The question of ‘unfair’ trade practices by certain trading nations continues to dominate debate between competing interest groups here and with the finance ministry giving in to protectionist lobby when it reviewed the fiscal policy back in July 2011. At the time government said it was imposing modest measures to protect local producers or to at least help them to recover without having to face extreme competition. As a result imported foodstuffs like the edible cooking oil and mealie meal were slapped with an import duty effectively handing an advantage to local producers.
Pressure has since been growing for the government to similarly intervene on behalf of industries in similar circumstances such as the textile which claims to be close to shutting down if nothing is done about these cheap from Asian imports which are sometimes heavily subsidised.
However is imperative to remember that soon after duty was reintroduced there was an outcry by consumer groups who felt that local producersabused this to make huge profits. In other words the whole campaign and pleas for cushioning from cheap imports was just a ruse to allowsome in the concerned industry to increase profits without necessarily improving productivity.That is the whole concept of rent seeking; less efficient local producers will sometimes campaign for the government to impose some kind of anti-competition measures which helps them to earn higher profits.
Now because the government bought into this back in July 2011, more businesses have since felt encouraged to campaign for similar measures to be incorporated in the upcoming budget statement for the coming year. The textile industry which is one industry to really feel the impact of cheap Asian imports was in the news last week making its case that if nothing was done then the whole textile industry would simply collapse. Next the National Economic Consultative Forum made a presentation which basically advocated for an even more punitive duty on imported products like soyabean, cooking oil, palm cooking etc to ostensibly protect jobs.
However this argument is somehow flawed because it completely ignores the other side of the argument, the consumer’s welfare. Granted the competition facing local producers is sometimes not fair as they have to compete with heavily subsided importsand currencies of trading partners that are manipulated to give an unfair advantage. The textile industry is one industry that has really articulated well this position and they make a compelling case for the government to do something. However consumers too need recognition and the whole debate needs to accept that competition is the only way a correction of some of the anomalies can be made.
For instance just last week, the Commercial Bank of Zimbabwe announced that it was raising funds to help to revive the production of soyabean whose production plummeted when the government undertook its controversial land reform process a few years ago. This fund-raising initiative was necessitated by the fact that major consumers of this commodity National Foods, Olivine Industries currently have to import a major proportion of this commodity because there continues to be a shortage on the local market. So it clearly does not make sense for the government to impose stiffer duty on a product that is in short supply, if anything the present duty on this commodity should be scrapped.
That way these companies would actually create jobs as the cheap soyabean would in normal circumstances result in a cheaper finished product which would then increase its demand forcing these companies to hire more labourers to match the increased productivity. This is more palatable from the standpoint all stakeholders and more importantly this does not promote or encourage inefficiency especially when the actual commodity is in short supply. Duty on this commodity will not encourage farmers to produce more but it will only succeed in making the final product more expensive.
In any case agriculture output has not recovered since the land reform because the new farmers are still ‘learning’ hence the low output. So instead of seeking government protection these lobbying groups should seek government assistance in educating or training of farmers to produce other crops like soyabean. In the end an abundant supply of soyabean will lead to lower cost to producers who will then pass this onto consumers in the form of lower prices.
Also the use taxation to undercut what may seem to be unfair competition should not be the only tool used to intervene in every circumstance, but each case should be examined on a case by case lest we run the risk of succumbing to the designs of protectionism advocates.
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