A Deeper Look at Zimbabwe’s Industrial Policy

At Gideon Gono’s peak, his monetary policy announcements would cause all manner of analysts – great thinkers and charlatans alike to creep out of the woodwork in criticism or praise. Yet the silence that followed the launch of the industrial policy (IP) by Minister Welshman Ncube either shows lack of understanding or enthusiasm for it or both. I got a copy of the IP from a friend and what follows is an analysis of it. The good news is that at least there is a policy. The bad news is that majority of the contents of that document are either wishy-washy, lack clear action programs or will suffer from a funding problem from day one. The IP itself reads like a seminar document meant to lobby some stakeholders.

I will start by an anecdote. My friend’s acquaintance travelled from Zimbabwe to China to buy stuff for resale. After buying a certain product, he complained that its quality was poor. The Chinese seller angrily retorted, “Why you complain (sic)? In Africa, you can’t even make a toy.” A typical case of bad customer service, but the take away is that we have to learn to make tangible, actual products – genbutsu in Japanese. And the only way we can do that is by industrializing.

The issue of an IP must be at the center of our government programs because it can fix more than half of our national problems. Our economy in its current form is largely agrarian. It is a myth that we can ever develop on the basis of agriculture as no economy has ever advanced on that basis.  If at all we envisage transforming Zimbabwe from a third world country to a developed one, we must as a matter of course industrialize.

That our economy is in bad shape needs neither a rocket scientist nor a Nobel-prize winning economist to discern. There is everything wrong with an economy where the largest listed company is a mobile phone operator, followed by a beer company and the Ministry of Industry and Commerce (MIC) – led Industrial Development Policy must address that. With a sound policy, implementation matrix, a national consensus and a vision, there is no doubt that Zimbabwe can catch up with or even surpass South Africa.

What is an IP and what must it achieve? Industrial policy remains important in transforming the economies of third world countries, and while context differs in determining the success of IPs, the Gerschenkronian view that economies like ours have the advantage of “backwardness” and thus require less, yet transferable input as they try to catch up with industrialized nations rings true in our case. An IP is a strategic effort and a set of programs adopted by a government to develop and grow productivity, particularly in the manufacturing sector, through targeting certain industries, providing clear guidance, subsidies, trade protection and anti-trust exemption in others. Far-eastern countries like Japan, Korea, and Taiwan are good examples where IP has been effectively used to catch-up with the West

By far the most judicious example of industrial policy to learn from is that of Japan. With economic development, you can hardly reinvent the wheel. Pretty much, the best ideas have been devised and implemented effectively elsewhere. What helps is to adopt and adapt, and use ingenuity and innovation in line with our own context. In Japan’s case, the role of the Ministry of International Trade and Industry (MITI) as the IP champion is widely renowned and revered. In evaluating the IP presented by Minister Ncube, I will draw from lessons discernible from the Japanese IP experience. To argue that adopting the Japanese style pro-growth IP would be replicated in Zimbabwe would be naiveté of the worst sort, as context, including ideological politics is a major factor. However lessons can be drawn from that example of success.

To start with, vision is very important as a guide for the nation with regards to industrialization. In general, I think our national vision is very confused. Placing agriculture at the centre of our economy will not graduate us from being a third world country. In the IP he presented, Minister Ncube and his team envision Zimbabwe to be country that produces value added goods. That’s sounds to me like a weak purview of what our great nation should be. It is neither a great vision nor an inspiring one. Should we not have a bold vision that rallies national consensus towards a desirable future state, a vision that makes it clear that we should become an industrialised country at some point, by catching up with the industrial giants of the West and East? In Japan’s case, an enduring vision which sought to bring Japan at par with the United States and other Western countries, and get the economy out of the ashes following its defeat in WW2, was one of the key drivers in championing that country’s economic miracle and rallying a national we-can-do-it spirit . Creating a bold vision makes clear of where we want to be as a country.

For the benefit of readers who have not had the chance to see the IP, it’s main objective is to “restore the manufacturing sector’s contribution to GDP of Zimbabwe from the current 15% to 30% and its contribution to exports from 26% to 50% by 2015”.

In simple terms, the IP sets to double Zimbabwe’s manufacturing output over the next five years. That is by no means a hard target other things being equal. But reading through the whole document gives you a sense of déjà vu – that this is one of those documents crafted by government bureaucrats that will be partly implemented at best and gathers dust somewhere at worst.

