Quality, pricing need to be fixed

30 Oct, 2020 - 00:10 0 Views

eBusiness Weekly

The pro-business attitude of the Government was stressed this week when President Mnangagwa, in the ceremony activating the Consumer Protection Act, stressed the advantages to business of the new legislation rather than employing empty rhetoric about how the law would protect consumers from rampant capitalism exploiting the downtrodden consumer.

The basic thrust of the argument was that private business needed to push forward on quality and producing for consumer needs; consumers who get a decent deal do not need protection.

Most industrialists in Zimbabwe have sorted out the worst of their quality problems. The multi-currency system might have severely damaged Zimbabwean producers, but the intense competition with foreign suppliers did force a major switch in thinking from the decades of the controlled economy, when “take it or leave it” was the motto.

UDI was a disaster for Zimbabwe in general, but the almost total control of the economy by the State did allow industry to move forward and expand. As we saw with Eastern Europe and other states with centrally planned economies, such control in the early years did expand the economy, but also introduced new problems that in the end wrecked the system.

The biggest problem is that competition became negligible, and quality ceased to be a priority. If the only stuff available on the shelves was what was produced down the road then there was a captive market, often for a single producer or perhaps just two or three who were all under the same control of a single bureaucrat and could easily make quiet arrangements to share markets without having to compete.

The same system discouraged new investment in plant and machinery, allowing producers to keep manufacturing systems that belonged in a technology museum functioning, sometimes with advantage, but often retaining inefficient and obsolete methods.

The post-independence Government retained the same import controls and foreign exchange allocation systems, with an emphasis on allowing new entrants. But those new entrants were also guaranteed markets. Even when external investors were allowed in, often on deals that saw the Government take a share of the business, the upgrade in quality to an international brand was not accompanied by the other needed changes to make the customer king.

The modest re-opening and phased reduction of controls in the 1990s was never pressed with vigour, and the main result was a flood of imports that in the end destroyed the half-hearted economic reforms and, along with a Government that seemed totally incapable of matching expenditure to income, led to the disaster of hyper-inflation.

Once again we switched to allocation of foreign currency by fiat as we entrenched what is often called crony capitalism, where being buddies with the right bureaucrats issuing licences and allocating forex was more important than running a decent business. Quality again was on the backburner.

Even the dollarisation did not help industry that much. Imports, often of better quality and, more importantly, cheaper prices flooded the country. Many industrialists started seeking protectionist policies rather than fixing their own fundamentals in management. The near total extinction of primary industry was the main disaster and wreckage of Zisco, David Whitehead, the paper mills in Mutare and others are still with us. They cannot be rehabilitated, they have to be restarted from scratch under a new system.

As the printing of fake dollars progressed, dollarisation saw a return to the authorities, this time the Reserve Bank of Zimbabwe, trying to keep the industrial sector afloat by bureaucratic allocation of real foreign currency. Even the effort to reduce imports through “SI64” was only very moderately successful. It helped but did not solve the problems. Again it was crony capitalism, captive markets, high prices and inefficient management.

Even now, with the reforms of the Second Republic that have seen fiscal discipline with proper fiscal controls, a local currency, a market related exchange rate and imports governed by demand rather than fiat, there are obvious inefficiencies in the system.

It beggars belief that local products are more expensive than some imports of equivalent quality for example, implying profiteering, which is unlikely when that leads not just to small market share but to actual no market, or gross inefficiencies.

Some manufacturers have seen the light. With import duties offering low levels of protection, the local currency controlling several costs and a stable exchange rate, they are starting to get their processes sorted out and fixing their pricing models. They are likely to be the ones making money.

There are other problems. Some manufacturers do label products accurately according to modern standards, although these can vary around the world. Others again put in the barest minimum or even nothing when it comes to ingredients, address of manufacturer and other information that a consumer is entitled to know. Even when ingredients are listed, there is no guarantee that even the most basic standard, that they are listed in order from the largest to the smallest, is being followed.

The new legislation will address this, largely by subsidiary legislation yet to be issued.

But a major point for any Zimbabwean industrialist wanting to grow must be how to enter export markets. And here there can be problems. With every country having its own rules and regulations, or having none, the only effective way of doing this is to ensure that labelling and the actual source of ingredients or other inputs follows the strictest.

There is obviously now need for common regional standards, Sadc at the very least but the new tripartite system should have common rules if free trade is going to advance from rhetoric to practicalities. In many ways the European Union only really got going when the slashing of customs tariffs and the removal of customs barriers was complemented by the drawing up of common rules.

Much of the dislike of the EU in some quarters comes from those Brussels rules, but the bureaucrats did their job and made sure that something produced, in say Poland, could be sold in, say, Spain without any further packaging, change of ingredients or anything else. Everyone was working to a  common standard. Consumers knew exactly what they were getting for their money.

Quality is, obviously, price related. Buyers might accept a lower quality for a lower price, but they like to know what they are getting for their dollar. And minimum standards are required, which is why it is a positive sign that some Zimbabwean industrialists are now seeking advice from the Standards Association of Zimbabwe and even getting suitable standards created. But again a common Sadc set of standards, or better still common African standards, would be useful.

Admittedly the SAZ often uses other standards as the basis of a Zimbabwean standard, but imagine how much easier it would be to export to Zambia, and South Africa and Mauritius if you could stamp your staff as compliant with Sadc Standard 19703. This might well require pressure from industrialist across the region on their national Governments, but the combined standards bodies in the region should be able to come up with a common set of standards remarkably quickly if given the orders, with each national unit becoming an enforcer.

The last thing we need, as we fix quality and other problems, is having non-tariff barriers on trade.

We talk a lot about self-sufficiency and import substitution, and we are right to do so. But at the same time we are negotiating for freer trade. This is not a contradiction so long as we are organised. What should happen in such a set-up is that the balance of trade in a region should be zero for everyone. This gives advantages to the efficient, the person who can produce the best quality at the lowest price.

And that in turn means that as we gear up for this rosy future, we have fixed our quality and productivity problems. Which brings us back to the President’s main point, that incoming legislation is designed to sort out lack of quality, and lack of treating consumers as intelligent adults.

We are halfway through the mental shifts required after more than half a century of either a closed economy or one flung open to everyone. We should accept the challenges imposed by the new law, take an active role in drafting the rules, welcome the setting of practical standards and press for integration with other such laws in other countries.

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