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Statutory Instrument 64 of 2016 meant to protect local industry

26 Jul 2016 at 11:31hrs | Views
Statutory Instrument 64 of 2016 (SI 64/2016) gazetted by the Zimbabwe Government has a prime effect of stirring domestic productivity and encouraging consumption of locally produced products. This would ultimately protect local manufacturing industries against foreign companies which are enjoying competitive advantage owing to low production costs in the countries of origin as compared to the local macro-business environment.

SI 64/2016 did not impose a ban on the importation of foreign goods, but seeks control of goods as a regulatory measure to promote a workable balance of trade. Whenever, a country exports to other countries or imports from other countries, then the difference between the export and import is known as balance of trade.

If the export of goods is greater than the import of goods then the different between the export and import is positive and said that the country has positive balance of trade. On the other hand if the export is less than the import then the balance of trade will be negative and this situation is called trade deficit. The later represents our own situation which then precipitated the promulgation of the alleged ‘contentious' statutory instrument. Logically we should aim to achieve the former in order to improve our economy which demands such measures for it to recover.

There must be balance when all the components of balance of payment are recorded as like balance sheet of a company. Ideally balance of payment is the difference between the current account and capital account and the balance item are added or subtracted depending on the value it holds. There is a point of concern for the country like ours having deficit in current account since it generates the long term liability for the country.

Government technically did not ban imports, but instead it regulated the influx as up this day in continues to issue import licences to individuals that need to engage into cross border trading. So far over 3 000 licences have been issued.This offers an import quota which is a limit on the quantity of a good that can be produced abroad and sold domestically.

This is a type of protectionist trade restrict that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time. If a quota is put on a good, less of it is imported. Quotas, like other trade restrictions, benefit the local producers of a good in a domestic economy at the expense of all consumers for the good in this economy.

It is worth noting that the primary goal of import quotas is to reduce imports and increase domestic production of a good, service, or activity, thus protecting domestic production by restricting foreign competition. Technically, as the quantity of importing the good is restricted, the price of the imported good increases, thus inducing domestic consumers to purchase domestic products at higher prices.

While import quotas and other foreign trade policies can be beneficial to the aggregate domestic economy, they tend to be most beneficial, and thus most commonly promoted by, domestic firms facing competition from foreign imports. Domestic firms benefit with higher sales, greater profits, and more income to resource owners.

Decreasing imports and increasing domestic production may increase domestic employment in the effected industry, while reducing it in other domestic industries that suffer reduced demand due to consumers facing higher prices in the protected industry.

If foreign imports compete with a relatively young domestic industry that is neither mature enough nor large enough to benefit from economies of scale, then import quotas protect the "infant industry" while it matures and develops.

However, some allege that foreign imports might be sold at lower prices in the domestic economy because foreign producers engage in unfair trade practices, such as "dumping" imports at prices below production cost.

It is mandatory that Zimbabwe should focus more on exporting goods than importing. One of the major advantages of export is the ownership advantage which is specific to the firms' international experience, asset and ability of the exporter to either develop the differentiated product or low cost product with in the values chain.

There are numerous disadvantages associated with importation of goods. For instance, importing of goods could lead the erosion of the domestic markets and national economies specifically when there is trade deficit occurrence, that is, the import is higher than the export. Some of the goods like cars; appliances lead a higher level of domestic automobile and electronic markets and also loss of jobs in the respective markets. This explains why for example, the South African Government banned the importation of foreign manufactured cars like the cheap imports from Japan. Their prime aim is to protect the local motor industry in that country. The same follows to our own situation locally. We are not reinventing the wheel either.

The domestic industries can also be crippled due to the import of products from countries where the wages are low and the domestic industries are unable to compete since they cannot lower down their prices of goods than the cost of goods and also they have the obligation to the worker unions which are constantly pressing for better salaries and wages.

It is worth mentioning that the SI 64/2016 does not target South African goods per se, but all imports headed for the local market. Some sections seem to be stirring a diplomatic row between the two countries. This is a general international economic principle which is applicable everywhere across the globe. However, it is a living fact that South Africa is our major trading partner.

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Source - Sparkleford Masiyambiri
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