A section on necessary conditions for Zimbabwe’s industrialization reads “… there will be a critical need for close cooperation in the following key areas” like electricity, water, roads, rail and labour legislation for the IP to succeed. Yet prior to finalizing the policy, that close cooperation and consensus must have been sought and cemented. That is the greatest lesson that can come out of Japan’s successful IP. MITI championed consensus even under very difficult circumstances and disagreement – the so-called nemawashi (consultation to lay the groundwork).

Developing an IP needs a strong dose of systems thinking. That thinking does not run through the present IP. Systems thinking requires the development of a policy by breaking the system down into its constituent parts and then evaluating each in detail by looking at its inputs, processes and outputs. For example, the desired output of the IP is a 15% increase in the manufacturing sector’s contribution to GDP. The next question should be, what inputs do we need to double the output? Clearly, the inputs required are labour/skills, technology, capital, energy, water, innovation, among others. Thereafter, one needs to ask what processes should take place and what exogenous factors need to be managed, especially where exports are to be doubled as well. This is how the IP should have been crafted. For a country to double its manufacturing output, its it either has to double some or all its inputs (technology, labour, electricity, etc) or double the efficiency coming out of its processes. But clearly, we doubt that ZESA will double its power supply over the next five years. The Prime Minister expressed shock at having discovered some equipment fitted in 1923 in some factories. We also know that we won’t be able to quickly take out technology from the last millennium and replace it with high-tech plants immediately. Neither can we double the efficiency from our production processes over the next five years unless we rapidly upgrade our skills. On the basis of these realities, the objective of doubling manufacturing output seems to fall flat on its face.

The IP clearly suffers from a resource shortage. The IP simply notes that government will identify credit lines of a short to medium term nature. It’s not enough to say government will identify credit lines, the policy should specify how and what should be done for capital to flow in and for the country to attract those credit lines. It also suggests the formation of an industrial bank. This is a noble idea. However, the case of IDBZ, its capitalization issues and record in infrastructure development does not help in inspiring confidence that an industrial bank will be formed and help to capitalize manufacturing companies enabling them to double output. Relating this to the successful case of Japan’s IP, that country benefitted from a large amount of local savings. Without savings in Zimbabwe, NSSA, which has largely been involved in stock market and real estate, has a role to play in funding manufacturing. If Old Mutual, a private mutual fund, can provide $20 million for distressed companies, NSSA which collects money from everybody should be able to set a side much more than that to capitalize industry.

The IP also promotes cluster development – the targeting of specific sectors, such as the chemical industry, agro-processing industry and metals and electrical’s sectors. This is noble in developing competencies in these sectors where the country has an advantage. But the policy is not clear on exactly what the government shall do with these sectors to double their output. For example, much of the section on the metals and electricals custer simply describes the revival of Ziscosteel. It is not clear what aspects of electricals the IP will promote. It also lacks an examination of the value-chain elements of those specifics cluster areas and how they will be developed to create sustainable competences. What can be discerned from MITI’s success was how it leveraged industrial keiretsu (related value chain companies), providing comprehensive and clear support to sectors such as electronics, chemicals, rail and so on. A sector that is a prospective clear winner, though it does not constitute hard manufacturing, that could have been supported by the IP is the software industry, which can easily position Zimbabwe as a software outsourcing hub for Africa.  Clearly, the policy spells out a cluster development approach that seeks to promote certain productive industries.

A lot of things critical to any IP are extremely either too vague or missing from the policy. It lacks detail on how technology will be revamped and funded for the identified clusters. Critical to developing a country’s competencies in specific sectors is the development of innovation and heavy investment in research and development (R&D. It is not clear how the policy shall promote these two issues for the identified clusters because the country needs those competencies to double its exports. Neither does the policy clarify how to promote intellectual property development within innovating companies nor control and manage the targeted sourcing of patents and technology for the identified clusters. Its not enough to just say pharmaceuticals will be targeted for development without specifying the critical aspects of how patents will be sourced and managed as they are critical for developing competencies in that industry.

Here is a good example of how Japan supported the semi-conductor cluster in order to chip away at the dominance of the United States during the 1970s. The Asahi Shinbun in 1976 reported that, a VSLI (very large scale integration) R&D project was started jointly by the government and the private sector. To do so, the VLSI Technology Research Association was formed comprising five domestic producers in two groups, viz “Fujitsu-Hitachi-Mitsubishi and NEC-Toshiba. The firms together with MITI created a joint research institute comprising “100 researchers from the member firms and MITI’s Electronics Research Institute. During the following four years, about 70 billion yen, including a government subsidy of 30 billion yen was spent. The technology necessary to develop VLSI was developed and the association disbanded…”

Our own MIC needs to learn from this and provide guidance towards joint research that stresses the necessity of pooling R&D efforts to efficiently use scarce scientific manpower and research funds. One way of generating funding for technical research is to redirect the funds from state and private lotteries towards scientific research, and then licencing the patents out to the private sector.

