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CountIy Background Papers ....

Public Disclosure Authorized ..

•• Public Disclosure Authorized

Zimbabwe Country Background Paper

Economic and Social Institute, Free University, Amsterdam Depanment of Economics, University of , Public Disclosure Authorized Draft Public Disclosure Authorized

REGIONAL PROGRAMME ON ENTERPRISE DEVELOPMENT

ZIMBABWE COlJNTR.Y BACJCGROUND PAPER

April 1993

Economic and social Institute, Free University, Amsterdam Departaent of Economics, University of Ziababwe, Barare

EXCHANGE RATE

Annual Averages

1980 US$ 1.00 "" Z$ 0.64 1981 0.69 1982 0.76 1983 1.01 1984 1.24 1985 1.61 1986 1.67 1987 1.66 1988 1.80 1989 2.11 1990 2.45 1991 3.44 1992 S.10

BASIC INDICATORS

population (1992) 10.4 million Population growth rate (1982-92) 3.2\ Urban population (1990) 28\

GNP per capita (1990) $ 640 Growth rates 1980-90: GDP 2.4\ GDP manufacturing 2.8\ GDP services 3.4\ Total GDP 2.9\ GDP deflator 10.8\ GDP in manufacturing (1989) $ 1384 million External debt (1990) $ 3.2 billion

i CONTENTS

I Overview of the Economy

1.1 Historical OVerview 1.2 The Structure of the Economy

II The Manufacturing Sector

2.1 The Structure of the Manufacturing Sector 2.2 Sub-sectoral Profiles

2.2.1 , and Footwear 2.2.2 Metals and Metal Products 2.2.3 Processing 2.2.4 Woodworking and Furniture

III The Policy and Institutional Environment

3.1 Introduction 3.2 The Legal System 3.3 Taxes 3.4 Price Control 3.5 Investment Regulations 3.6 Direct Foreign Investment 3.7 Public Enterprise Reform and Investment in Infrastructure 3.8 Local Government Regulations 3.9 Labour Regulations 3.10 Skill Formation 3.11 Financial Intermediation 3.12 Business Support Systems 3.13 Foreiqn Trade Requlations

Annotated Biblioqraphy

ii TABLES

1. Macroeconomic Indicators 2. Composition of GDP (1980 prices) at Factor Cost 3. Formal Employment by Sector 4. Composition of the Labour Force 5. Public Finance 6. Gross Savings by Type of Institution 7. Balance of Payments (1987 - 1992) 8. Index of volume of production of the manufacturing sector 9. Gross output of the Manufacturing Sector 10. Employment and Wage Bill in Manufacturing by Subsector, 1988 11. of the Manufacturing Sector, 1982 12. Total Enrolment at Technical Colleges, 1990 13. Liquidity Ratios of Financial Institutions

iii

I. OVERVIEW OF ~ ECONOMY

1.1 Historical Overview

It is useful to distinguish three periods in Zimbabwe's recent economic history: the period from the Onilateral Declaration of Independence (ODI) in 1965 until independence, the first post­ independence decade (1980-1990) and the period under the Economic Reform Programme (ERP) (from 1991 to the present). The ooI period is important for its lasting impact on the structure of the economy and its effect on the post-independence policies pursued by the government. At the end of the 1980s Zimbabwe was a heavily regulated economy, the legacy both of economic sanctions and of the socialist policies pursued after the ODr period. At present Zimbabwe is undergoing radical change under the Economic Reform Programme. In the past two years the economy has been liberalised to a significant extent.

The UDl period

When the Smith government declared Rhodesia independent, the country had an extremely open economy that had just gone through a period of rapid growth. In response to the Unilateral Declaration of Independence economic sanctions were imposed by Britain. Rhodesia was excluded from the sterling area, Rhodesian assets were frozen, all trade and capital transactions were prohibited, and official aid was terminated. Most countries followed the British example was followed so that two-thirds of Rhodesia's foreign trade was affected by sanctions. However, there were important exceptions, including South and , so that Rhodesia did not lose access to harbour facilities in and .

The Smith government reacted to the imposition of sanctions with a highly interventionist set of economic policies. Controls were imposed on external trade, for.eign exchange, prices, wages, interest rates, investment and repatriation of profits. The government introduced import quotas and a system of foreign exchange allocation many elements of which still survive. Quotas effectively kept out all imports competing with domestic production. Onder the system of investment control the main criterion for judging applications was a project's net foreign exchange contribution; projects which were not expected to generate foreign exchange, either by raising exports or through import substitution, were not approved. In addition, the

1 system aimed at avoiding "duplication", i.e. investment in competition with established domestic producers. As a result of these government regulations firms were protected both from foreign and domestic competition. Partly because of this lack of competition, a system of mark-up price control was set up. All changes in prices required government approval and the system was rigidly enforced.

There were three phases in the UDI period. The first two years were marked by a sharp decline in exports and a small decline in GDP. This was followed by a period of rapid growth and diversification (especially of the manufacturing sector). This period was characterized by remarkably high investment levels, the investment rate rising from 16\ of GDP in 1965 to 29\ in 1975. The manufacturing sector which was already quite well developed and export-oriented in 1965 grew at an average annual rate of nearly 8\, partly as a result of trade policy: aelling in the domestic market became easier as imports were kept out. Price and wage controls kept low, which in combination with constant nominal exchange rates resulted in real depreciation, improving Rhodesia's competitiveness.

This boom was followed by a period of contraction (1975-79), caused by the escalation of the liberation war, the 1973/74 oil price increases and the world recession. The contraction period (1975-79) was characterized by continuously deteriorating terms of trade; in five years the terms of trade fell by 36\1. Manufacturing output fell by 14~ between 1975 and 1979, partly as a result of shortages of imported inputs. Inflation increased and real interest rates turned negative. Private agents came to expect exchange rate depreciation and reacted with capital flight.

The First Post-Xndependence Decade (1980-1990)

In 1980 Zimbabwe inherited a heavily regulated, inward looking economy. The socialist government left most of the inherited controls intact, seeing them as useful instruments for achieving its growth and equity objectives.

', Zimbabwe - An Industrial Sector Memorandum, Report No. 6349-ZIM, May 22, 1987, p. 10.

2 Table 1 Macroeconomic Indicators

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

Aggregate Indicators

Real GOP Growth (1980 prices)(") 11.0 13.0 1.4 -4.2 2.3 7.3 0.2 0.1 5.3 3.5 Inflation (") 10.3 14.5 14.2 19.4 3.5 2.6 15.2 9.2 11.9 12.9 Real Wage (1980= 100) 100.0103.7 114.5 110.2 11l.5 120.1 112.3 110.1 110.1 107.2 Real Exchange Rate (1980-=100) 100.0 115.1 132.0 134.2 123.3 108.7 119.7 108.2 92.5 85.6 Nom. Interest Rate on Public Debt (") 4.4 5.9 7.8 7.7 8.0 10.4 12.5 13.0 13.3 13.0 Nom. Interest Rate on Depoaiu (") 3.5 7.8 8.0 8.0 8.0 8.1 8.0 8.2 8.3 8.3

Composition of Expenditure (" of GOP)

Private Consumption 64.5 67.0 65.0 66.1 62.4 63.2 60.1 52.7 51.7 50.9 Public Contumption 19.7 17.2 19.8 18.4 21.3 22.2 21.8 24.1 23.0 23.0 Private Fixed Investment 10.6 13.3 10.0 8.2 10.6 7.9 8.4 7.8 9.0 9.4 Public Fixed Investment 4.7 5.3 9.9 11.4 7.9 8.2 7.4 7.7 8.9 9.2 ChaDge in Stocks 3.5 4.4 1.2 -3.7 0.4 4.9 3.6 3.6 3.6 3.6 Expons 30.3 25.2 22.0 21.3 26.7 29.9 30.9 31.2 31.2 33.7 Imports 33.3 32.5 27.9 24.S 26.1 28.7 26.S 27.1 27.5 29.8

