eBusiness Weekly
Business Weekly Last Word
Manufacturers wanting to raise production have a set of options, all of which require them in the short term to do business better rather than hope for miracles or some sort of Government intervention to force consumers to buy their products.
The last 16 months have seen the transformation of the economy into the sort of normal economy that is common in the rest of the world, with Zimbabwe now having a national currency, exchange rates set by market forces rather than collective belief in a fairy tale but still with the tail end of a bad spell of high inflation.
For almost a decade Zimbabwean industrialists were hit hard by the fake and unrealistic 1-1 exchange rate that made imports of many products cheaper than locally made products, whose costs were set on a different basis, something closer to reality. Industrialists were complaining about the unfair competition generated by a set exchange rate that made the local currency far stronger than it was in reality.
Since the switch from the fiat economy, that in one way or another ruled Zimbabwe from UDI in 1965 until the beginning of last year, the manufacturing sector has been forced to rethink a lot of its practices and the very concepts it was using for pricing and costing. Some still have to make the transition, as they still appear to try and price on import parity instead of on their real costs. Others, now grabbing market share, use formulas that are built on actual costs and coped with the high inflation of the last year by frequently adjusting prices as costs changed, rather than using the exchange rate applied to secret accounts kept in US dollars.
The Supreme Court ruling this week, which has excited more heat than light in many comments, confirmed the law as it was set and, more importantly, made it clear it is more useful to use the concept that since 2009 we have been using a single currency, the RTGS dollar, what for nine years we tried to pretend was equal to a US dollar and then allowed almost a decade of devaluation and inflation to suddenly bubble to the surface and shoot through the economy in a single year.
Right from the beginning of what some still call the multi-currency regime, we were using the RTGS dollar and the Government was cheating by printing more and pretending they were at par with the US dollar. It is possible to run fake exchange rates for more than a few years, as the UDI regime in this country and the Soviet style economies of Eastern Europe did, but you have to criminalise possession of foreign currency and manage all imports and exports by fiat to do this. The Reserve Bank of Zimbabwe managed to maintain the pretence for a while, backed by diaspora remittances, through a determined and honest programme of prioritising imports. But in the end the sheer weight of economic law, helped along by growing cheating and corruption, ended the pretence we had last year.
The saddest part of all this is that the devaluation and inflation would not have been nearly so bad if it had been spread out over a decade instead of a year, since some self-correction would have been seen along the line, although we almost certainly would still have required a change in President to reach a willingness to follow a decent fiscal policy.
It would now be useful, perhaps essential, if everyone recognised that for better or for worse we are, like just about everywhere else, a country with its own currency and have been, for all practical purposes, for a long time. Those who still think we are a two-currency economy are going to come short because they will be making the wrong decisions based on the wrong underlying reality.
Generally, the change over the past year has been immense. A stroll around a supermarket will find in a wide range of product lines very little in the way of imports.
Getting the exchange rate out of the world of make believe into the world where market forces rule has made the artificially cheap imports correctly priced, and as expected they are now more expensive than many similar Zimbabwean brands.
Even where there is little value added in Zimbabwe beyond packaging, the Zimbabwean brand is still cheaper if only because bulk imports have lower transport costs than finished products and Zimbabwean packaging costs, basically labour, are now cheaper.
So where does this leave the industrialist whose products have won back the home markets? For a start there are only two ways of boosting sales of existing items, winning a higher market share and waiting for a growth in disposable incomes so more people can afford to buy more of what the industrialist is selling.
The second path will take time to become important, but must not be forgotten. After all, this is the basis of Government policy, to get more growth and more people earning money. But it is also important that local businesses do think about their staff remuneration. Cutting staff costs to the bone limits the ability of producers to consume. We perhaps need to remember that even when he created high productivity with his moving assembly lines, allowing him to cut the price of motor cars, Henry Ford did not achieve his big breakthrough until he raised the pay of his workers to levels where they could afford to buy the cars they made.
Market share is already the obvious target of many newcomers. Zimbabwean consumers are surprisingly sticky when it comes to brand and often will pay more for a brand they are familiar with even when the product is something like salt, as basic as you get and where all brands are identical although prices can vary by as much as 50 percent. But consumers are becoming smarter and a growing number are showing loyalty to their wallets rather than to the name on the pack, especially when there is little or no difference in quality or where the difference is smaller than the price difference suggests.
But there is a third route, some smarter and more innovative industrialists, the ones who will rule the roost in time, who are now moving in that direction. This is to introduce new products or resume local production of products that were forced out of production by cheap imports or consolidation of regional plants by multinational concerns. This is an obvious strategy to choose although the industrialist has to be thinking straight and be able to cost accurately to break in. But it is happening. And ever smarter consumers faced with the need for tighter budgeting will help it along.
One major area where a complete rethink is needed is heavy industry. Zimbabwe used to have quite a lot. It all went south during the 1990s or the hyperinflation. Whether hyperinflation killed it is dubious. Far too much was badly managed by concerns that did not care about capital investment, only short term profit. The hyperinflation was simply the last straw.
So our steel industry, much of our basic chemical industry, our major textile manufacturing, even our newsprint factory, all went out of production and will need huge capital investments to be restored with modern technologies. Some may not be restorable, but others will fill market needs. In almost all cases the Government needs to abandon its last lingering “strategic industry” mantras and accept that if it wants these industries back it will have to let them open, grow and be managed on commercial lines.
Heavy industry is not all that fashionable in the world economy, but metal bashing is still an essential component of any economy that is looking at moving up the ladder, although perhaps not the biggest component. We should not ignore it and, as a commodity exporter, these basic heavy industries are the only way we are going to add value to our major exports.
So another concept that business needs is that the last 55 years have been the aberration, not what we see now. What we see now is the Government finally opening our economy and removing its fiat controls of what we may buy and may sell. At last we are open for business with an economy that can grow instead of just juggling the groups at the top.