If you plan to double your exports, it must be clear how you also plan to make your products competitive in terms of price and quality. The MIC’s IP does not say what it will do to improve the quality and price of our exports. Zimbabwe’s production is very expensive and this renders it uncompetitive in global and regional markets. Retail products in Zimbabwean shops clearly demonstrate this point. A box of Bokomo conflakes (a South African manufactured product) is much cheaper than a similar Willards product (Zimbabwean product). One of the major reasons for this is that labour in Zimbabwe is unnecessarily very expensive and these labour costs are feeding directly into the pricing of products. It is mindboggling why labour is expensive in Zimbabwe with such a high rate of unemployment. To emphasise the point, it makes no sense to pay a CEO any more than $5,000 per month if the company is operating at less than 30% capacity. That is why it is disturbing to hear that many executives are paid more than $10,000 per month. President Obama is paid about $30,000 per month as CEO of a fifteen trillion dollar economy, there is no justification for paying a third of that to a CEO of a company operating at 20% capacity in a five billion dollar economy. This is a structural problem that should clearly be addressed in the IP. It’s not a secret that Zimbabwean products struggle to compete in the region on a price and quality. As a matter of fact, few Zimbabwean firms have successfully done business in the region. Conscious of this problem, Japan’s IP employed a clear strategy of promoting an investment race that culminated in the adoption of successively more efficient mass production methods that lowered costs and made production very competitive globally, especially for export-oriented firms in the major identified industries.

The MIC’s IP encourages import substitution. However, the policy is not clear on export promotion with regards to the quality of output for exports and its competitive pricing. Apart from a general comment on the Standards Association of Zimbabwe, the policy contains no robust measures on setting sustainable standards on the goods to be exported. To export value added goods, while protecting some local industries from foreign competition as proposed in the policy, we must necessarily go beyond import substitution to export promotion. Yet fundamental production inefficiencies in our factories render our goods uncompetitive internationally. The policy lacks mechanisms to ensure the supported clusters are put under pressure to reduce per unit costs of production through production efficiency, use of technology, eliminating waste and ramping up output.

The policy also lacks a program of technical cooperation with international and local agencies to engender technology transfer and diffusion. In order to catch up, the country must work with developed countries. For example, Korea’s electronics industry was a great beneficiary from Japanese and American engineers and scientist and their innovations. That is how companies like Samsung quickly developed competencies in memory chips, particularly dynamic random access memory. In the same vein, Sharp Corporation of Japan also leveraged RCA’s patents on liquid crystal to create liquid crystal displays (LCDs). This is the only way Zimbabwe can leap-frog itself to the latest technology curve.

Eventually, the success of Zimbabwe’s shall be function of implementation of the policy. First, the policy needs to be improved clear it of all vagueness and the missing links. Another lesson that can be drawn from the Japanese example is the mutual cooperation between government and the private sector – the cooperation of government and business as collaborators and not as adversaries. Also the use of administrative guidance (gyōsei shidō) by MITI as an instrument of enforcement can help our own MIC is implementing its own policy. This entailed the use of persuasion, advice, and influence to push corporations towards a direction viewed as desirable by MITI’s bureaucrats who also had the power to give or to withhold government contracts,  import permits, tax concessions, loans, grants, subsidies, licenses, foreign currency and approval of oligopolistic cartels.

In conclusion, the current policy lacks a clear program of agreed actions that will double Zimbabwe’s manufacturing output. MIC needs to address that as well as provide and communicate more detail on the missing links. Even then after sprucing up the document, doubling of Zimbabwe’s output can only come from collaboration, consensus building as well as hard-nosed implementation of the action plan, while adjusting the policy to account for emergent imperatives. And most of all, there is need to learn from successful frontrunners.

The guest author,  Taurai Chinyamakobvu is a consultant and scholar of Japanese technology and business methods. The opinions expressed herein are his. Feedback can be sent to tchinyamakobvu@gmail.com

Photo credit: William Gwata (manufacture of the Baby Gwata)