Consolidated Non-Financial Public Sector (NFPS) Deficit and Debt (~ of GOp)

NFPS Deficit 9.1 13.5 13.1 J4.4 12.7 14.3 14.4 10.9 10.4 9.7 NFPS Foreign Debt 12.0 17.6 23.3 27.0 33.3 42.2 40.6 41.1 38.0 37.8 NFPS Domestic Debt 43.3 37.2 33.7 31.3 35.7 35.5 36.6 41.7 42.9 46.9

Money Supply (,.; of GOp)

Base Money 6.9 7.1 7.3 6.2 6.7 7.5 7.2 7.0 7.7 1.7 MI 18.4 18.4 15.3 15.9 11.9 13.5 14.3 13.7 15.1 15.1 Quasi Money 16.8 16.3 17.7 14.9 15.2 16.4 13.7 18.1 17.5 17.5

Balance of Payments (USS million)

Current Account -301 -739 -762 -S27 -177 -166 -51 -3 -3 Capital Account 176 419 668 203 285 225 159 149 91 Errors and Omissions 56 94 -43 5 28 40 -44 -6 14 Position .bove the line -69 -226 ·136 -319 136 99 64 140 102

Stocle of GrollS RellClVes 326 269 224 187 156 208 217 264 224

Sources: Morande and Schrnidt-Hebbel (1991), Table 1.1, b.BCd on RellClVe Bank of Zimb.bwe, Ministry of Finance of Zimb.bwe, Schmidt-Hebbcl (1990) and World Bank D.ta. Note: the fiscal and debt data are for fiscal years (1988 is 1987188 etc.) except for 1989.

In the first two years after independence the economy enjoyed remarkable growth. Real GDP increased 11\ in 1980 and 13% in the following year (Table 1). There were several reasons for this rapid recovery. First, export demand grew with the lifting of international sanctions. Secondly, foreign exchange control was relaxed and

3 production, especially in manufacturing, increased as access to imported intermediate inputs and capital goods improved. Thirdly, government expenditures were increased to rehabilitate the country' s infrastructure and to expand health care and education. Finally, good weather and high prices caused a bumper crop in 1981.

However, this rapid growth could not be sustained. While imports were allowed to expand there was no equivalent increase in exports. The increase in public expenditure was reflected in high government budget deficits which fuelled inflation. Already in 1981 this led to an enormous current account deficit, equivalent to about 12% of GDP, in spite of increased agricultural exports. After an initial rise, manufacturing exports declined by as much as 29% in the first two years after independence due to the combination of increased domestic demand and eroding international competitiveness. Nevertheless manufacturing output increased in those years by 15% and 10%. Hence the sector became even more inward looking than during the sanctions period.

Rates of Growth in GOP at Factor Prices

(in constant 1980 prices)

per cent. 1S

10 -

5 ...... r-- -

-5 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

In 1982 the deteriorating economic performance forced the government

4 to embark on a stabilization programme. It adopted a Transitional National Development Plan (TNDP) (1982/83 - 1984/85) which involved demand management through a general wage freeze (which caused a decline in real wages) and tax increases. Monetary policy was tightened, largely by sharp increases in interest rates. Also, controlled prices of key food items, and utility and railway tariffs were raised. The current account deficit was reduced by sharp cutbacks in foreign exchange allocations. An export revolving fund was set up to make foreign exchange available for inputs required by manufacturing exporters. In addition, the Zimbabwe dollar was depreciated by 20% in December 1982 and by a further 4.4% in January 1983. Thereafter it was linked to a trade-weighted basket of currencies.

These measures drove Zimbabwe into a recession which was aggravated by one of the worst droughts in history, causing a drop in agricultural output of 6\ in 1983. However, by 1985 stability was restored, the agricultural sector had recovered from the drought, there was an increase in exports, and the manufacturing sector grew slowly again, with manufacturing exports back at their 1980 level. Instead of the unrealistic target of 8\ real GDP growth per annum set in the TNDP, on average 1. 7% real growth per annum was realised. The major imbalance that remained was the government budget deficit of around 10% of GDP, largely due to increased expenditure on education, health care, drought relief and subsidies to parastatals.

The First Five-Year National Development Plan (FFYNDP), for the period 1986-1990, was based on the improving economic conditions in 19B5. The plan projected an annual growth in GDP of 5.1 per cent and aimed at investment in agriculture, manufacturing and mining, expansion of exports and reduction of the budget deficit. The Plan was quickly overtaken by events. In 1986 a severe drought caused a fall in agricultural GDP of 12\. In addition to the negative effect this had on demand, manufacturing output was affected by a tightening of trade policy. As a result GDP stagnated in 1986. The government reacted in 1987 with a range of stabilisation measures, including further cutbacks in foreign exchange allocations, measures to reduce input costs in agriculture and to encourage diversification, a partial liberalization of foreign investment (but combined with a cut in allowable remittances), a wage and price freeze and the use of external bank loans to extend the export revolving fund to agriculture and mining. As before, the economy responded quickly. GDP grew at an average of 4.6\ per annum between 1988 and 1990, largely due to the

5 agricul tural and mining sector _ The result of these three years of growth was that average growth of GDP in the plan period turned out to be 2.6%_

Share of Real Gross Fixed Capital Formation in Real GOP

-per- cent 3D

25

20

15

10 ...... - ...... -......

s ......

D~~-L~~ __L-~~~ __~~~-L~ __~~-L~~ __~~-L~ __~ 1965 1968 1971 1974 1977 1980 1983 1986 1989

source: Central StatistiCal Office

At the end of the 1980s the government became increasingly concerned about the decline in fixed capital investment (Graph 2). In response it adopted a number of measures to attract foreign investment. In 1989 a new investment code increased the allowable profit repatriation from 50% to 100% of after-tax profits. However, this applied only to "high priority· projects. The government signed the Multilateral Investment Guarantee Agency (MIGA) and the United States' Overseas Private Investment Corporation (OPIC) protocols and narrowed the definition of a foreign company, thereby reducing the number of firms under special controls. Finally, the government set up the Zimbabwe Investment Centre (ZIC), intended as a one-stop institution for investment approval.

But the decline in investment was not only the result of a lack of foreign investment. Tne basic factors underlying the general downfall in investment ever since 1982 were the increased policy uncertainty

6 associated with the fiscal deficit uncertainties and high costs associated with the foreign exchange allocation system, affecting access to capital goods, raw materials, intermediate goods and spare parts. Also, it became increasingly clear that investment was discouraged by the highly regulated business environment, especially by the system of price controls, labour market restrictions and investment control procedures.

This convinced the government that more fundamental policy changes were needed. It therefore embarked on a programme of structural economic reform.

~. ERP period (1"1- )

The start of this period coincides with the Second Five Year National Development Plan (SFYNDP 1991-95). The Economic Reform Programme, outlined in a government document under the title itA Framework for Economic Reform" (FER), was officially adopted in February 1991, although tentative mOves towards reform had begun in 1989. The aim of the ERP is to move away from direct controls to more indirect, market based methods of resource allocation.

The programme amounts to a radical attempt at liberalisation. It includes measures for deregulation of the economy, trade liberalisation, public enterprises reform, fiscal and monetary policy reforms, and social measures to reduce the pr-ogramme' impact on the poor and the retrenched.

In 1991 the programme was launched as a government five year plan in itA Framework for Economic Reform" (FER). Since then a start has been made with the opening and deregulating of the economy and the reduction of the government deficit. The main objectives of the programme are as follows. - The system of foreign exchange allocation will be abolished and partly replaced by import tariffs. Free import of all items will be allowed. Investment approval will be removed except for very large projects. Capital transfer will be unrestricted. - The government deficit will be reduced to 5% of GOP. The large growth of the public sector wage bill will be curtailed. The civil service will be drastically reduced by eliminating redundant, non­ essential and inefficient employment. Training facilities will be provided for retrenched workers to assist them in finding new employment.

