South Africa shuts its doors on Zim businesses

Zimbabwean businesses exporting goods and services into the lucrative South African market face the spectre of seeing their R1,8 billion market significantly shrink, as the South African government will in the next two weeks begin rolling out measures to ensure that 75 percent of procurement is local.

Representatives from the SA government, business, labour and the community on October 31 signed a Local Procurement Accord designed to provide benchmarks, timelines and commitments from all the signatory constituencies on how the plan will be executed.

According to South African Department of Trade and Industry, the Preferential Procurement Policy Framework Act, which essentially gives legal effect to the accord, will come into operation from December 7.
Industrialists and market watchers believe that Zimbabwean businesses and, by extension, Government, will take a serious financial hit, particularly at a time when fledgling local companies are beginning to find their feet after a decade of economic decline.

In addition, the negative trade balance with the southern neighbour is forecast to widen as exports are expected to decline while imports are projected to continue rising.

South Africa is Zimbabwe's biggest trading partner and last year local companies exported R1,4 billion (US$175 million using the 1:8 exchange rate) worth of goods.
However, imports onto the local market rose to R15,1 billion (US$1,9 billion).

By August this year exports had already increased to R1,8 billion (US$225 million).
Virtually all sectors of the economy will be affected by the imminent measures from Pretoria, as products that have been designated for the first phase of the procurement rollout include buses, power pylons, railway rolling stock, pharmaceuticals, set-top boxes, clothing, textiles, leather footwear and food and canned products, including office furniture and school furniture.
South African businesses will submit products that they recommend to be designated by the end of this month.
Local firms widely expected to experience a tight squeeze as the measures take effect are Turnall Holdings, which recently re-launched its exports into the South African market; Caps Holdings, whose drug exports to

the neighbouring country were only allowed through air transport, and firms in the clothing and textile industries, most of which are already experiencing working capital constraints.

In particular, Turnall Holdings commissioned its new non-asbestos plant in the first quarter of this year to counter the effects of an asbestos ban imposed by South Africa in 2008.

The new state-of-the-art plant based in Bulawayo uses cellulose fibre and PVA to manufacture a diverse range of products, but it is feared that procurement policies in South Africa will scupper the firm's latest attempt to enter the South African roofing market.

Pharmaceutical company CAPS Holdings, which delisted in September, is also likely to see its lucrative market shrink since the landing price of its products was already being affected by SA regulations mandating drugs to be transported via air transport as compared to road transport, which is considered cheaper.

Other companies that had carved a niche market in South Africa are also expected to be similarly affected.

Major exports to Africa's biggest economy include tobacco (partly or wholly stemmed and stripped), cotton (not carded or combed), nickel (not alloyed), which contributed R225 million, R138 million and R173 million respectively.

There are concerns that the Buy Zimbabwe Campaign, which was launched earlier this year to stimulate economic growth and promote local employment, is losing steam, a development that is likely to affect economic growth, considering developments in the region.

Economists believe that the South African local procurement promotion project is well articulated, well marketed and aggressive enough to begin to negatively impact on Zimbabwe's export growth prospects.

"Social partners commit to a national campaign in partnership with Proudly South Africa, to create awareness on the economy-wide benefits of buying locally manufactured products. The potential benefits of economic growth, job creation, income generation and competitiveness of South African products will be highlighted to business enterprises, workers and consumers.

"Social partners will also initiate and support public education programmes on the importance of ‘labels of origin' in order to promote fair and legal trade with other countries.
"Constituencies further commit to co-operate with the South African Revenue Service and will work with enforcement agencies to prevent illegal imports and dumping of unsafe products, which destroy domestic enterprises and jobs, and pose health risks," reads part of the signed accord.

The South African government has since made an undertaking that all state enterprises, public entities, local and provincial governments will align themselves to the new public procurement policies beginning next month.

Assessments of how the interventions would have influenced public spending, investment and employment will begin in June next year, with annual assessments made thereafter.

SA businesses have since strategically positioned themselves to benefit from the new policy regime by forming the South African Supplier Diversity Council (SASDC), which is supported by companies that are the largest procurers of goods and services in the economy.

In essence, SASDC will establish the mechanism to provide access to a reliable database of certified bona fide black-owned manufacturers of goods and producers of agricultural products.

Labour has also committed to align investment philosophies and strategies of their pension funds to advance local procurement.

Zimbabwe National Chamber of Commerce (ZNCC) chief economist Mr Kipson Gundani told The Sunday Mail Business last week that South Africa seemed to be more focused than local players, adding that the new policy was likely to present a major challenge for the country.

"Given the fact that South Africa is the country's major trading partner, new developments in that market could be a major challenge for us, as our exports are likely to be depressed.

"The problem that we seem to have as a country in promoting our own procurement policies are challenges mainly associated with inclusivity. For example, the Buy Zimbabwe Campaign seems to have been driven by two to three people.

"Currently, not everyone in the country is aware about the campaign when, in fact, the project is supposed to be distilled to be the daily bread for industry, business and consumers.
"Also, there is this deep-seated notion that foreign goods are always best, which, to me, is basically nonsensical. This culture needs to be remodelled and we need to begin to support each other.

"As a country, we need to appreciate that policies come in packages. If you craft a policy, you need to ensure that it is supportive of the whole value chain as South Africa is doing," said Mr Gundani.

Buy Zimbabwe Campaign general manager Mr Munyaradzi Hwengwere noted that developments in South Africa were a wake-up call for Zimbabweans, which highlighted the need for the country to add impetus to "our own processes".

"Our major letdown has been the lack of unity of purpose among the stakeholders who have been involved in the campaign to promote the purchase of local goods and services.
"It is also important to note that we have been lacking the institutional support that is needed to drive this process; we have spoken a lot about local procurement, but done little. However, we have been making some progress as we were on a major recruitment drive.

"In fact, we will be launching the Buy Zimbabwe Week from November 28 to December 2," explained Mr Hwengwere.

Most of the countries that are feeling the heat posed by the legacy effects of the global financial crisis and, of late, the European debt crisis, are gradually shifting their policies to promote domestic-led growth as opposed to export-led growth.

South Africa, in particular, which has adjusted its interest rates to a 30-year low at 5,5 percent in order to promote growth, is now using every instrument at its disposal — including concentrating on its local market — to ensure that it adds five million jobs by 2020.

Conversely, Zimbabwe has been over-relying on exports mainly of raw materials, but imports remain markedly higher than exports.

Statistics from the Ministry of Finance indicate that last year the country spent US$1 billion on motor vehicle imports, US$1 billion on oil imports and US$100 million on potatoes, a trend that analysts believe is toxic to an economy that is struggling to transition from recovery to growth.

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