A closer look on the SI 64, 2016 on imports restriction

The government has recently gazetted Statutory Instrument 64 of 2016, which temporarily regulates the importation of certain products that can be produced locally. Some of the products which were removed from the Open General Import Licence (OGIL) include bottled water, mayonnaise, salad cream, peanut butter, jams, yogurts, flavoured milks, dairy juice blends, ice creams, cultured milk, cheese, white petroleum jellies, body creams, plastic pipes and cooking oil. The legislation also controls importation of second hand tyres, urea and ammonium fertilisers, tile adhesives and tylon, shoe polish, synthetic hair products, building materials and furniture.

The Minister of Industry and Commerce, Mike Bimha had to clarify to the nation that Statutory Instrument 64 of 2016 (SI 64, 2016) was meant to regulate commercial imports and the legislation does not mean a ban on importation of listed products but imposes a licencing requirement for bulk importers. It also means that the removal of products from OGIL implies that a licence will be required to import the listed products. This clarification came after the legislation was received with mixed feelings by many and it caused demonstrations in the Beitbridge area which saw people burning down the Zimra Warehouse.

Since the promulgation of SI 64, the Musina business community of the Zimbabwe-South Africa borders has lost more than US$10 million in potential business.

Generally, the government's decision to restrict importation of the listed products sounds noble, especially with the sole objective of promoting the Buy Zimbabwe products. Minister Bimha noted that the manufacturing sector was a key pillar in Zimbabwean economy as it contributed about 20% to the Gross Domestic Product (GDP) at its peak, but as noted recently the contribution has decreased to 11%. The protection of local industries is a noble idea. Opening up of trade would expose our local infant industries to external competition of large established foreign firms which have achieved a certain level of technical efficiency; economies of scale and financial strength hence our local firms would run the risk of dying in their infancy. In order to make these local industries survive, it is wise for the government to impose trade restrictions so as to allow these local industries to grow.

Trade barriers are also imposed to allow and promoted a balanced growth of the economy in the long-run. Although there isn't any country that is independent in the world, but solely depending on other countries for all our requirements is not a good idea.You couldn't be delighted being a resident of a country that imports even lemons, tissue paper and baby diapers. Although the theory of Comparative advantage dispute this kind of reasoning, but a country should try to produced most of its requirements as long as it has the capacity to do so in terms of factor endowments. Industry diversification and growth would also help to create the much needed 2 million jobs in the long-run and can only be achieved through securing the domestic market.
It has been also noted that the prices at which other commodities are landing in our domestic market isn't reasonable enough and might cause serious damage to the growth of the economy. A wheelbarrow has been reported to have landed in Zimbabwe at a cost of $2, 98 and this is a clear practise of dumping by foreign firms. The government should then craft policies aimed at stopping these mal-practices that are harmful to the growth of the domestic economy and would see this SI 64 as the right move to correct this anomaly.

It should also be understood that a country should always be worried about its Balance of Payment (BOP) state. It's economically sound enough for the government to craft policies aimed at correcting BOP disequilibrium especially deficits in order to reduced money outflow. Imports represent a leakage of money from the domestic economy and this would depress economic activity and would result in a deflationary gap. It requires that the amount of withdrawals be equal to the amount of injections for the economy to remain at equilibrium. However, our economy would require more of injections to boost national income through the multiplier effect and these injections would also come in the form of exports. This makes the recently imposed legislation of import restrictions a good idea.

Imposing import restrictions is not peculiar to Zimbabwe alone as one should also understand that even South Africa, which is our greatest trading partner, also has trade barriers which might be in the form of non-tariff. In April 2015, the Finance Minister Patric Chinamasa complained about South Africa's insistence that pharmaceutical goods from Zimbabwe be transported by Air. This would make Zimbabwean drugs expensive as compared to those made in South Africa.

South Africa has this year devalued its currency. This saw an increase in the number of South African products in the Zimbabwean economy as the devaluation of the currency has made South African products cheaper to consume than locally produced ones. What it means is that Zimbabwe would be helping to expand South African economy at its own expense as industries in South Africa would employ more people in order to meet the increased demand. Zimbabwe imported goods worth US$420 million from South Africa in the first three months of 2016 against exports of US$214 million. Checking these facts, one would clearly see that import restrictions were necessary and would help even to reduce externalisation of the United States dollar.

However it is necessary to analyse closely the facts behind the imposition of SI 64 which is meant to protect the local industries which have long back closed down. One would want to understand the reasons behind the closure or capacity underutilisation of the Zimbabwean industries. The Oil Express Association of Zimbabwe Chairman, Sylvester Mangani reported in late May 2016 that local cooking oil manufacturers have a capacity to produce 20 million litres per month which is almost double the national requirement, but however raw material shortages on the local market were presenting a challenge, forcing local industries to import crude oils. To avoid cooking oil shortages on the market, the government placed crude oils (soya beans, sunflower, and rape seed) on the critical list of import requirements. This would make one to wonder which Buy Zimbabwe  the government purport to be geared at promoting if actually the local companies are importing raw materials from outside.

Industries have closed down due to poor investment policies; obsolete equipment; unavailability of long-term and affordable funding; lack of raw materials due to the poor performance of the primary sector, especially the agricultural industry; lack of investor confidence among other factors. Government policies need to complement each other for them to work out. Zimbabwe needs to revive its primary sector, and then we can now talk of value addition in the secondary stage of production. Imposition of import barriers to protect local industries which are not operating or underperforming due to inefficiencies would cause shortages and prices to increase.

Competition would force local firms to adopt efficient methods of production that minimises cost, hence enable them to sell their products at low prices. A consumer wouldn't purchase a foreign commodity that is expensive than a locally made one. If it's possible to import a foreign product, pay taxes and customs duties, transport costs, and still be able to sell that product at a much lower price than the locally made, then it signals inefficiencies in the local industry. Local industries should try to expand their capacity and exploit economies of scale to lower the production cost but given the fact that the primary sector is failing to support the manufacturing sector, then there isn't any way those economies of scale can be exploited.  

Besides the bilateral engagements going on between Zimbabwe and South Africa, it is understood that South Africa has approached SADC structures claiming that SI 64 is against regional trade protocols. This might result in sour relations between these two countries as South Africa might also decide to retaliate against Zimbabwe's import restrictions. The SADC Free Trade Area is doomed to fail due to the persistent skewed trade balances among the member states which forces pursuance of robust industrialisation policies across the region.

It should also not be ignored that the government is struggling to raise revenue and import taxes has been seen as one of the major contributors. Due to the current high unemployment rates in Zimbabwe, the majority had seen cross border trading as the only way to make ends meet and the government clarified that SI 64 wasn't an import ban. Bulk importers should get licences and the government has already rushed to issue out these licences. This would see importers paying import duties and licence taxes just like any other trader hence the imposition of SI 64 would make one to wonder whether it's a move to the Buy Zimbabwe promotion or a strategy aimed at maximising government revenue collection. This has also seen the government tightening all the revenue leakages at Beitbridge border post through securing of US$600 000 that is meant to acquire security devices, including the lie detectors and security fence to prevent smuggling of goods.

If then the implementation of the said Statutory Instrument 64 is not complemented by increased local production and the Buy Zimbabwe purported, then one need to know that the domestic prices of the listed products would increase as sellers would shift the tax burden to the consumers through increased prices, given that most of the listed commodities has an inelastic demand due to the fact that there will not be enough of the local substitutes.

Blessing Machiva is an Economist and writes in his own personal capacity. Comments and criticisms can be forwarded to the following email address machiva.blessing@gmail.com or WhatsApp number +263 773 836 435.