7 - Wage increases in the public sector will be based on merit and skills. Company tax and the top marginal rate on individual income tax will be reduced. Cost recovery in health care and education will be increased. Budget spending on education as a percentage of GOP will be reduced from 9.2\ to 8.7\. - Parastatals will lose their monopoly positions, some of them will be privatized, and subsidies and transfers to parastatals will be eliminated. - Direct monetary policy controls such as fixed interest rates will be replaced by indirect methods of control with emphasis on open market operations. Domestic competition will be allowed in the financial sector. - All price controls except on a few basic foodstuffs will be removed. The price of (the basic staple food) will remain controlled, but subsidies to the Grain Marketing Board will be reduced. Part of the savings resulting from the subsidy reduction will be used for direct alleviation. - Labour market regulations affecting labour mobility and discouraging employment while raising capital intensity will be replaced by a system of collective bargaining. Retrenchment will be facilitated and Government intervention will be confined to fixing a statutory minimum wage for domestic and agricultural labour and setting minimum labour conditions. - Competition will be allowed in the transport sector. - Regulations, local council by-laws and procedures will be relaxed to facilitate employment in the small-scale and informal sector. Licensing restrictions on hawking and street vending will be relaxed. - The unequal land distribution, low productivity in communal areas and land degradation will be encountered by resettlement programmes and increases agricultural services in the communal areas. Land tax will be modified to discourage the holding of underutilized land.

In 1991/92, shortly after the government had started to implement these measures, Zimbabwe was hit by the worst drought of the century. Nevertheless, the government decided to adhere to the time schedule for policy reforms outlined in the plan. The measures taken within the framework of the Economic Structural Adjustment Programme (ESAP) will be discussed throughout this paper, but especially in chapter 3, on the policy and institutional environment.

8 1.2 The Structure of the Economy

Duali••

The Zimbabwean economy exhibits several dimensions of dualism: between the formal and the informal sector; between black and whi te; and between rural and urban. These forms of dualism are rooted in the colonial period, when political and economic institutions were dominated by the small white minority. In agriculture the white settlers occupied the better half of the usable land for large scale commercial farming, leaving the other half as Reserves or Tribal Trust Lands. The consequences can still be seen. Large scale commercial farming is practised by some 4000 (mainly white) farmers, employing about 150,000 workers, most of them black. About 7S per cent of Zimbabwe' s 10.4 million people live and farm in the COmmunal Areas, the former Tribal Trust Lands.

When industrialisation started there was already a separate white dominating class that used its political power to support settler interests. Access to capital as well as to higher education and management was confined to "Europeans". State investments (e.g. in a company and in a ginnery) provided a stimulus as suppliers of raw materials to manufacturers. Manufacturing industry started to produce a number of consumer goods. The black population in the Reserves was used as a source of cheap labour. When they moved to town to work, they were not allowed to live in the same areas as the whites. While such restrictions no longer exist, very few black people that can afford to live in the so called low density areas in the cities. There was an active policy to prevent the development of shanty towns. Zoning regulation were (and still are) strict and did not allow income-generating activities in the (high density) areas of towns. The black urban population depended therefore on employment in the white-dominated formal sector. As zoning and licensing regulations are now progressively relaxed an urban informal sector develops.

Demographic Trends

According to the 1982 census the population was 7.6 million. A second census undertaken in 1992 showed that by August 1992 the population had increased to 10.4 million (5.1 males and 5.3 females), ~plying a population growth rate (1982-92) of 3.2 per cent. The 1992 Census also revealed that the there were 2.2 million households, which means that the average household size is about 5.

9 The main ethnic groups in Zimbabwe are the Shona (75\) and the Nbele (19\). Although often referred to as homogeneous groups, the Shona in fact comprise six subgroups (Karanga, Zezuru, Hanyika, Korekore, Rozvi and Ndau) and the Nbele consist of Nbele and Kalanga. The remaining 6\ percent of the population consists of Tonga, Venda and Shagaan groups (4\), whites (1,5%), "coloureds" and Asians. The majority of the Nbele live in Matabeleland's north and south provinces. Ethnicity was an important source of identity during the liberation war and led to conflicts between the two largest groups directly after independence. With the merger of the two main political parties, the principally Nbele-supported ZAPU and the mainly Shona-backed ZANU, open hostility came to an end.

The provincial distribution of the population shows that Manicaland, with 15 per cent of the total population, is the most populous province, followed by Harare province with 14 per cent. The least populous provinces are Matabeleland North and South and , each with 6 per cent of the total population. Roughly 75 per cent of the country's population lives in the communal areas. The population in commercial farming areas is negligible. The remaining 25 per cent therefore live in urban areas.

Gross noae.tic Product

Since 1982 GDP has fallen in per capita terms: between 1982 and 1990 GDP grew on average by only 2.2%. It is only because of the rapid growth in the first two years after independence (1980 and 1981) that average GDP growth since independence (3.9%) still exceeds population growth (3.2% annually).

~ab1. 2

Coaposition of GOP (1980 pric.s) at Pactor Cost <%) sector 1975 1980 1985 1990 1. Agriculture 14.7 14.0 16.2 12.4 2. Mining & Quarrying 9.5 8.8 7.6 7.1 3. Manufacturing 23.3 24.9 23.7 24.9 4. Electricity & Water 3.0 2.2 2.1 3.5 5. Construction 5.0 2.8 1.7 1.3 6. Finance, Insurance & Real Estate 8.7 6.3 6.1 6.4 7. Distribution, Restaurants & Hotels 12.1 14.0 10.2 11.4 8. Transport and Communications 6.3 6.6 6.2 5.9 9. Public Administration 6.3 6.6 6.2 5.9 10. Education 4.3 5.2 9.4 9.7 11. Bealth 2.0 2.2 2.6 2.6 12. Private Domestic Services 2.4 2.0 1.6 1.4 13. other Services 5.4 6.2 6.2 6.2

Real GDP (Z$m, 1980 prices) 3134 3224 3803 4414 Source: National Income and Expenditure Report, CSO 1990.

10 The composition of GDP is shown in Table 2. Zimbabwe's low share of agriculture in GDP (12.4% in 1990) and high share of manufacturing (24.9') shows the relative advanced structure of the economy. Since independence the share of education has more than doubled.

Eaployaent and Earnings

Official employment statistics (summarized in Table 3) are related to the formal sector: employment in e.g. informal manufacturing enterprises and the major part of agricultural employment on communal land is not covered. In the Table the employment statistics are compared (in the last column) with the results of the 1986/87 Labour Force Survey.

~able 3 Poraal Eaployaent by sector ('> LP'S+ 1975 1980 86/81

1 Agriculture 34.6 32.4 26.2 24.3 69.9 2 Mining and Quarrying 6.0 6.6 5.2 4.3 0.6 3 Manufacturing 14.9 15.8 16.0 16.6 5.S 4 Electricity and Water 0.7 0.7 0.7 0.7 0.4 5 Construction 5.8 4.2 4.3 6.4 1.7 6 Finance,Insurance,Real Estate 1.2 1.2 1.5 1.5 0.3 7 Trade, Restaurants and Hotels 7.4 7.0 7.4 8.0 4.3 8 Transport and Communication 4.3 4.5 4.7 4.4 2.5 9 Public Administration 4.7 8.0 8.6 7.9 10 Education 3.4 4.2 8.5 9.1 11 Health 1.3 1.5 1.4 2.1 }13.1 12 Private Domestic Services 11.8 10.7 9.4 8.6 13 Other Services 4.1 4.3 5.7 6.3 1.5 Total Employment (thousands) 1050.2 1009.9 1055.0 1194.0 3026

excluding employees of "small agricultural units" and small businesses in rural areas. • the Labour Force survey (LFS) report states that employment in mining was underreported since many mining areas were not covered by the LFS. Sources: Central Statistical Office, Quarterly Digest of Statistics (June 1981 and March 1991) and Main Results of the Labour Force Survey 1986-1987.

