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Radical Economic Structural Transformation REST (part 5 of 10)

25 Jun 2020 at 16:45hrs | Views
There is no doubt that without a fundamental structural transformation of our economy from a dualistic enclave economy, whose economic activity is mainly driven by the production of primary products, to an industrialised economic base, we will remain unable to meet the growing needs of our population and to create sustainable higher incomes.

Although Zimbabwe has had a number of industrialisation policies, the lack of political traction, access to long term capital and strong aggressive leadership from the private sector has resulted in de facto deindustrialisation and the proliferation of cheap imports while thousands of jobs and incomes have been lost. This is evidenced by empty factories and a bourgeoning informal sector which now accounts for an estimated 80% of economic activity and employment.

Radical Economic Structural Transformation (REST) is now necessary to reinvent and modernise our industrial base. In doing so we have to take account of both our history and the future. Our new industrial policy must learn from the past while embracing the 4th industrial revolution so that we may leap frog and utilise technological advancement to recreate our economy.

We must learn from our past. The industrialisation of the economy under Ian Smith is such a past. A key policy was that of vertical integration of industry which ensured that no raw material left the country as a matter of policy which meant that the country had to develop the capacity to process them first. This was achieved by investing heavily in infrastructure, especially in the railway network, power and water.

Our lesson here is that we need an informed and holistic strategy on vertical integration of industry that is not implemented ad hoc, but takes into account what needs to be in place first. In many instances, this government announces good projects without first ensuring that we have the capacity to implement them. It also does not do enough home work to make sure that implementation does not create negative unintended consequences that derail or immunise the intended results. We need to think clearly and anticipate before we act. Inconsistent government policy clouded by hidden vested interests remains our core problem.

We must embrace the future. It is fact that the industrial world is in the midst of a significant revolution regarding the way products are manufactured mainly due to the digitization of the manufacturing process. The fourth industrial revolution, or simply Industry 4.0 (coined in 2011 by a German initiative of the federal government with universities and private companies), is currently occurring in manufacturing. We therefore need to take note of it and anticipate its potential impact on our developmental plans and prepare ourselves accordingly so that we are not left behind.

Import substitution is critical and must be a deliberate and clinical strategy with given timelines. We cannot create a new economy while importing things that can be made here. However an import substitution strategy can only be successful when there is full cooperation between government and the business sector. A symbiotic relationship between government and business sector is always a critical success factor where government facilitates and makes easy the implementation of economic projects of national interests and the private sector leads through investment and capacity building in the targeted sectors.

Our local companies must only import where there is proof that they cannot source inputs locally as this will further encourage local supply companies to grow. On the issue of access of access to capital, we must ensure that those who seek to replace imports get access to patient capital without undue pressure and at reasonable costs. An Import Substitution Fund, for example, with favourable repayment terms would work well.

The five key principles and REST include:

First it important to target support and protect of economic activities which render increasing returns. The export of primary products to developed economies keeps poor countries poor and they must move away from such economic activities which create decreasing returns and move towards manufacturing and services sectors which create increasing returns. Decreasing returns occur when unit costs of production increase with increased volumes while increasing returns are those activities where unit costs decrease with increasing in volumes.

Second, temporary monopoly rights, patents and protection must be provided for local companies which are involved in increasing return activities including geographical exclusivity. It is necessary to provide all the necessary support and to protect such economic activities from foreign competition until such time as these sectors are able to compete globally. This allows such economic activities to grow and build the necessary economies of scale.

Third, establish a manufacturing sector at all costs. "It is better to have a badly managed manufacturing sector than none at all." The synergies or direct and indirect linkages created by a manufacturing sector are critical for development. A manufacturing sector increases value addition and GDP, increases employment levels and incomes and also solves the balance of payments.

Fourth, offer tax breaks for targeted activities thus easing the cost of doing business. Also offer cheaper credit and export incentives for value added exports in order to encourage their local manufacture.

Fifth is to establish export taxes for raw materials thus making it unattractive to export raw products and more expensive to foreign buyers. This must be coupled with string promotion of import substitution and deliberate consumption of locally made goods. It will be necessary to develop local manufacturing capacity using these raw materials.

Under REST it is proposed that we create industrial clusters run by implementation teams led by entrepreneurs supported by government with agreed outputs, specific outcomes, a capital budget and timelines. These clusters would ensure that industrial synergies are taken advantage of and would focus on local a) the production of basic goods, b) the local production of light industrial goods, c) local production of heavy industrial goods and d) complimentary industrial infrastructure and services and finally e) research and innovation in line with the 4th industrial revolution developments. Each cluster would then have a list of all products or services which we need to produce locally with a detailed implementation plan, timeline and budget for each product.

Nothing is impossible!

Vince Musewe is an independent economist and you can contact him on vtmusewe@gmail.com


Source - Vince Musewe
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