A PUSH by local industry for government protectionist measures to shield the struggling sector from growing competition could further hurt the economy, a local brokerage and advisory firm has warned.
In its weekly research note, MMC Capital said the government should instead craft policy which would make local firms competitive both locally and globally. Official figures show that imports are almost trebling exports as local companies remain in doldrums.
“Our view is that the policy if not well crafted can be inflationary and might end up failing to achieve its intended purpose. Contrary to protectionism economic theory, under the principle of comparative advantage, shows that the gains from free trade outweigh any losses as free trade creates more jobs than it destroys because it allows countries to specialise in the production of goods and services in which they have a comparative advantage,” MMC Capital said.
“The country needs to craft policies that facilitate the creation of comparative advantages by local manufacturers instead of protecting inefficient processes. The ideal thing is to refine the processes and make them competitive. This in our view will better the standards of living in the country and enhance economic growth as resource will be made best use of instead of creating deadweight losses.”
Protectionism is the economic policy of restraining trade between economies through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow fair competition between imports and goods and service produced domestically.
Following a decline in capacity utilisation due to undercapitalisation of the manufacturing, the government recently announced that it may introduce a raft of measures aimed at reversing deindustrialisation.
Capacity utilisation for the manufacturing sector this year declined to 33% from 49% last year as local companies continue to struggle under the post-dollarisation era. Zimbabwe gross domestic product is this year expected to grow by 3,4%, down from 4,4% in 2012.
The slowdown in growth, according to experts is largely on the back of subdued performance in mining and agriculture.
In its submission to the Parliamentary Portfolio Committee on Industry and Commerce last week, the Zimbabwe National Chamber of Commerce (ZNCC) said industrial policy should mainly focus on agriculture to ensure availability of inputs for agriculture.
“The quality of the food imports being imported into Zimbabwe is unknown and therefore, it is imperative that we safeguard the quality of products coming into the country and regulators such as the Standard Association of Zimbabwe and Food and Drug Control Council should be active. Whereas protectionism may not be right for regional integration, the ministers responsible for commerce and finance should introduce ‘smart tariffs’ to restrict all unwarranted manufactured imports,” ZNCC added.