In sectors 2, 4, 6 and 10-13 there is little informal sector activity so that the formal sector data should be close to total employment in these sectors. The results from the LFS confirm this more or less. But these sectors accounted in 1990 for only 30\ of formal employment. Note that employment in Bealth,Education and Public Administration increased considerably after independence.

11 Job creation within the formal sector was inadequate to absorb the large numbers entering the labour market. On average 10,000 jobs were created each year after independence. Added to approximately 25,000 retirements this means 35,000 jobs, to be compared with the number of qualified school leavers entering the labour market. This number increased from below 100,000 in the early eighties to over 200,000 in recent years.

A survey of 5575 micro and small-scale enterprises in Zimbabwe by GEMINI revealed that 69.7\ of these firms (employing less than 50 workers) fall in the manufacturing category, whereas 22.6\ are trading enterprises, 4.1\ construction, 3.4\ services and 0.2\ transport. These firms employ on average 1.8 workers (including the proprietor). Since the survey results imply that in 1991 there were 845 thousand micro and small-scale enterprises in Zimbabwe, this suggests that the informal sector employs approximately 1.5 million people.

Table 4 compares results of the 1982 census and the 86/87 Labour Force Survey: !fable 4. Coaposition of the Labour Porce 1982 Census 86/87 Labour Porce Survey empl.(OOO's) \ empl. (OOO'S) \

Employed 1177 47.4 1237 37.9 Communal Farmers (c.f.) 1038 41.S 1789 54.9 Unemployed 268 10.S 234 7.2 Unemployed excl. c.f. 18.4 15.9 Total Labour Force 2484 100.0 3260 100.0 Outside Labour Force 1428 979 (students, housewives, etc. )

The comparison shows that the classification of people on communal lands is crucial for labour statistics. The number of communal farmers has certainly not increased by 70\ within 5 years. Clearly, more people were classified as communal farmers in the Labour Force Survey than in the Census. In communal areas SO% of the population above 15 years of age were employed. The remainder was either unemployed or not in the labour force. Open unemployment in communal areas accounted for only 2.2\.

Real wages initially went up after independence, due to the introduction of minimum wages and increased productivity. Since 1985 real wages have declined, however, and they are now back at the 1980 level.

12 Public Finance

Government revenues have consistently fallen short of public expenditures (see Table 5) resulting in huge budget deficits over the entire last decade. Government expenditure rose from 33% of GOP in 1981 to 46% in 1989, whereas revenues increased in the same period from 25\ to 36\. Expenditures on education and health care, defense and expansion of the civil service were initially responsible for the budget deficits. More recently, key elements in the growth of the budget deficits have been the continued increases in the size of the public sector, parastatal losses, food subsidies and eventually debt servicing.

~able 5 Public Finance (' of GDP)

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Cuneot RevellUe 25.4 28.2 30.7 30.6 31.1 32.1 33.5 36.1 3S.4 36.6 37.3 External Aid 0.2 0.4 0.4 0.9 1.2 1.3 1.2 1.2 0.7 1.0 1.3 Recurrent Expenditure 28.9 30.1 31.6 35.0 35.6 37.8 40.9 39.6 38.1 38.0 40.4 Wages and ..laries 9.S 9.8 9.7 9.8 9.9 10.5 12.1 15.0 15A 15.2 16.8 lnIerest 2.S 3.0 3.5 4.3 5.2 55 5.9 6.2 6.4 6.6 6.5 Subsidies 1.8 1.8 2.7 3.7 4.4 3.9 4.6 4.5 3.9 2.7 3.0 Total Budget Expenditure 32.9 35.2 39.4 4l.S 43.0 42.4 46.3 46.5 45.8 46.1 48.0

Overall Deficit 7.2 6.5 8.3 10.0 10.7 9.0 11.6 9.2 9.6 8.5 9.4 Deficit before external aid 7.5 7.0 8.7 10.9 11.9 10.2 12.8 10.4 10.3 9.5 10.7

Total Government Borrowing 11.2 10.4 13.7 13.7 14.6 12.7 17.6 13.8 14.2 12.8 13.1 Total Government Debt 49.3 46.3 46.1 49.9 60.9 66.3 69.5 71.9 71.7 74.0 73.4 Foreign Debt 12.4 14.1 15.8 16.5 25.3 28.3 28.5 27.9 26.9 28.9 29.2 Domestic Debt 36.9 32.2 30.3 33.4 35.6 38.0 41.0 44.1 44.8 45.1 44.2

Note: 1981 denotes fiscal year 1980/81 etc. Source: World Bank, Progress Repon (1992), Ministry of Finance, Budget Documents.

These deficits were largely financed through domestic and foreign borrowing (see Table 5). As a result total public debt rose from Z$ 4.6 billion in 1985 (61\ of GOP) to Z$ 11.3 billion in 1990 (or 86% of GOP). In this period external debt increased from one third to half of the total.

The government had little difficulty in finding domestic sources to finance its debt, even though real interests were negative. Only recently, after having embarked on the programme of economic reform and structural adjustment, the opening of the economy has caused problems. Interest rates have risen, and as the foreign exchange restrictions are gradually released and investment is expected to pick up, there is a danger of crowding out. It is therefore tempting for

13 the government to restrict the export of capital and to suppress interest rates instead of reducing the government deficit.

IDv•• taeDt aDd aaviDg.

Investment peaked in 1975, fell dramatically during the War of Liberation and increased again after independence as was already shown in Graph 2. But even in the first years after independence when the economy was booming, investment levels were lower than in the early seventies. Investment fell from 23 per cent of GDP in 1981 to 19 per cent in 1987 and gross fixed capital formation has declined since 1982.

There is a consensus that the rationing of foreign exchange is the main reason for the low investment levels. Virtually all investment project require imported capital goods and therefore approval of the Investments Project Commission (IPC) or since 1990 the Zimbabwe Investment centre (ZIC). According to UNIDO for every approved project four were turned down, mostly because of foreign exchange shortage. The main criterion for approval is that a project is expected to result in a net foreign exchange contribution, either through export or import substitution. As noted before, the system implied that investment was not approved for firms wishing to compete with local production, unless it also intended to produce for export.

Public fixed investment more than doubled in the first two years after independence and during the rest of the eighties was almost as large as private fixed investment. Whereas more than half of private investment was in manufacturing and mining, more than half of public

investment was in ~onstruction and infrastructure. Neither the signing of the World Bank's Multilateral Investment Guarantee Agency (MIGA) nor the United States' Overseas Private Investment Corporation (OPIC) did much to attract foreign investment. The main factors that are held responsible for the lack of direct foreign investment are, as noted before, the remaining policy uncertainty (largely associated with the public deficit), and the costs and uncertainties associated with the control system, particularly price controls, labour market regulations, investment control procedures and the system of foreign exchange allocation.

14 Table 6 Gross savings by type of institution , in 1$ .illion 1981 1982 1983 1984 1985 1986 1987 ------Gross National Savings 587.0 568.0 549.0 1110.0 1286.0 1556.0 1798.0 of which: Private sector savings 564.2 623.4 321.8 1333.8 1589.5 1768.6 1684.8 Public Sector savings 22.8 -55.4 227.2 -23.8 -303.5 -212.6 113.2 of which: General Government: -44. 0 -119. 0 79.0 -208.6 -338.0 -312.0 -90.7 - central -64.0 -155.0 24.0 -240.0 -340.0 -312.0 -90.7 - Local 20.0 36.0 55.0 41.4 2.0 25.0 32.5 Corporations: 66.8 63.6 148.2 184.8 34.5 99.4 203.9 - Financial 21.8 21.6 34.2 16.8 35.5 31.6 27.1 - Non-financial 45.0 42.0 114.0 168.0 -1.0 67.8 176.8 ------Source: C.S.O., Quarterly Digest, september 1992

Bxternal trade and the balance of payaents

Zimbabwe is a relatively open economy, with exports and imports accounting for 27 and 25 per cent of GDP respectively. During the first half of the 1980s the current account was in deficit (Table 7). This was largely a result of the relaxation of import restrictions at independence. The boom in 1980 and 1981, following good rainy seasons, raised the demand for raw materials and intermediate inputs resulting in a growth in imports and a growing deficit on the current account. An attempt to improve the country's balance of payments position was made in December 1982 through an IMF standby agreement which included a 20 per cent devaluation and a reduction of public sector borrowing. This agreement collapsed in 1984 because the government failed to stay within the agreed limits on its borrowing. A temporary ban on profit and dividend remittances abroad was imposed in 1984 and import allocations were cut by 12 per cent in 1985.

