Eric Bloch Column: Unprofitable value addition policies
http://www.theindependent.co.zw/
Thursday, 12 January 2012 16:22
ONE of the many deficiencies or inadequacies of the Zimbabwean economy is
the magnitude of value addition opportunities to the country’s diverse
primary products, that have either never been pursued or, if at all
undertaken, has only been so to a minuscule extent. A few of the many
examples of the failure to effect extensive primary product enhancement
include:
Approximately 80% of Zimbabwean cotton is subjected only to ginning before
being exported; 10%is exported as yarn; 5% as fabric and hence only 5% is
converted into finished products such as garments, sewing threads, and other
end-of-the-line products;
At least two-thirds of Zimbabwean timber is disposed of in plank condition,
instead of being converted to furniture, doors, flooring or other end
products;
Platinum is exported in its mined, wholly unprocessed state, as also is the
case (until recent legislation halted it) in respect of chrome, and
similarly, most of Zimbabwe’s comprehensive range of minerals;
A very high proportion of Zimbabwe’s tobacco, and of numerous other
agricultural products, is also exported either in raw state or subjected to
only a minimum of processing and enhancement.
In consequence, export earnings are minimised instead of being beneficiated
as a result of the value-addition that could readily have been effected
prior to export. Concurrently, as some of the exported primary products are
required, after appropriate value-addition, by Zimbabwean manufacturers or
consumers, Zimbabwe has to fund more imports than would otherwise be
required. In addition, in respect of many of the primary goods exported, a
high proportion of transportation costs is attributable to the waste which
exists whilst the products are in their primary state, impacting negatively
upon the earnings of the product producers.
As a major contrast to these adverse consequences of primary products being
exported without prior value addition, resorting to appropriate
manufacturing enhancement within Zimbabwe of such products not only obviates
them being subjected to those costly disadvantages but, in addition, some
very major additional benefits accrue from doing so, inclusive of:
Enhancement of export values and, therefore, of trade balance inflows into
Zimbabwe;
A few existing enterprises, either already engaged in some limited value
addition to primary products, or able to diversify into so doing, would have
expanded operations, not only enhancing their viability, but also employing
more Zimbabweans, thereby helping to some extent (even if relatively
minimal) to counter the prevailing mass unemployment. Concurrently, value
addition opportunities would stimulate development of new enterprises, also
yielding employment opportunities, and significant downstream economic
benefits;
Costs for local manufacturers who depend upon imports of value-added
products of a like nature to those which would be available to them if
Zimbabwe effected value-addition would diminish, thereby partially enhancing
the viability of their operations and partially rendering their finished
products more price-competitive in export markets and available at lesser
cost to domestic consumers;
As a result of enhanced profit performance of existing and new enterprises,
there will be
significantly improved revenue flows within the economy in general and to
the fiscus in particular, the enhanced fiscal inflows emanating from a
combination of direct and indirect taxation.
It is very commendable that government, which is generally myopic to
Zimbabwe’s essential needs and how to address them, has recognised the
critical need for Zimbabwe to maximise value-addition opportunities, and to
reap the many benefits that would accrue therefrom, albeit that in common
with the state’s usual inability to recognise necessities timeously, it has
done so very belatedly. Some commendation is due for it having finally
recognised the reality of the desirability and need to motivate
value-addition to Zimbabwe’s primary products.
However, as is almost always, very regrettably and counter-productively the
case, government has yet again sought to address a key issue (which
value-addition motivation unarguably is) by adopting a draconian,
overly-dictatorial, and counterproductive strategy. Some months ago,
without any meaningful prior consultation, it imposed an absolute ban upon
the export of unprocessed chrome. In making that bar to exports, government
cavalierly disregarded that the enterprises in Zimbabwe engaged in the
processing of chrome had very limited production capacity and hence could
not acquire any more volumes of chrome than they had had been doing prior to
the export ban.
The result was disastrous for chrome producers, almost all of whom lacked
the capital resources to stockpile their mined chrome and therefore had to
discontinue operations, with concomitant dismissal of employees, loss of
contribution to the downstream economy, reduced foreign currency inflows,
and diminution in the direct and indirect inflows to the fiscus.
Unable to learn from its errors, as Government has irrefutably proven over
many years, it has now declared the intent to bar exports of unprocessed
platinum, which is foremost in Zimbabwe’s mineral exports. This will
undoubtedly have like disastrous consequences as those sustained by the
chrome mining sector.
Instead, government should determinedly resolve to recognise and acknowledge
its errors of judgment, and consequential misguided and counterproductive
policies and legislation, and alternatively should address how the creation
of domestic value-addition resources can best be achieved, and then should
vigorously and intensively pursue such constructive measures. Thereby,
government would beneficiate the economy, and hence Zimbabwe’s people,
instead of effectively hastening the worsening of the economy.
Amongst others, such measures must include the creation of a conducive
investment environment (including, where necessary, modification of the
Indigenisation and Empowerment legislation, respect for and compliance with
Bilateral Investment Promotion and Protection Agreements and enhancing
access to capital resources, concurrently with credible assurances of
minimised state interventions in operations, be those interventions direct
or indirect).
At the same time, comprehensive, inclusive, incentives should be established
to motivate the development of value-addition processes, be they in respect
of Zimbabwean minerals production, that of agriculture, or other products.
Incentivisation, motivation, and facilitation, are far more effective than
seeking to attain objectives by domination and by harsh, counterproductive,
dictates.