THE temporary protection measures, which government has put in place to hedge some sectors of the manufacturing industry from international competition have had a positive impact on boosting local production, despite that Zimbabwe’s dollarised economy still remains an attractive export market for those countries with weakening currencies, Zimbabwe Economic Policy Analysis and Research Unit (Zeparu) has said.
According to the Zeparu’s economic barometer report for the period July to September 2015, Zimbabwean firms remain vulnerable to competition from the region.
“One of the policy measures introduced in the 2015 National Budget Statement to enhance manufacturing sector was the introduction of some temporary protection to local industry through the imposition of customs duty.
“This was mainly motivated by the encouraging response to similar measures in the past, where, for example, players in the cooking oil and dairy industries had taken advantage of the situation by enhancing their production capacity. Concerns have been raised, however, in respect of whether local manufacturing firms are ready to exploit these new protective measures. For instance, most of the firms use antiquated plants and machinery, while the liquidity challenges in the economy also makes it difficult for them to invest in production due to limited access to credit,” the unit said.
Zeparu said one way to judge whether local firms were ready to enhance production was to look at the trends for imports after the imposition of higher tariffs.
“If the capacity of the players is limited, the imposition of tariffs would not have any impact on import trends, as the products would continue to come into the country, albeit at higher prices,” the body said.
According to the report, selected products that were made subject to a higher tariff rate with effect from the January 1, 2015 include those from the furniture, metals and electrical and baking industries.
While a comparison of the import levels for these products with those in the previous year would reflect the impact of the policy assuming demand for the products remained more or less constant.
A look at the import trends shows that the importation of products from all the three sectors decreased during the period January to September 2015 compared to the same period in 2014.
Zeparu said the decrease was more pronounced for baking products, where imports fell by 65,4%, while metals and decline of about 12,1%.
“Although furniture products are generally imported in low volumes compared to the other two subsectors, they nevertheless registered a significant decline of about 30,4%. Note also that the decline in imports of these commodities over the period did not result in shortages or higher prices in the Zimbabwe market.
“This could imply that local firms were able to meet demand, suggesting an increase in activity as intended by the policy,” it said.
Zeparu said despite the imposition of tariffs and the fall in imports, substantial quantities of these products are still being imported.
“This reflects capacity limitations, which are preventing local manufacturing firms from quickly producing quality products in such volumes that they would be able to entirely displace import competition.
“It also reflects the fact that despite tariffs, the dollarised Zimbabwe market remains attractive due to weakening currencies from the exporting economies.
Manufacturing firms in Zimbabwe are vulnerable to competition from the wider region,” it said.
Capacity utilisation in the manufacturing sector declined to 34,3% in 2015 from 36,5% in 2014 attributed to capital constraints and antiquated machinery.
According to a Confederation of Zimbabwe Industries (CZI) report, the constraining factors — such as low local demand, high cost of doing business, competition from imports, capital constraints and antiquated machinery — remained the same.