Ministerial Statement - Impact of SI 64-2017 - Minister of Industry and Commerce - 9 March 2017

MINISTERIAL STATEMENT

THE IMPACT OF STATUTORY INSTRUMENT 64 OF 2016

BY THE MINISTER OF INDUSTRY AND COMMERCE

 

1.0 BACKGROUND

1.1 Government has come up with a number of interim measures aimed at resuscitating the local industry whose performance had been immensely affected by the influx of imported products. The most notable intervention has been removal of products from the Open General Import Licence (OGIL) through gazetting several Statutory Instruments (SIs) such as SI 64 of 2016 which regulates the importation of selected products.

1.2 SI 64 of 2016 was gazetted in June, 2016 following a recommendation from the local industry which was based on an extensive study and consultations with respective sector players on the locally available manufacturing capacities. Imports are only allowed on instances where the local producers are not able to satisfy local demand.

1.3 This strategy of reviving the local industry is key to the achievement of the economic targets outlined in the country’s blueprint, ZIMASSET (2013 – 2018), under the value addition and beneficiation pillar. Value addition and beneficiation will be achieved through boosting existing industries and also through the creation of new ones.

1.4 The importation of products specified under SI 64 of 2016 is controlled through issuance of import licences. The current licencing procedure requires applicants to physically submit their applications to the Ministry of Industry and Commerce for consideration. Import licences are only issued in cases where there is a local supply gap. The Ministry is in the process of migrating from the current manual licencing system to e-licencing.

2.0 RATIONALE FOR SI 64 OF 2016

The influx of imported products and the subsequent displacement of locally produced goods from the market resulted in the following:

High Import Bill – This resulted in the worsening of Zimbabwe’s trade balance wherein the country imported US$5.2 billion worth of imports in 2016 against exports of US$2.8 billion thereby having a negative trade balance of US$2.4 billion which is unsustainable.

Use of the multi-currency regime – Exports mainly from the country’s neighbouring trading partners were being attracted by Zimbabwe’s use of a stronger US Dollar. 

Capacity Utilisation – The manufacturing sector capacity utilization has been falling since 2011, from a peak of 57.2% to 34% in 2015.

Closure of Companies - Zimbabwe has experienced pronounced company closures and retrenchments. During the first half of 2016, there were 231 company closures, with about 5 333 workers being retrenched during the first quarter of 2016.

2.2 SI 64 of 2016 is therefore, part of Government’s Import Management Programme whose main objective is to assist local industry in its resuscitation process. Regulating imports will lead to industrial recovery, as it stimulates demand for locally produced goods. The Import Management Programme will give companies space to retool and become competitive. In addition, new investments will be attracted as there will be a guaranteed market for locally produced products.

3.0 ACHIEVEMENTS OF SI 64 OF 2016

The following achievements have been realised to date:-

3.1 REDUCTION IN THE IMPORT BILL

The country recorded a reduction in its import bill from US$6.3 billion in 2015 to US$5.2 billion in 2016. This was partly attributed to the Government’s Import Management programme, specifically SI 64 of 2016.

3.2. INCREASE IN REVENUE COLLECTION

SI 64 of 2016 has in effect stimulated local manufacturing production. This had a positive outcome on local manufacturers’ profitability and a marked improvement in their contribution to the fiscus. In the third quarter report for 2016, ZIMRA reported an increase in gross revenue collection of 6%, up to US$919.91 million from US$866.96 million realised in the second quarter of the year. This has been attributed to the implementation of S.I 64 of 2016.

3.3 Increase in Capacity Utilisation and/or Employment Levels

According to the Confederation of Zimbabwe Industries (CZI) 2016 Manufacturing Sector Survey, implementation of S.I 64 resulted in an increase in average manufacturing sector capacity utilisation from 34.3% in 2015 to 47.4% in 2016. Capacity utilisation for some subsectors or companies increased as follows:

3.3.1 Personal Care Products – Datlabs has increased its capacity utilisation from 30% to 50% on the camphor cream line and it is envisaged to reach 70%. Prochem has recorded an increase in both capacity utilisation and employment levels from 30% to 48% and 43 to 101 workers respectively.

3.3.2 Tyre Manufacturers – increased their capacity utilisation from 30% to 50% following the regulation of importation of second hand tyres.

3.3.3 Synthetic Hair Fibres Sector – Blue Track and Sensational which are in the manufacturing of synthetic hair products have since raised their employment levels from 150 to 450 and 12 to 600 workers respectively. Capacity utilisation has also increased from 28% to 60% for Sensational and 15% to 50% for Blue Track Investments.

