«ANSA Alternatives to Neo-liberalism in Southern Africa The search for Sustainable human development in Southern Africa Editors: Godfrey Kanyenze, ...»
The Zimbabwean experience of the 1980s and its cotton expansion programme of the 1990s are just some "best practice" examples of creating dynamism linkages through inputs of extension services, infrastructure (roads and dams) and subsequently creating conditions for value chains production linkages between firms in the formal sector and out-grower schemes in the non formal communal agricultural sector.
Similar schemes already exist in a number of countries, e.g. in Kenya and Zimbabwe in the case of tea, horticultural products and cotton, but they are not being replicated in sufficient quantum to make a difference for development.
3.2 Failure to respond to trade liberalisation and globalisation The general erosion of the manufacturing sector of the developing countries, especially its industrial competitiveness, has not spared African economies, including those of Southern Africa. The region's manufacturing sector and its export sub-sectors in particular, have been hard-hit in the traditional export markets of the North. This has been exacerbated by the emergence of Chinese and other more competitive Asian products. The region's exports in general, have not grown as expected; in fact there has been a decline of most sub-sectors, especially garment and textile exports in recent years. The traditional markets, which Southern Africa has been accessing for a long time, are based on trade preferences, which are soon coming to an end.
After one or two decades of trade liberalisation, there is still very little to show in terms of practical policy measures and institution building mechanisms geared to facilitate and promote domestic firms in their quest for competitiveness. Even in those countries, where governments have moved on to privatise non-core activities, liberalise markets, prices, interest rates, etc. to enable the private sector to procure inputs including raw materials at competitive world market prices, the manufacturing sector has not responded as expected. The real scare is the observation from regional studies, indicating that as regional firms continue to focus solely on the "low road" manufacturing activities, this is inevitably plunging the region into competition with those economies characterised by low labour costs, such as in the case of China (For details see COMESA Firm Strategies Under Trade Liberalisation, July 2004).
3.2.1. Zambia Zambia provides an example of policy inconsistencies and ill thought policy reversals that are abound in the Southern African region. Zambia's structural adjustment and economic liberalisation of the early 1990s, inter-alia, freed interest rates and prices, discontinued subsidies of basic foodstuffs and energy, and repealed foreign exchange controls, devalued the Zambian Kwacha and substantially reduced external tariffs.
Privatisation and deregulation were supposed to be further measures to improve efficiency. However, with hindsight, these measures were too broad and too quick, thus putting the economy in no less severe crisis than it was before the reform. In a major way the measures resulted in a severe de-industrialisation of the economy. The country's manufacturing sector apparently suffered from the impact of tariff differentials. Duty and sales tax raised on imported raw materials made Zambian products more expensive when compared with lower or no duties on imported inputs including final products. This led to the view that the government policies had slowly destroyed the country's manufacturing sector due to nonsupportive policies, e.g. levying more taxes on imported raw materials than those charged on finished goods.
Emerging from these adverse conditions and circumstances, many domestic firms are still operating inefficiently and are not proactive in adopting new export strategies. On the contrary most domestic firms continue to pose the usual argument for 'limited protection' that at present, given the country's negative industrial development and slow economic progress, local firms cannot be expected to be competitive. The country's erstwhile strong mining, metal and metal products sub-sectors have declined, throwing the country into a trickle of non-traditional exports, namely agro-processing sector (cotton, tobacco, coffee, sugar, vegetables and cereals). In 2002, the non-traditional exports increased to 39.68% of the total exports up from 34.57% in 2001.
3.2.2. Zimbabwe Zimbabwe experimented with trade liberalisation and structural adjustment programmes in the 1990s. However, the decade ended with some policy reversals, which included the reintroduction of price controls, increased tariff rates, pegging as well as recourse to multiple exchange rates, and suspension of foreign currency accounts operated by corporations, although this was later reinstated.
Since the beginning of 1999, the country's productive sectors became embroiled in a series of politically induced economic challenges. They have continuously been adversely affected by severe foreign exchange constraints and a drastic upsurge in the inflationary pressure (at the end of 2003 the inflation rate reached 600%). This has resulted in the continued downsizing of agricultural and manufacturing production, and hence the negative effect on regional and international competitiveness of the country's exports. The downturn in production is demonstrated by the fact that the share of GDP per capita for agriculture and manufacturing in 1999 was US$107,84 million and US$118,66 million respectively, in 2001 these figures declined to US$72,55 million and US$69,58 million.
Between 2000 and 2003 Zimbabwe experienced a massive closure of 750 firms, which led to retrenchments of several thousand workers. The real state of the manufacturing sector has declined over the years in response to the negative trading environment caused by foreign currency shortages, power cuts, loss of credit lines and the escalating costs of raw materials. A cumulative factor of de-industrialisation became selfreinforcing in that as agricultural production declined, that sector supplied less inputs to the manufacturing sector and required less inputs from the latter (Zimbabwe Independent, business digest, p.3, July 16, 2004).
3.2.3. Malawi In 1990, the Malawi's textile and garments sub-sector was boosted by the signing of the South Africa/Malawi trade agreement, which attracted many South African companies to invest in Malawi doing CMT (cut, make and trim) operations for the South African market, effectively relocating a part of South Africa's garment industry to Malawi. Malawi's exports of apparel (clothing) grew rapidly from $1.8 million in 1990 to $63 million in 1999 once the new firms began to take advantage of the bilateral trade agreement. However, in 1998 the agreement came under attack. By January 2000 trade with South Africa under the agreement had virtually ceased with nine firms closing. The remaining firms battled to survive while the terms of trade with South Africa were renegotiated under the SADC Trade Protocol. South Africa delayed implementation of the SADC FTA (free trade area), further decreasing its attractiveness as an investment destination for Malawian textile and garments. In September 2001, agreement on quotas for apparel was finally reached, but by this time the critical mass built up during the 1990's had been destroyed and Malawi was no longer an attractive destination for investors to take advantage of the Southern Africa Customs Union (SACU), FTA or the African Growth and Opportunity Act (AGOA).
