protectinism

PROTECTIONISM VERSUS COMPETITION
This is the paradox we face as we struggle to return the economy to normalcy. We have on one hand a very weak industry still smarting from a decade of recession whose results still linger: low capacity utilisation, absence of credit lines and the liquidity crunch which is fast turning out to be a national crisis. Obviously few companies operating under such conditions would trade at near optimum or efficient levels and this often culminates in these companies’ products or merchandise failing to compete against more efficiently produced rival products. Naturally rival products or imports often have better attributes than our locally produced ones and this is in addition to the actual price variance between the imported stuff and the locally produced. Now when world embraced globalisation as the next frontier in efforts to rid the world of poverty few would have predicted the massive problems that would soon follow. In theory globalisation was supposed to benefit consumers without hurting jobs since it was premised on the theory of comparative advantage where a country would direct its resources towards producing goods which it could make more cheaply than others. Sadly however this has not been the case because the large economies have continued to dominate world trade to any extend that most economies particularly developing ones have become virtually retail outlets. It has become far more profitable to import and sell than to produce and this is particularly true in the Zimbabwean economy. The food, clothing, electrical goods industries etc are so dominated by SA and Asian products than local products since manufacturers here cannot compete with these and this situation has of course led to industrialists asking for help from government (through imposition of duty among other measures) and the launch of various initiatives such as the ‘Buy Zimbabwe’ to counter the dominance of imported stuff. It is important to note that all these efforts are just euphemism to justify what is essentially a call for protection or protectionism as it is known in economics and the question is ‘Can protectionism be justified in any circumstance?’ As alluded to earlier most leaders embraced globalisation in good faith hoping that this would narrow incomes gaps between communities and groups and that everyone (all members of the World trade Organisation) would abide by the fair trade rules. Free trade areas have since been established throughout the world from EU free trade area in Europe, NAFTA in North America, APEC in Asia and COMESA free trade in Africa to mention just a few and there is a few more in the pipeline like the envisaged SADC free trade in Southern Africa. However a few years down the line the situation is quite sad because quite a number of economies have apparently been overrun by major economies who have utilised a range of tools ranging from unfair subsidies to manipulating currencies all with the intend of gaining an unfair advantage over rival traders. The World Trade Organisation the institution charged with steering the ship of globalisation forward has not been able to effectively adjudicate cases of unfair trade practices by members; we may all recall the inconclusive Doha round of talks. The massive subsidies offered to farmers in the developed economies that give their farmers an unfair advantage, while China now the world’s second largest economy is accused of manipulating its currency so as to make its exports cheaper and thus unfairly prejudicing other competing economies. Now for Zimbabwean producers in addition to facing our own unique challenges they have to put up with this messy world trade situation and quite clearly some kind of kind of balancing act may be merited. To illustrate we may have to look at the textile industry which is under siege from cheap Asia imports for instance. Now for years Zimbabwean women and housewives in particular have been informally involved in the textile industry where they have been producing custom made clothes for everyone men, women and children. They would purchase their material from local manufacturers and their final product would always compete favourably with major clothing manufacturers here. However over the last few years there has been deluge of very cheap Asian imports on the market, in fact these imports are so cheap that sometimes they are even cheaper than the uncut cloth making it impossible for the Zimbabwean woman to produce and compete hence she has been driven out. Obviously the imported stuff it could be argued may have been produced by a manufacturer producing efficiently (economies of scale) but the whole thing stinks when you note and quite fairly so that these Asian producers import their lint mostly from here and much of Africa. The cost build-up of a product in the case of an Asian producer has to be higher in comparison to those of a local producer who faces no significant freight costs and low wages for instance but when a landed denim trouser from China costs several times less the cost of producing one here, then it would be absurd for anyone to simply attribute this to efficiency and not doing anything to protect local producers from this misnomer. We are a major lint producer yet apparently our lint is actually expensive relative to an imported finished product and this quite a bizarre circumstance in economics and really points to other factors at play.  In fact Zimbabwe is not alone in this, a number of textile factories across Africa are suffering the same problem where the so called free trade has opened floodgates to these ‘cheap’ imports though I believe it’s actually dumping and now most clothing retailers are simply opting for these cheap ones in place of local ones. Thousands of jobs have been lost already and thousands more are under threat just because we have to abide by these free trade agreements no matter how flawed and skewed they are. Zimbabwe just like many African countries suffer from very high unemployment rates and the fact that open trade appears to be exacerbating the problem is a serious indictment of these free trade agreements. For Zimbabwe the situation is even worse because during the past decade when the recession caused a near collapse of the economy, the economy has been dominated by imports everywhere from foodstuffs to clothes, industrial products virtually everything.  However the economy has been slowly recovering hence there is need to provide space for local producers to recover fully especially in the face of unfair competition from cheap imports. This could potentially be the boost needed to help these attain former production levels.

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