3.3.4 Furniture Sector – Improved capacity from 45% to 70%. In one instance, mattresses has increased their capacity utilisation from 70% to 85% (2 700 to 3 500 mattresses per month). The industry has also increased operating hours from 5 days per week to 6 days per week.

3.3.5 Tinned Fruits and Vegetables – Associated Foods in Vumba increased capacity utilisation from 38% to the current level of 80%. The company’s employment also increased by 20% to the current level of 143 workers (98 permanent and 45 contract).

3.3.6 Nestle Zimbabwe – The Company’s Cremora Plant increased capacity utilisation from 30% to 70%. S.I 64 also resulted in the preservation of employment which is around 330 workers.

3.3.7 Fertilizer Industry – The fertilizer industry increased capacity utilisation from 25% in 2016 to the current level of 40%.

3.3.8 Plastic Pipes (PVC) – In one instance, capacity utilisation increased from 40% to 51%, sales grew by 13% and there was an additional employment of 27 people.

3.3.9 Chitaitai – S.I 64 of 2016 resulted in the company automating its production and production capacity increased from 2 400 litres of shoe polish per day to 6000 litres per day.

3.3.10 Capacity Utilisation for Downstream Industries

Capacity utilisation for downstream industries increased as follows: Industry

Before SI 64 of 2016

After SI 64 of 2016

Label Supplies

5%

15%

Plastic packaging Supplies

37%

60%

Raw Materials

20%

37%

 

3.4 NEW INVESTMENTS

The following companies have invested in new plant and machinery to date:

3.4.1 Arenel (Pvt) Ltd

In August 2016, the company commissioned a snack manufacturing plant worth US$750 000. Furthermore, they invested into mayonnaise and bottled water plants at a total cost of about US$2 million.

3.4.2 Kershelmar Dairies (Pvt) Ltd

The company which is into dairy and fruit juice production, invested into new equipment worth ZAR2.146 million in August 2016.

3.4.3 Probrands (Pvt)

The management of imported milk and dairy products has seen the company investing into a new dairy processing plant worth US$1.6 million in July 2016. This new investment will increase employment from 340 to 370 workers. The company has also set up a creamer making plant following a joint venture partnership formed end of 2016.

3.4.4 Dairiboard Zimbabwe

Invested in a US$5.8 million state of the art maheu making plant at its Chitungwiza branch.

3.4.5 Associated Foods (Pvt) Ltd

The company invested US$400 000 in a peanut butter manufacturing plant, under the Norwegian Investment Fund for Development.

3.4.6 Proplastics Limited

Proplastics invested in a new PVC Extrusion Line worth US$1.3 million.

3.4.7 Nufert

The company which is a division of Origen Corporation invested US$0.5 million in July 2016 for its new fertilizer blending plant in Mt Hampden. The plant has capacity to produce 200 to 300 tonnes of fertilizer per day.

3.4.8 FSG

In August 2016, the company invested US$1 million in a new Blending and Granulating Plant in Bindura. As a result production went up from 300mt to 1200mt per month and employment increased from 50 to 300 workers.

3.4.9 Chitaitai

The company acquired an ex-Reckitt machinery for US$40 000 and installed a 50 litres tank for the storage of illuminated paraffin for US$19 500.

4.0 Challenges in the Implementation of S.I. 64 of 2016

4.1 Although some success stories have been recorded as a result of the S.I 64 of 2016, as highlighted above, its implementation is not without its own challenges. These challenges include, among others; trade-off between balancing existing employment within the retail and distribution outlets that import and protection of the local manufacturing industries; delays in payments to foreign suppliers of raw materials; and the prevailing liquidity crunch which is currently depressing general aggregate demand.

4.2 Other challenges are continued appetite for imports by consumers, poor quality and delays in delivery of goods by the local producers due to less competition from imports; incessant smuggling through the porous border posts resulting in increased black marketing; monopolistic behaviour by some local producers which has resulted in price increases; and threat of retaliation from the country’s neighbouring trading partners such as South Africa and Zambia.

5.0 Monitoring and Evaluation Mechanisms

5.1 An Imports Management Monitoring and Evaluation Committee comprising of stakeholders from both public and private sectors has been set up to assess the impact of SI 64 of 2016 and is expected to submit its first report and recommendations in due course.

6.0 Conclusion

6.1 To address the challenges of the threat of retaliation from our trading partners, Government will in the long run replace the import management programme with a Local Content Policy. The policy is

anchored on prescribing sectoral local content thresholds for goods purchased by Government Departments, industrialists and retailers, among others. Local Content Regulations (LCR) will be used to maximize localisation of supply chains and these are also considered as smart protectionism measures which are in force in developing, emerging and developed

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