Reviving industry a marathon not sprint

22 Nov, 2019 - 00:11 0 Views
Reviving industry a marathon not sprint Minister Ncube

eBusiness Weekly

Hopewell Mauwa

The Minister of Finance and Economic Development Professor Mthuli Ncube, presented a highly optimistic budget last week. Conspicuous in the minister’s figures is a big jump in economic growth from -6,5 percent in 2019 to a 3 percent rise in 2020.

Suffice to note that credibility of these two figures is crucial; they are the standard summary of the budget and inevitably attract the first and most attention as global investors and analysts perform sanity checks on Zimbabwe’s economic growth prospects.

The country’s industry capacity utilisation has hovered below 50 percent for over a decade. In response, the 2020 Budget is availing various incentives to stimulate industrial activity, mainly import tax cuts for raw materials. But is this sufficient to jump-start the economy and justify the massive jump in economic growth assumed for 2020?

To comprehend Zimbabwe’s industrial activity prospects, let’s assess the situation from two perspectives; the supply of goods and their demand.

The local supply of goods (domestic production) is facing three fundamental challenges; currency shortages (implying high inflation), extremely high cost of capital (for working capital and capital expenditure) and lack of infrastructural capacity (electricity, water, rail). Lack of competitiveness is also a result of outdated manufacturing equipment and obsolete technology which is challenging to address without solving the three factors above.

From a demand perspective, consumption remains constrained by two vice grips; firstly, domestic household disposable incomes remain very low to ignite local spending, and secondly, domestic manufacturing is not competitive enough (as described above) to penetrate foreign markets. In fact, local producers are even losing market share to imports.

Clearly, tinkering just one element hardly moves the needle in the broader picture of improving competitiveness enablers. The challenges are wider and interconnected and demand a holistic approach. Quiet frankly, it’s a marathon not a sprint.

This may sound daunting, but Zimbabwe has lessons to learn from several countries that saw industrial success stories. It all begins with a well thought long-term plan — followed by a disciplined “will” to commit to that plan.

Back in 2000, Vietnam’s economy had “peaked” at around US$30 billion, roughly three times the size of Zimbabwe’s economy at that time. Today the Asian country’s economy is eight times bigger at around US$240 billion. One in 10 smartphones globally is produced in Vietnam, generating export revenues in excess of US$50 billion in 2018.

Vietnam capitalised on strong foundations of low wages, a massive young population of under 35 years (over 50 percent) and proximity to major supply chains.

Vietnam signed free trade agreements with major developed countries, which opened foreign investment in export-oriented manufacturing. Corporate taxes were slashed from 32 percent to 20 percent.

Government revenues increased steeply helping fund infrastructure projects into power, transport and human development, which inevitable had a multiplier effect on the economy. Granted, the Asian model cannot simply be transplanted into Africa. But there is hardly anything special about Vietnam’s foundations of transformation that Zimbabwe lacks.

What Zimbabwe needs, however, is a well thought 20-year industrial strategy, broken into short term goals. Crucially, that vision must be beyond party politics. Instead, the basis for political contestation then becomes how to implement that strategy. Germany is known to manufacture cars. The UK will always be financial services. Japan is high tech/electronics.

This will be the case regardless of which political party assumes office. What does Zimbabwe intend to be known for in 2040?

Therefore, what small steps should we be taking now to reach that goal? Such deliberate systematic thinking is not evident in the planning process.

In crafting the long term national industrial strategy, several internal and external strategic issues need to be thoughtfully considered, key among them the size of the target market, raw material advantages and human capital competitiveness.

Thanks to free trade agreements, Zimbabwe can base its planning on larger market size assumptions. Zimbabwe is a small market of 15 million people with hardly the spending power of a small town in England.

This is a huge disadvantage for competitive manufacturing where economies of scale and scope are mandatory. Consider this opportunity; if the continental free trade agreement (AfCFTA) is successfully implemented, Africa’s manufacturing sector is projected to double to $1 trillion by 2025, creating over 14 million jobs. At the very least, Zimbabwe must position to create niche “regional champions” in manufacturing. This, of course, requires regional cooperation, not a silo approach, to create complementary industries that boost intra-regional trade than promote direct competition.

Zimbabwe, the region included, has potential to capitalise on massive raw material advantages from agriculture and mining. Instead, the recent US$12 billion mining strategy hinges on raw exports with hardly any linkage between mining and industrial expansion. Again, a regional approach is crucial. In the auto industry, for example, Zimbabwe and South Africa, with 80 percent of the world’s platinum resources and skilled human capital should, for illustration, really be the global centre for manufacturing catalytic converters.

Another big elephant in the room is an honest introspection about the quality of our human capital. For all the “literacy” statistics, relative to other competing countries, Zimbabwe and Africa’s workforce are perceived to be lacking in key skills and efficiency; a major hindrance to investment, especially in more specialised forms of production. This is despite an abundance of low-cost, under-employed labour.

When the external world (IMF/World Bank and even friendly countries) review Zimbabwe’s budget, they certainly read beyond the spin. They have their own lenses to examine the robustness of our assumptions through their own economic models and experienced analysts. Let’s think of the budget as a critical tool to demonstrate our credibility to the world. We can make whatever assumptions; but rest assured, the external world knows what’s feasible from fact-driven hypothesis and empirical evidence. It’s a fallacy to think or assume otherwise!

Hopewell Mauwa is a strategic analyst based in London. He graduated from the University of Cambridge and holds an MBA from Warwick Business School. He writes in his personal capacity and can be contacted on [email protected]


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