However, the death nail for the local exports had already been cast, many companies came to operate at well below operational capacity levels, others closed down, spelling out a severe de-industrialisation. The few that remained retracted to the domestic market as their main firm strategy. The major dilemma of this strategy is that the domestic market was itself very limited and shrinking due to the high poverty levels and declining real incomes.
3.2.4. Swaziland Small economies of Southern Africa, such as Swaziland, though part of SACU, have long recognised their limitations in terms of size and economic space. Since the 1980s, Swaziland promoted the growth of foreign investment. As such, FDIs have become a major factor in propelling the growth of the economy, with FDIs growing by 10.6% from 2001/02 to 2002/03. In response to trade liberalisation and global trends, Swaziland's hub of exporting firms became concentrated within the manufacturing sector where efforts were stepped up to create strong backward and forward linkages to enhance competitiveness and sustainability. Government has also strengthened linkages among the tertiary, secondary and primary production sector, with individual firms being facilitated to harness their potential.
The textile and clothing industry, has shown massive benefits from the AGOA and has continued to record commendable growth in recent years.
But these offshore investments, attracted to exploit the advantages of relatively cheap labour29, good logistics (proximity and efficient shipping via the port of Durban), rental incentives, availability of factory shells and tax exemptions, have failed to absorb the country's labour force into the mainstream economy.
Contrary to the developments in capitalist economies, which are increasingly being organised in a variety of different business systems and global commodity chains approaches, building on distinctive institutional contexts and through co-ordination of economic activities across national boundaries, the Southern African manufacturing sector is still predominantly producing in isolation even at the domestic level.
Because of anti-export signals directed at them by non-firm institutions (mostly government), most firms are at best ambivalent about whether to consider exports into the regional markets or stick to the still secure domestic market.
While the above are only a few examples of the experience of Southern Africa under the frontal attack of trade liberalisation and globalisation, the regional manufacturing sector faces a tenuous relationship with virtually all the international trade agreements. In addition, because of a lack of understanding or an appreciation of a "coherent view" of the "grafted capitalist" mode of production of a typical Southern African economy, contradictory relations emerge to the functioning of regional manufacturing firms in direct opposition to the pace of integration into the global economy.
4. Factors influencing manufacturing sector performance Performance of the manufacturing sector is strongly influenced by political, macroeconomic and meso level interventions. Presence and quality of physical infrastructure, human resource development and access to capital are other strong determinants In comparison wages per hour currently stand at US$2.40 per hour in Durban South Africa, US$1.50 in Swaziland and 68US cents in China. Figures obtained from a mixture of Swazi textile and clothing manufacturers.
4.1 Political, macroeconomic and meso level interventions The three most important factors that influence the growth and diversification of the manufacturing sector hinge on the political/government, macroeconomic and meso level spheres. These are the fountains of a country's economic policy (fiscal, monetary, trade policy) environment as well as incentives/regulatory policies and they directly impact on the competitiveness, diversification and performance of the country's firms. They either provide the basis for domestic industries to pursue competitiveness or disallow them to do so. In short, consistent and sound macroeconomic economic policies, coupled with fiscal prudence, provide and nurture the availability and growth of basic factors of production, which are essential for growth of exports.
As shown in Figure 1, at the helm of policy influence and direction is the government and political sphere, which encompasses the nature of the state, governance and the level of participation of non-state actors. The second tier consists of macro-economic factors that are the fiscal, social and regulatory policies as well as trade policies, all of which are bolstered
by the meso level policy instruments, namely:
• Science and technology • Education, • Infrastructure • Labour policies.
These influence the structure and performance of companies and firms operating at sector levels: primary, secondary and tertiary. The macroeconomic factors are at the centre in providing linkages with the rest of the economy. As illustrated in Figure 1, in any modern socioeconomic formation, the firm is the focal point for targeting by the totality of political, governance, macroeconomic and meso level policy instruments.
It can be observed that countries with stable macro economic conditions, inter-alia, have managed to reduce inflation to a figure below 10%, and their trade policies tend to improve significantly. On the contrary, countries with unstable macro economic fundamentals do not only register high inflation rates but also experience extremely overvalued exchange rates, high budget deficits and unstable trade policies. For example, where governments have run with high budget deficits in anticipation of monetary policy to counter the adverse effects of the deficits, this has not been possible due to the weaknesses inherent in both the export and financial sectors.
Figure 1. Role of macro-economic factors in influencing firm strategies
* Non-state actors are: Chambers of Commerce, Trade Unions, Church organizations, etc.
The central tenet of neo-liberalism is that "The market is seen as a selfregulating mechanism tending toward equilibrium of supply and demand, thus securing the most efficient allocation of resources. Any constraint on free competition is said to interfere with the natural efficiency of market mechanisms" (Steger 2002:9). Contrary to this view, it can be argued that in order to expand the sphere of regional manufacturing sector companies beyond the current disarticulated single-firm manufacturing syndrome and embrace a value chains approach, the Government and political sphere should instead proactively create a supportive environment for firms.