is battling numerous challenges, which are making most locally produced products uncompetitive. Zimbabwean products can become competitive if the manufacturing sector is protected or incubated for a certain period of time, from the ruthless international market. However, the IDP may not come up with such an instrument that enforces quantitative restrictions because it is not compatible with the WTO rules. The prohibition of local content requirements means that Zimbabwe cannot use the industrial policy to promote the use of local raw materials in the manufacturing process. Neither can Zimbabwe promote employment by saying a certain amount of labour should be used in the making of goods, since that is incompatible with WTO rules.
The lost decade
The use of export subsidies has also been banned by the WTO. For a country aiming to increase its contribution of the manufacturing sector to exports from 26% to 50%, it certainly follows logic that it has to give export subsidies to its manufacturing establishments. Zimbabwe lost many export markets during the last decade and it certainly requires export subsidies to expedite the reclamation of those lost export markets. However, under WTO rules, Zimbabwe cannot give export subsidies to its manufacturing sector, be it in the form of low-cost loans, tax relief for exporters, or Government financed international advertising.
The industrial policy might also find it tricky to use the instrument of tariffs. Zimbabwe, as a result of the economic partnership agreements, is under increasing pressure to abandon the use of tariffs as a measure of protection. Zimbabwe is negotiating for EPAs with the European Commission, under Eastern and Southern Africa. In March this year we will complete the ratification of the interim Economic Partnership Agreement, following the Parliament’s approval of the ratification in December 2011. This will result in goods walking-for-free from Europe to Zimbabwe. As Europe’s economy is projected to contract by 4% this year because of the Eurozone debt crisis, it remains to be seen how the EPAs negotiations will proceed.
EMA concerns
The Environmental Management Agency has been raising concerns over climate change, and compelling manufacturing firms to adopt or switch to new technologies and methods of production. Manufactures are under pressure to adopt climate friendly technologies and methods of production. Although EMA has been accused by industry of enforcing first world standards on a third world country, the Confederation of Zimbabwe Industry is finally embracing environmentally friendly programmes.
It remains to be seen how Zimbabwe will attain all the objectives of the IDP, given such limitations.
Post published in: News