While there was indeed a general agreement that the state had to intervene in markets by protecting certain industries from competition in it is nonetheless important to highlight the costs associated with such acts. Obviously Buy Zimbabwe enthusiasts will have been pleased with outcome of the recent of monetary policy review outcome which for all intents and purposes gave in to some of the protectionist lobby designs. In particular the food and agro processing industry which now enjoys protection in the form duty imposed on imports and it has been said that this could be the stimulus necessary to allow local producers to recover. In other words given the price sensitiveness of the products in question most consumers will be forced to buy local stuff regardless of any misgiving they might have and of course local producers will thus increase their production levels. No doubt this raises questions that must get answers. How will consumers be protected from purchasing poor quality products given that protection from competition often breeds mediocrity? Will this really result in increased capacity utilisation? How and who will determine that this modest protection has achieved its intended results? It is pertinent we have these answers because one cannot rule rent seeking by some of those that lobbied for this protection. However to be fair on businesses the last decade was very horrendous and as has what happened elsewhere to countries in or emerging from crisis or war the local industry has to be given protection allow it stand on its feet again. Certainly the rationale often is not purely an economic one but hybrid one because political considerations will be at play and certainly Zimbabwe is no exception from this rule. However there are two sides to this coin, consumers needs as well. In fact while companies struggled during the last decade consumers were hardest hit by inflation particularly as incomes were just decimated leaving a majority of the population in poverty. So in as much as we want to help companies there has to be a balance between these two groups and it’s not an easy one but certainly not an impossible one. Now if a certain industry is going to be protected, then this does not have to be a blank cheque as it were. The protected industry must reciprocate the benevolence extended to them firstly by ensuring that their products attain the same quality standards of imports (yet this can normally happen if imports compete unhindered). In fact this should be an undertaking local companies must commit to if they are to be given protection and certainly in this case it does not appear to look that way. Secondly most companies have been complaining that they cannot improve their reward or compensation to their workers due to low productivity levels among other problems. Now by being shielded from competition as happened here then these must be pressured to improve wages offered to their workers as demand and possibly production will improve. Protectionism here should be seen as a double edged sword; those calling for it should be made to understand that getting government protection comes with responsibilities as well not just an increase in to their revenues or profits. Ultimately the responsibility of the government is not only to businesses but to consumers as well hence the need for the balance. Now in the absence of such counter measures then this apparent capitulation by government to lobbying by business groups will only embolden these to lobby for further protection so that they can ostensibly compete on equal footing with imports. For instance most companies are facing liquidity problems, out-dated capital equipment and infrastructure which unfortunately factors heavily in the costs, costs which ultimately mean higher prices hence they cannot compete with imports from more efficient economies. Clearly shielding local industry from more efficient producers will harm the interests of consumers more than the increase in profits to a few large producers. It is not the business of the government or any government for that matter to inhibit competition by penalising more efficient foreign producers regardless of the heavy lobbying by locals. In my other instalment on this topic I said it is only when the competition is unfair that the government can with some justifiable economic reasons impose counter measures. For instance it has been argued widely that subsidies given to particularly farmers in North America and Europe give an unfair advantage to their farmers and the currency manipulations by giant Asian economies give their producers an unfair advantage on the global stage. In addition if the majority of the imports are composed of counterfeit and pirated merchandise then that is clearly unfair and illegal competition. Under such circumstances actions to shield local producers will be justified though protectionism is really hard to endorse. So far I believe this argument may be applicable in clothing and electrical products where there are considerable illegal products competing with our limping producers. For the rest of companies the government simply has to find other ways to assist without hindering the working of the market and this can be done by securing lines of credit, tax breaks among other tools. Of course the government has already set the duties on selected imported products what it can do now is to monitor the companies earmarked for that protection. A cost benefit analysis of this protectionhas to be undertaken after a certain period to determine if the protection is having the desired effect. In any case we have to understand that if we start imposing duties on certain imports then our trade rivals will most certainly retaliate resulting in this vicious cycle where everyone ultimately loses.That is why many great economists of old have consistently averred that protectionism only works in the short term and normally benefitsa few rent seeking business people. In the long run it hurts everyone consumers, the businesses and the government because ultimately protectionism will beget protectionism. Whatever the reasons for protecting industry such a policy should only be short term and we should strive to have a more open and free economy an assured path to sustained economic prosperity in the long run.
Terence Zimwara is an economic analyst you can contact him on tem2ra@yahoo.com
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