Trade policy was increasingly tightened and in the second half of the decade the current account was in surplus. Restrictions on dividend and profit remittances were lifted in 1986 but were reimposed in 1987.

The main exports are unprocessed primary products: , chrome, , , , , maize, cotton, hides, beef, oil and fats. Exports increased in the 1980s by 4.3' per annum in real terms, mainly through increases in gold and tobacco exports. However, export receipts were increasingly absorbed by debt service payments, the debt service ratio rising from less than 4' of exports in 1980 to 23% in

15 1990. Zimbabwe's sustained export growth in the 1980s differs markedly from that of many African countries and is somewhat surprising given the restrictiveness (until very recently) of its trade policy. However, unusually amongst African countries, the Zimbabwe dollar was slowly depreciated so that the negative effect of trade policy on the volume of exports was partly offset by exchange rate policy.2

!rab1e 7 Balance of Payaents (1987 - 19'92) US$ .i11ion. at current prices

1987 1988 1989 1990 1991 1992

CurTent account (excl. granll) -2 78 -75 -292 -548 -970 Merc:bandiae impolU, fob 1088 1172 1338 1527 1700 1829 Merc:bandiae expolU, fob 1455 1669 1680 1717 1785 1545 Tnde Balance 367 497 343 190 as -284

Nonfactor Services -146 -184 -201 -218 -331 -403

RelOUrc:e BalaDCe 221 313 141 -28 -246 -687

Factor Payments -213 -229 -214 -262 -304 -284

CurTent Tnnafers -11 -6 -2 -2 2

Capital account 125 99 164 304 419 751 Gnnts 80 66 78 lOB 141 297 Foreign Investment -24 4 -10 -12 3 16 Net Long-tenn Capital Inflow -11 36 55 118 292 481 Short-tenn capital 80 -8 41 90 -17 -42

Ovenll Balance 123 177 89 12 -129 -219

Financing -123 -177 -89 -12 129 219 0,w. Change in Reserve. -360 -345 -225 -140 -111 -4 o.w. Net Use of Fund Resource. -58 -78 -39 -24 -5 222 o.w, Other Liabilitiea 295 246 175 132 215 1

• s estimate Soun:es: 1987-1988: Zimbabwe: Progreu Report on SlnICtunl Adjuatment,The World Bank, 1991. 1989-1992: Zimbabwe: Prop.. Report on Adjuatment with Drought,The World Bank, 1992.

The system of foreiqn trade requlations is discussed in section 3.12.

1forld Bank, Zimbabwe - A Strateqy for Sustained Growth, Report No. 6981-ZIM, November 1987, p. 19.

16 II THE MANUFACTURING SECTOR

2.1 The structure of the manufacturing sector

eomposition and change

By African standards, Zimbabwe has a very well developed manufacturing

sector I contributing 24\ of GOP. It produces about 7000 different products (Riddell, 1988), compared to about 1000 products in 1966. While the sector was already well developed in 1965, this enormous diversification was in response to the political and economic needs of the 001 period. In the immediate post independence period (l979-1983), the easy stages of import substitution had become exhausted and growth slowed down. During the first eight years of independence, manufacturing value added grew at an annual rate of 2.5\. Dis,aggregated output data are shown in Table 8 for the period 1980- 1992. The four subsectors covered in the RPED survey differed markedly in their performance: wood and furniture and metal and metal products stagnated, food grew at 3.6 per cent and textiles at an annual rate of 6 per cent.

Table 8 Index of volume of production of the aanufacturing sector

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

Foodstuffs ]08.4 123.7 126.9 119.4 113.6 125.6 131.2 129.7 131.5 144.1 147.2 152.9 &. Tobacco 89.4 91.7 90.1 86.4 94.8 95.6 107.9 117.3 113.9 129.9 133.8 116.3 Textiles including Ginning 111.6 118.8 108.8 124.1 175.0 190.4 196.2 202.7 208.2 2]6.6 226.2 20Ll Clolhing &. Footwear 128.4 118.6 109.2 99.9 111.5 106.6 119.5 120.2 137.7 145.0 148.9 135.7 Wood &. Furniture 103.4 85.8 82.3 81.6 82.S 86.S 80.9 95.3 84.5 89.9 101.2 112.6 Paper, Printing &. Publishing 112.4 112.3 106.2 95.0 111.7 121.5 119.2 121.4 131.7 136.6 143.7 1S6.6 Chemical &. Petroleum Prod. 116.6 118.2 121.4 112.2 12U 121.8 119.3 130.8 146.0 158.8 159.4 149.7 Non-Metanic Mineral Prod. 118.0 109.7 105.4 99.0 104.7 124.6 140.6 140.7 151.7 161.2 170.5 166.8 Metal5 and Metal Products 104.8 96.4 94.8 89.4 100.5 98.2 95.1 100.4 106.2 111.4 113.5 106.7 Transport Equipment 155.0 178.4 145.6 114.7 96.6 98.8 83.8 103.6 147.4 146.6 142.8 166.0 Other Manufactured Goods 95.6 80.0 76.6 50.9 64.2 62.8 60.3 74.1 83.1 48.9 47.9 44.9

Total 109.4 108.7 105.8 100.7 112.2 115.4 118.1 123.9 130.8 139.1 143.0 137.0 source: Central Statistical Office, Quarterly Digest of Statistics, March 1986 and September 1992. note: 1992, January - June only.

17 Table 9 Composition of Manufacturing output (%)

1982 1988

Foodstuffs 26 20 Beverages & Tobacco 10 10 Textiles 9 11 Clothing & Footwear 6 7 Wood & Furniture 3 3 Paper & Paper Products 5 5 Chemicals & Pharmaceutical Prod. 13 16 Non-Metallic Minerals 3 3 Metals and Metal Products 20 20 Transport and Equipment 4 4 Miscellaneous Manufactured Prod. 1 1

Total gross output 3294 8222 SOurc.s. Census of production, CSO, 1982 and 1989

Table 9 indicates the relative importance of the various sub-sectors of the manufacturing sector. Food, beverages and tobacco account for 30\ of gross output and textiles, clothing and footwear for another 18\. The importance of these subsectors is, of course, not surprising_ More interesting is the size of the metals (20\) and chemicals (16\) subsectors.

Concentration and OWnership

The manufacturing sector exhibits a high degree of firm concentration. Market structures tend to be either monopolistic or oligopolistic. Half of the manufacturing sector's 7000 products are produced under monopolistic conditions while 80 per cent of the remaining products (40 per cent of total) are produced under oligopolistic conditions (ONIDO 1985). A recent report by the Zimbabwe Monopolies Commission (1992) revealed that 69\ of Zimbabwean manufacturing originates in industries where the four largest enterprises account for at least 80\ of gross output (calculated on the basis of CSO data at the 4-digit level) •

There is disagreement on the extent of· foreign ownership, reflecting difference in definitions used. Since 1989 a firm is legally foreign owned if 25 per cent or more of its equity is foreign owned. Before 1989 the percentage was only 15\. By contrast, the Confederation of Zimbabwean Industries (CZI) considers a firm to be foreign owned when

18 50 per cent its equity is owned by foreigners. In 1989, CZI estimated foreign ownership to be 26 per cent. Maya et ale (1988), surveyed 667 companies and estimated foreign ownership to be 38 per cent, of which 29 per cent was by South African and British citizens South African capital dominates the foodstuffs, chemicals and furniture sub-sectors. Foreign ownership is particularly dominant in the furniture and clothing sub-sectors.

