CONDITIONALITES
8.5.0 Stimulating construction exports
industry but also in the rest of the economy. In the past, Government policy was geared towards import substitution and protectionist policies for infant domestic industries, now imports are 'freely' allowed into the country and local companies are expected to compete with foreign and established companies. The immediate impact of this import liberation policy on the Zimbabwean construction market has been to ease the former shortages of construction materials by providing the Open General Import Licence (OGIL) which has resulted into minimal delay on construction sites. It should be noted that short construction periods also mean lower construction costs, especially in countries with high inflation like Zimbabwe.
Sources of construction imports: As we have already learned, most of the respondents obtain their construction material from South Africa. Easy access and short distance appears to be the main reasons why the formal and informal sectors prefer this country. The Zimbabwe National Chambers of Commerce (ZNCC) has accused the Zimbabwean Government in the Customs & Excise Department of laxity in collecting customs duty and corruption. They charge that corrupt custom officials are giving informal traders and smugglers unrestricted access to this business. There is need for Government to investigate this allegation and Government move in quickly to seal these loopholes. Failure to do so meant that the Government would continue to loose millions of ZimDollar through such illegal operations. The high production costs emanating partly from high taxes on Zimbabwean products have only gone to encourage the importation of cheap construction goods. It must be noted, however, that informal traders tend to deal in small construction items like mortise locks, lamp holders, putty, electric switches etc., rather than bulk items like bath tubs, or geysers which are still dominantly provided by the formal sector.
Effects of imports on the local industry: The positive impact of the import liberation policy was readily appreciated by the study respondents, 73% of the respondents said that imports had helped their businesses. A mere 17% said otherwise. The remaining 10% were either not sure or did not respond to this particular question. Itwas also noted that 17% of the respondents that said they had not benefited from the import liberation policy were mainly manufacturers of construction materials, who were in competition with cheap and sometimes superior products from South Africa. This is not withstanding the findings by most researchers that the importation of most construction inputs in developing countries are providing marginal benefits to the national economy (Habitat, 1985, p.7).
The reliance on imported construction materials means loss of foreign exchange and low multiplier effects. The dependence on imported materials also means a decline in local construction material industry thereby reducing Government revenue from domestic companies.
continues to fetch less on the auction floors. The desperate search for more non- traditional exports has taken top priority in Zimbabwe's development policies. In this respect, all sectors of the economy are expected to earn some foreign exchange through promoting production and exports. Some construction companies, notably Circle Cement and the Forestry Commission are exporting their products and earning some foreign exchange. For example, figure 7.3 shows that export earnings from building materials and sawn wood increased by 62% and 99% respectively between 1991 and 1995.
The only strategy for companies in construction and other industries to win exports, is to attain high efficiency levels and reduce their production costs. With the birth of COMESA and the signing of the World Trade Organisation agreement to reduce trade tariffs and eliminate unfair trading, Zimbabwean companies will learn that, only efficiency and quality goods and services are key to promoting exports. Circles Cement Ltd. is a good example of how privatisation, coupled with good management can lead to more exports for Zimbabwean construction companies. Another suggested strategy is to convert the informal industries into formal industries, the combined forces of these sectors will produce a sizeable quantity of products for export in fulfillment of the aims and objectives of ESAP. Of importance also, is the industries' ability to meet world standard in quality products in order to meet the objectives of ESAP.
There are dangers though; in an export-orientated market, exports can create shortages on the domestic market thereby driving prices and inflation high. For example, in 1993 while cement was scarcely available for the housing sector, Circle Cement exported as much as 300000 tonnes. This is a clear indication of the effect of the free-market created by ESAP. A situation such as described above makes shelter unaffordable.
The traditional strategy of lowering the exchange rate (devaluation) is no longer a viable option given that the forces of demand and supply on the Zimbabwean money market now solely determine the rate of foreign exchange. Besides, we have already seen that, even in instances where the ZimDollar has fallen rapidly (in essence devaluation), Zimbabwean companies have failed to break into foreign markets. From past experience, we can safely say that in Zimbabwe, devaluation in essence means increased fuel price and therefore, increased production costs for local companies, which negates the intended cost advantage of devaluation.
The other important factor to consider in the export promotion drive is the quality of goods and services. Years of Government protection of local industries seem to have done more harm than good to the quality of most Zimbabwean goods. Aked (1995b) has warned that, although regional and world trade barriers are likely to disappear within the next few years, the biggest obstacle to Zimbabwe's export drive is the "quality barrier."
The 5% import levy for goods coming into Zimbabwe since 1995 (Zimbabwe, 1996), that the Zimbabwean companies requested has back -fired against them. The levy does not differentiate among raw materials, intermediate goods and finished goods. In effect, the new 1995-import levy has had the effect of increasing the cost of production for most companies dependent on imported raw materials and making their goods more expensive than imported goods. With a continuous downward fluctuation of the local
export market so as to counter input costs due to foreign exchange losses and salary/wage increases.
8.6.0 Targeting the international and regional construction markets
Studies from around the world show a close relationship between countries with a high GNP and a high export base. The recent signing of a zero rate tariff by the year 2000 by the Common Market for Southern and Eastern African Countries opens up export markets for Zimbabwean goods and services. Zimbabwe has also signed the Southern African Development Community (SADC) trade protocol, which is designed to eliminate all barriers to inter-SADC trade, import tariffs, and quantity restrictions, and will become operational as soon as two thirds of the member states ratify it.
Until now, most Zimbabwean companies were concerned that they could not penetrate Southern African markets (especially that of South Africa) because of the high import tariffs that these countries had imposed on Zimbabwean exports. The significance of these trade arrangements in either SADC or COMESA can best be seen in the fact that the Eastern and Southern African market has a total popUlation of over 215 million and a combined GNP of $134,305m, more than 50 times the local market (UNDP, 2000)
What makes this Eastern and Southern African Common Market more interesting from a construction point of view is that two of the member states, namely Angola and Mozambique, are just coming out of civil wars and are now rebuilding their physical infrastructure. South Africa, the region's economic giant, has also only recently gained majority rule and is in a hurry to redress the housing and social infrastructure imbalances left by the apartheid era. Currently in motion, is an ambitious £2bn housing scheme to build approximately 1 million houses in the next five years, and the rest of the region is eagerly waiting to grab a piece of the cake. To try and achieve this task, the South African government has recently set up a National Housing Board. The Board coupled with government housing subsidies is trying to solve the housing crisis (Ofori
et
ai, 1996, p. 215). The opening up of the Southern African Market also brings in a larger and richer clientele.
Clearly, the legislative process has been set and the future now looks promising, but the Zimbabwean construction industry is unlikely to be ready to exploit these opportunities in the larger regional market. This is because of the low percentage of companies intending to expand into the export business. Only 3% of our respondents had any immediate plans (in the next five years) to expand their businesses to cater for export orders or commissions when the free trade area comes into effect in the next four years.
This raises serious doubts, concerns and questions about the management and operations of our construction industry. Obviously, there could be other reasons for this trend. From previous chapters, we know that high interest and inflation rates have been major factors in inhibiting businesses from securing loans for business expansion and quality improvements.