Protectionism; the other side

Terence Zimwara

Zimbabwe’s Vice President Emmerson Mnangagwa, recently applauded the government import control measure, statutory instrument (SI) 64 suggesting it helped revive local industry. Media reports indicate the country saved about $2 billion as a result of the statutory instrument according to figures from the Ministry of Industry and Commerce.

Many proponents of SI 64 seem to share the Vice President’s view that government intervention had brought success. The oil pressing industry is often touted as an example of the effectiveness of this protectionist policy. Local edible oil manufacturers now dominate the local market while one South African producer had to open a manufacturing site in Zimbabwe to circumvent the blockade on imported cooking oil.

Other manufacturers have also come out to support this government policy insisting that production levels increased as direct consequence of SI 64. However, government protection often comes at a cost, and it is this other side of the coin government must be worried about.

To help readers understand, let us rewind back to that fateful weekend last September, when prices suddenly spiraled out of control. There was chaos across the retail market, prices of basic goods suddenly rose by rates that just did not make any sense and cooking oil was one such product. In some instances, the price of this basic commodity more than doubled while reports of shortages of the product also emerged.

Here is a situation that must be a cause of concern to government and advocates of SI 64 and protectionism in general. Edible oil producers have specifically received state support as government frantically tries to halt the surge in imports. The blockade on imported cooking oil among others, gave local producers breathing room allowing them to increase production levels. Having attained optimum production levels however, some producers now feel they can act unilaterally without having to inform government just like what happened in September.

Granted, edible oil manufacturers might have increased prices with ‘good reasons’ just like everyone else but the fact that they are beneficiaries of a protectionist policy raises stink. Certainly it is a case of having your cake and eating it too! When business conditions are unfavourable, local producers seek support and protection from government, yet when it suits them they act unilaterally!

One can be forgiven for thinking that manufacturers celebrated the introduction of SI 64 because the statutory instrument created perfect conditions for them to dominate the market to the detriment of consumers. Having succeeded in limiting foreign competition, manufacturers know they are now in a position to dictate prices or to even limit production. The recent price increases are a testament to this.

In any case, we always have to remember that companies do not seek protection from imports because they have benign intentions, profit maximization is always the overriding motive. That is why a blanket ban on certain imports without securing concessions and commitments from local producers is ill advised.

Meanwhile, government says it has launched an inquiry into why prices soared in September and hopefully answers will be made public. For their part, local manufacturers through their trade bodies, distanced themselves from the price hikes insisting they had not made any price changes and that they had enough stocks.

 September price hikes might have been prompted by the volatile bond note currency, which lost value notably on the weekend in question. Suppliers of imported products quickly adjusted prices to match the changes in the ‘exchange rate’.

Surprisingly, some locally produced goods especially the ones protected by SI 64 were adjusted as well when panic gripped markets. Ultimately this short changes the Zimbabwean consumer even though no one is taking responsibility for the price increases. The Zimbabwean consumer is now exposed to a limited choice of products that are expensive, the true hallmarks of protectionism.

So while government celebrates the success of SI 64, a balance must be struck between the objectives of the statutory instrument and the welfare of consumers. Ignoring consumers concerns will inevitably lead to increased smuggling thus defeating the whole purpose of the SI 64.

Terence Zimwara is a writer and commentator. Contact him on 0771799901 or tem2ra@gmail.com