Employment and wages

Manufacturing employment grew at about 2\ between 1980 and 1990. In 1992 it stood at 197 thousand, or 17 per cent of formal sector employment. Table 10 Employment and Wage Bill in Manufacturing by Subsector, 1988 (%> £aployment Wage Bill Foodstuffs 15.5 15.1 Beverages & Tobacco 6.4 7.5 Textiles 13.3 9.7 Clothing & Footwear 13.1 8.S Wood & Furniture 5.5 3.7 Paper & Paper Products 4.9 6.6 Chemicals & Pharmaceutical Prod. 9.4 13.1 Non-Metallic Minerals 4.7 4.5 Metals and Metal Products 21.6 25.4 Transport and Equipment 3.9 4.6 Miscellaneous Manufactured Prod. 1.6 1.2 Total (in OOO's and Z$ million) 182 . 6 1899.9 Sources: Census of production, CSC, 1982 and 1989. Investaent

During the period 1980-90 investment in manufacturing sector was sluggish. The sector's share in gross fixed capital formation declined steadily from a peak of 24.9 per cent in 1981 to 14.6 per cent in 1985. It rose to 21.6 per cent in 1986 but declined to 19 per cent in 1987. Recent investment performance in the manufacturing sector has been poor, leading to stagnation in the sector's growth.

Foreign Exchange COntribution

Manufactured exports in 1977 accounted for 41 per cent of total exports. By 1987, this had increased to 48 per cent. The major export markets are South Africa and the United Kingdom. Recent data on the foreign exchange contribution of the manufacturing sector are not

19 available. The 1982 data (Table 11) show that manufactured exports were dominated by metal products and textiles and that the sector was a net user of foreign exchange. The sector has been described as very import intensive. However, the value of imported inputs amounted in 1982 to only 15% of the value of output, quite modest by African standards.

Table 11 Balance of Trade of the Manufacturing Sector, 1982 (in Z$ aillion) Gross Value Imported Exports Trade Output Added Inputs Balance

Foodstuffs 788 198 14 20 6 Beverages & Tobacco 229 136 22 2 -20 Textiles 302 107 45 58 13 Clothing & Footwear 211 111 39 11 -28 Wood & Furniture 94 49 6 9 3 Paper & Paper Products 163 84 19 2 -17 Chemicals & Pharmaceutical Prod. 395 159 123 15 -108 Non-Metallic Minerals 94 57 6 2 ..;4 Metals and Metal Products 639 291 143 147 5 Transport and Equipment 94 36 34 4 ~31 Miscellaneous Manufactured Prod. 37 19 5 7 2

Total (Z$ million) 3048 1249 456 277 -179 Source: World Bank, An Industrial Sector Memorandum (1987)

Geographical Distribution

The manufacturing sector exhibits a high degree of geographi"cal concentration. Half the manufacturing sector units are located in Harare and another quarter in Bulawayo. These two cities account for 73 per cent of output, the Kwekwe-Redcliff for another 7 per cent.

Perforaance, efficiency and constraints

It is very hard to assess the performance of the manufacturing sector in Zimbabwe. Data on productivity, capacity utilization, efficiency, rates of protection and returns on investment are either lacking or very much out of date. For example, the 1983 report by Doris Jansen (based on information for only 122 firms) has been used over and over again, but is now clearly out of date.

During much of the post-independence period, the manufacturing sector has operated under severe constraints. These constraints and their background will be discussed in detail the next chapter, dealing with

20 the institutional environment of the manufacturing sector and the effect of government policies. The measures taken under the Economic Structural Adjustment Programme to relax these constraints will also be discussed there. Here we briefly mention the major constraints which affected the manufacturing sector before the start of the ERP.

The manufacturing sector relies heavily on imported machinery, equipment and raw materials. But there has been inadequate foreign currency allocations to meet import demand by the manufacturing sector for new machinery, equipment, spare parts and raw materials. As a result part of the machinery is now old and technologically dated. This causes chronic breakdowns and low capacity utilisation due to shortages of spare parts. The local capital goods industry lacks the technological capability to meet most of the sector's requirements and also requires imported spares which are not readily available.

Prior to the introduction of the ERP, rigid price controls were in place, especially in the food processing sub-sector. These made it difficult to pass on the full costs of production, which were increased by statutory minimum wages, to the consumer. Skilled manpower shortages were also a major constraint during this period, pushing up production costs.

The numerous government regulations relating to issues like the procedures for registration of projects, product standards, health and hygiene regulations were particularly pitted' against informal an,d small scale enterprises. Official policies tended to favour formal, large-scale enterprises.

Zimbabwe's manufacturing sector is strongly affected by climatic and weather conditions due to the importance of agriculture to the economy as a whole. The 1980s witnessed a series of droughts which culminated in the worst recorded in history in 1991/2. Droughts adversely affect raw agricultural material supplies (mainly used in food processing, leather work, and (cotton) industries) and in general reduce domestic demand for products of the manufacturing sector.

2.2 SUB-SECTORAL PROFILES

2.2.1 ~exti1e, Clothing aDd Footwear Subsectors

The formal and informal textile, clothing and footwear subsector includes the manufacture and processing of textile products, wearing

21 apparel, leather material and footwear. In 1988 the subsector employed 26\ of manufacturing labour and contributed 18% of value added.

Import substitution policies of the UDI period contributed immensely to the subsector's expansion and diversification. The immediate post­ independence boom (1980 - 1982) saw continued growth of the sector due to the availability of raw materials, strong domestic demand conditions and a good agricultural season. The sector is highly susceptible to droughts, through their effect both on the availability of inputs ( in particular cotton and hides) and on consumer demand. During the 1982/3 droughts production of the textile subsector fell by ten per cent. For clothing and footwear the index of production fell from 118.6 in 1982 to 99.9 in 19843 (1980 • 100).

The subsector sources 62\ of its inputs from abroad making it very import dependent and hence vulnerable to the chronic shortages of foreign exchange and exogenous shocks from the world market. The major . imports of this subsector are textile fabric, textile piece products, yarns, thread and dyes.

In the textile industry (spinning and weaving) there are only six large scale manufacturing firms, employing about 12,000 workers. Two firms account for over 75\ of fabric supplied to the domestic clothing industry. Cotton, one of the major inputs of the textile industry, is

produced in Zimbabwe. The Cot~on Marketing Board, a parastatal, has a monopoly over all marketing of cotton. In 1989/90 and 1990/91 cotton was sold domestically for only half of the world market price. Since then the government has made a move towards more market-based pricing.

In addition to thes.ix large firms there are some fifty small to medium-scale formal sector companies engaged in spinning, weaving, knitting and finishing of textiles. These firms employ about 9,000 workers (Mead and Kunjeku, 1992).

In the formal sector clothing industry about 100 firms are in operation, employing some 20,000 people. At the end of 1992 the sector had scaled down its 40,000 labour force by 7,000 men.

On the export side, the subsector has not only penetrated markets in South Africa, the SADCC, and the PTA but also exports to overseas markets. The major exports are fabric, general clothing (men's suits,

, Quarterly Digest of Statistics 1990, CSO Harare.

22 dresses, skirts) and yarn and thread which in 1988 respectively contributed 20\, 30\ and 26\ of total export revenues from this subsector.

The 1991/92 drought seriously eroded the viability of this sector. The strong linkages of this subsector with agriculture sector led to erratic supply of raw materials. Also, as consumer expenditure switched to basic essentials, the subsector suffered from low demand. The drought was not the only factor. First, the major export market South Africa, imposed high import duties on textile products to curb massive shipments of cheap textile exports to that country. Secondly, textile products were placed under open general import licence (OGIL) and this has led to intense competition from imports. For instance, both formal and informal clothing companies have realised low earnings as consumers shifted to second hand clothing from South Africa, Botswana and . This has led to a reversal of trade policy: the government gave in to pressure from textile and clothing producers and textile products were removed from the OGIL list.

