Zimbabwe is not yet ready to join the COMESA Customs Union. We cannot, at the moment, allow goods from all over the world to start walking for free into the country when our local products are not yet competitive. This would worsen the manufacturing sector and further fuel de-industrialisation. If the Customs Union was formed this year, as initially planned, joining it would have crippled virtually all the industrial policy instruments earmarked at increasing the manufacturing sector’s contribution to GDP and exports.
The Customs Union was launched in June 2009 with a three-year transition period for tariff alignment to Customs Union requirements. The common external tariff stipulates that a tariff rate of 0 percent will be applied to capital goods and raw materials, 10 percent to intermediate goods, and 25 percent to finished goods by all COMESA member states. It is interesting to note that 17.5 percent of Zimbabwe’s tariff lines already comply with the COMESA CET; 18.6 percent of the total tariff lines are below the COMESA CET, hence needing to be adjusted upwards; whilst 63.9 percent of the total tariff lines are above the COMESA CET, thus needing to be reduced down to the level of compliance.
Research conducted on the manufacturing sector shows that 81 percent of firms are facing stiff competition from imports and 48 percent of the products manufactured locally are not competitive.
The majority of firms indicated that they require at least five years of protection for their products to be competitive to imports. The majority of firms also indicated that they have concrete plans to become competitive at the end of the five-year period. Zimbabwe’s approach to international trade is between naïve and imprudent. Apart from the Customs Union issue, another quick example is the ratification of the interim Economic Partnership Agreement with the European Union done early this year. Whilst other regional countries actually reneged on signing the interim EPA, asking for more time to understand the impact on their industries, Zimbabwe, whose industrial capacity utilisation fell by a marginal 13% this year, was already scratching ink to paper.
Even the African Development Bank (AfDB) raised a ‘yellow card’ on Zimbabwe for making the move.
Our trade deficit is continuing to widen. This year alone, between January and September, imports were $5.2 billion against exports of $2.7 billion. The 2013 budget anticipated a current account deficit of 28.5 percent of GDP by the end of this year.
The government has been exhibiting double standards of wanting to join the COMESA Customs Union, whilst at the same time moving towards solving the manufacturing challenges. The two cannot be done simultaneously.
The positive side of joining the Customs Union is increased capital investment, because of the 0 percent CET on capital goods. Some firms are currently paying punitive duties for importing capital goods. Furthermore, the 0 percent CET on raw materials is also envisaged to greatly improve business performance, since manufacturers will be able to source many materials locally as agricultural production is slowly improving.
Post published in: Business