In the textile industry, skills shortages are experienced in the following areas: knitting technology, quality control, textile design, pattern design, fabric analysis, production management, spinning and dye technicians. In most of these areas the technical training colleges do not offer courses.

It is interesting to note that the areas of skills shortages within this sector are crucial in determining the quality of the output. In export markets Zimbabwean textiles are facing stiff competition from countries such as South Africa and Egypt.

The informal sector activities include repair work, knitting, crocheting, dressmaking and tailoring. According to the Gemini (1991) report, almost a third of Zimbabwe's micro scale (i.e. firms with less than 50 employees) industries belong to the clothing subsector, with 90\ of these in manufacturing. These range from sole proprietor enterprises employing only a few people to co-operatives. In the rural areas and growth points these enterprises are largely manned by family members, but in urban areas extra non-family labour is also used. An estimated 100,000 work in small firms, as tailors or dressmakers, whereas an additional 250,000 people (mostly women) are estimated to be engaged in knitting and crocheting.

Input costs in the informal activities are relatively low. Informal

23 sector enterprises mostly use sewing which are either hand or pedal driven or a combination of these and electric sewing machines. Informal sector activities are constrained by access to credit facilities for expansion and replacement of equipment. Start up capital is usually from savings or borrowings from friends (Zimconsult 1992). Financial assistance from banks is negligible as the process of getting such assistance is not known or, if known, the process is complex and cumbersome. Market information is also lacking for informal sector activities. "All Small Scale Enterprises are left out of systematised and regular information network." (Zimconsult 1992).

The small dressmaking enterprises compete directly with medium and large scale enterprises. Although large wholesalers and retailers absorb a significant part of the output of the informal sector, the major customers are low income rural and urban households. The linkages of the informal with the formal sector are weak. Linkages are limited to the procurement of raw materials by the informal sector and some subcontracting, mainly through the WCUt-Hake-Trim" system. Small enterprises often find themselves priced out of the markets by the large-scale enterprises. Small firms place orders for raw materials only when the need arises and in small quantities. Usually the large textile suppliers give priority to large orders and small-scale informal activities often do not meet the minimum purchase requirements. Enterprises should generate monthly sales of Z$ 10 000 in order to purchase inputs without paying sales tax. This is not possible for informal sector firms so they pay more for their inputs than larger firms.

Cut-Make-Trim subcontracting arrangements are usually made by large manufacturers (sometimes retailers) which supply a small firm with the raw materials. According to Head and Xunjeku (1992) subcontracting for sale in the domestic market has virtually dried up due to slack demand, but the increase of export demand creates new possibilities.

Leather and Footwear

Bides, the main raw material for the leather and footwear industry, are primarily supplied by a parastatal, the Cold Storage commission (CSC), that produces hides as a by-product of its abattoirs. There is an understanding between the six tanneries and CSC, that no more than 25' of the hides will be exported by esc. Of the six tanneries only one processes the hides to the wet blue stage, which makes them ready for export. Another tannery does only specialized work like sheep,

24 goat, crocodile and other wild animals skins. Of the remaining four tanneries two belong to the same company.

Tanning is therefore controlled by three companies. These three also control the largest shoe factories. In each case the shoe factory was established first. The big three employ about 5500 workers (including the tanneries). In addition there are four medium-to-large shoe factories, employing a total of around 1000, and five small but . mechanized factories with a total of 250 employees. Leather products other than shoes are also produced by some 15 small enterprises, employing another 250 workers. The remainder of people working in the leather and footwear industry are very small enterprises, engaged mainly in repair. In some cases they are also involved in artisan shoe making. The Gemini survey estimates the total number of people working in these very small enterprises at around 14000.

The fact that there are only a few shoe factories and that artisan shoe making is very limited stems from various factors. First, the set up of a production line involves high capital costs. secondly, the process of shoe making is time consuming. There is an estimated time lag of half a year between paying for the leather and receiving payment for the shoes. Finally, there are very significant economies of scale, which gives small artisan producers a disadvantage and forces them into making specialized products. Small producers complain about the difficulties they fa.ce in obtaining leather, whereas small and medium-sized firms complain about oligopolistic suppliers, manipulating the price, quantity and especially the quality of the tanned leather supplied to smaller enterprises (Mead and Kunjeku, 1992) •

Subcontracting of small firms by large firms is presently confined to hand stitching of shoes, particularly moccasins. Payment is per piece, which means that the large firms have to make use of cooperatives, as piece work payment is limited to cooperatives under the current labour laws. An increase in subcontracting can only be expected if shoe factories diversify and go into producing leather jackets and other products that require Cut-Make-Trim activities.

2.2.2 Metals and Metal Products

As noted before, Zimbabwe has a large metals and metal products sub­ sector which accounts for 22 per cent of value added and employment in manufacturing, 25 per cent of the wage bill, 33 per cent of the

25 capital stock 33 per cent. Half of the sub-sector's output comes from metal fabrication.

The import substitution policies of the UDI period which emphasised increased local processing of minerals like iron and steel, nickel and copper contributed to the sector's development and diversification. In the post independence period (1980-81) the sub-sector registered phenomenal growth (8.3 per cent) due to increased domestic demand, the opening up of the economy and increased foreign currency allocation by

~he government to purchase of new capital, spare parts and replacement of worn out equipment. The sector also benefited from increased domestic demand for investment goods in the manufacturing, mining, energy, transport, construction and telecommunications sectors.

However, this initial boom burst and the sector declined by 5 per cent between 1983 and 1986 as a result of the world recession, two successive droughts and depressed demand in the rest of the economy.

The metal products sector gets its raw materials from three different sources. The main source is the Zimbabwe Iron and Steel Company Ltd. (ZISCO). ZISCO is a parastatal which exports half of its production. Only recently the government has decided that the company should price the products domestically at import parity levels. For some items this implies that the price will be reduced, whereas the domestic price of rolled steel e.g. has already more than doubled since 1991. A second source of raw materials are imports. Imported items are either not produced by ZISCO, or the imports reflect demand in excess of ZISCO's production capacity. In terms of tonnage one third of basic steel used domestically in 1990 came from imports. A third source consists of small metal enterprises that are engaged in recycling of scrap metal but their market share is reported to be below 5%.

The major development of the metal products subsector in the past four decades took the form of diversification into new product lines and widening of linkages with other sectors. The subsector has strong linkages, both backward and forward to mining and forward to other manufacturing subsectors, and the construction, transport, energy and telecommunications sectors.

Manufacturing concerns source intermediate goods, storage . and packaging equipment and a variety of components like bolts, screws, light fixtures, springs and product line machinery from the metal products subsector. The agriculture and mining firms get their

26 machinery and equipment, implements, hand tools, intermediate goods, package and storage products from the metal products subsector. The transport subsector gets some of the car bodies, trailers, motor spares and components from this subsector. Energy and telecommunications sectors purchase aluminum and copper cables, non­ ferrous electrical fittings, over-head line equipment and steel strands.

Relative to the manufacturing sector as a whole, the metals and metal products sub-sector .has a high degree of local ownership (67 per cent) and a high degree of sub-contracting (D. Ndlela et a1., 1990). According to CSO employment survey 300 registered companies in the metal products subsector employed around 22,500 people in 1990.

The metal and metal products sub-sector also spans the informal sector, scattered in major cities, towns and growth points. Informal sector firms produce a wide range of products such a window. and door frames, scotch carts, fencing and burglar bars, especially for low income households. The Gemini survey estimates that there are some 18,000 small metal working enterprises in Zimbabwe, employing around 30,000 workers.

The technological gap between the formal and informal firms is wide and production linkages between the two are weak (Zwizwai B. et al. (1991). However, informal firms source their raw materials, inputs and equipment from the formal sector. The supply of raw materials is reported to be one of the major problems. With domestic prices kept artificially low, ZISCO's capacity was too small to meet both foreign and local demand. Imports of steel used to be substantially more expensive than ZISCO products. The supply of cheap steel was rationed by ZISCO, favouring large-scale users. Since October 1991 price differences between ZISCO's steel products and imported steel have been reduced.

For its skilled manpower requirements the metals and metal products sub-sector relies to a large extent on formal training institutions. The sector has a great demand for engineers, technicians and artisans in all fields such as mechanical electrical and structural metallurgy. However, as indicated before, there is a shortage of such manpower' at the national level.

The rate at which skilled manpower is produced in the country has at

27 times been falling. For example, whereas there were 1263 apprentices in all sectors of the economy in 1984, in 1988, there were only 912 such apprentices. A similar fall has been observed for registered artisans. The EMCOZ sub-committee for technical and vocational training noted that the number of registered artisans in the engineering industry fell from 4000 in 1980 to less than 2000 in 1989. This is partly explained by migration of skilled labour to neighbouring countries. In areas such as computer hardware demand for technicians rises with the adoption of computerised technologies. In this case, shortages of skilled manpower are caused by technological change which calls for new skills combined with a lagged response on the part of trainin9 institutions to these changes.

2.2.3 Pood Proce •• ing

The major food processing activities are grain milling, oil pressing, meat, fruit and vegetable canning. The main products are maize meal, flour, edible oils, canned fruit and , canned, frozen and preserved fish, canned and preserved meat and peanut butter. A few large companies, including the National Food conglomerate, dominate the food industry, controlling over 90 per cent of commercially marketed agro-industrial produce.

Food processing has steadily expanded over time, in line with the changes in the structure of production in the agricultural sector and increases in domestic demand. This has led both to a reduction in imports of food products and the further proceSSing of a wider range of crops and livestock.

The informal food processing sub-sector is concentrated in rural areas, but it is small and underdeveloped, with little commercial marketing of its produce. As a result, the rural population relies heavily on urban based formal food processors. In principle, the government supports small-scale agro-processing industries especially at rural "Growth Points", but in practice the policy maintains a strong bias in favour of urban food processors. Government attempts to induce established food processors to decentralise into rural areas have largely been unsuccessful since the rural market is too small to justify the required investment.

The food processing industry has strong linkages, not only with the agricultural sector but also with the metalworking and engineering sub-sector. There is considerable vertical integration, with some of

28 the larger food processing firms owned by farmers' organisations.

2.2.4 Woodworking and Furniture

Woodworking activities range from primary processing of raw timber to secondary manufacture of structural building products (beams and trusses), non-structural house related products (furniture, doors, window-frames), pulp and paper and miscellaneous products like-boxes and matches.

The sub-sector consists of both large scale and small firms in the formal and informal sectors. This is reflected in a wide range in technological complexity, technical sophistication, scale of production, and skill levels of operators. compared to other sub­ sectors, foreign exchange is not a serious constraint as it relies on domestically available timber and raw materials. It also depends on the domestic market for its growth.

In the formal sector, commercial manufacturers of woodworking products, including furniture, are characterised by comparatively sophisticated production techniques, high levels of managerial and technical skills, and huge capital investment in machinery, equipment, tools and factory space.

There are no dis aggregated data for volumes of furniture output alone. However, between 1982 and 1988 gross output for "wood and furniture" produced in the formal sector rose from Z$ 94 million to Z$ 227 million (CSO 1990), comprising a steady 3\ of manufacturing output.

In 1983 there were some 50 furniture making factories, mainly centred in Harare and Bulawayo. These employed approximately 5 000 workers. The marketing strategies are diversified. For instance, out of the 23 factories In Mashonaland Province, 3 produce mainly for the top end of the market and also export solid timber furniture to Europe, America and the Far East. Ten firms concentrate on the middle range of the domestic market while the remaining 10 cater for the rural and low income urban market.

The recent drought (1991/2) and the credit squeeze imposed under the Economic Structural Adjustment Programme have severely curtailed effective demand for this sector's products. Before the squeeze, the lower income households could afford to buy middle of the range furniture as credit terms were readily available. High interest rates,

29 strict lending policies and reduced income as a result of the drought currently prevent this. Business has fallen to an all time low as consumer expenditure has shifted to basic items like foodstuffs in the face of the current economic hardships. However, this situation is expected to ease with a good rainfall season strengthening consumer demand.

In the informal sector carpentry enterprises consist of small units of 1 to 5 persons either as sole owners, partnerships or cooperatives. In practice one or two members of such a group tend to have the dominant say in the running of business.

Informal sector firms produce mainly furniture, e.g. chairs, tables, desks and wardrobes, using both basic (traditional and hand tools) and ~proved technologies. ~hey face stiff competition from the wholesale and retail network which distributes large firms' finished products nationally, including at Growth Points and Rural Business centres in communal areas. However, small operators survive and thrive by exploiting particular market niches. They have learnt to adapt their mode of operations to prevailing skill, resources and capital availability. This often involves taking customer orders for one or a few items at a t~e (e.g. a wardrobe, a table, desk and chairs). As working capital and raw materials stocks are usually low, a down payment must be made before acquisition of materials and production can start.

Orders given to carpenters are seasonal and can vary from year to year. Major constraints are carpenters' lack of resources, delayed payments, distance from raw material supplies (lack of transport), lack of workshop and storage space, competition in demand for skilled labour, and lack of sales and marketing facilities. Rural carpenters have little access to carpentry tools; even if they are available, the prices of the tools are often found to be prohibitive.

30 III THE POLICY AND INSTlruTIONAL ENVIRONMENT

3.1 Introduction

The policy and institutional environment within which the manufacturing sector operates has been characterised by pervasive government intervention in product, factor and financial markets. As noted before, most of the regulations were inherited from the 001 period, but maintained to achieve different policy objectives. The adoption of the Economic Reform Programme is an attempt to dismantle the labyrinth of government regulatory controls and replace them by a market based system of economic management and resource allocation. The policy and institutional environment that existed throughout most of the 1980s and the reforms implemented under the Economic Reform Programme are discussed below.

3.2 ~. Legal Syat.a

Zimbabwean law permits both private (sole proprietorships, partnerships and limited liability companies) and social (state, collective and co-operative) ownership of property. However, most formal sector manufacturing enterprises are incorporated under the Companies Act (1973). Under this Act firms have to be registered. Besides registration, a formal licence from the central or local government is required.

The legal system in Zimbabwe provides reasonable guarantees for the entering into and enforcement of contracts. With the exception of the period 1980-85 when there was considerable trepidation about nationalisation or repudiation of contracts, both domestic and foreign firms have felt reasonably secure within the legal environment.

Under the Urban Councils Act and the Rural Councils Act, the Councils are entitled to alienate and reserve land for public use. The Councils also affect enterprises through licensing and trading regulations, such as the Control (Hawkers and Street Vendors) By-Laws. These By­ Laws require hawkers and street vendors to have a license or a disc. The Council can specify the area where hawking is allowed, the sites that are set aside for street vendors, the number of vendors per site and the classes of goods. -Employers of hawkers need a Hawkers Employer's License, which specifies the number of hawkers each employer may hire. The effect of these regulations is that hawkers are tied to the formal sector and to employers who are able and who can

31 afford to buy a license. Another effect is that only a restricted category of commodities can be hawked legally_

The Factories and Works Act provides for the registration and control of factories and the regulation and control of conditions of work in factories (health, use of machinery, etc.). A factory is very broadly defined as any premises on which any person performs work in connection with any business as employer or employee. However this does not include a place with fewer than five persons employed, unless mechanical power is used. Nor does it include premises where only minor adjustments to vehicles are carried out. Makamure (1983) notes that if the Act were to be enforced strictly, virtually all informal enterprises would have to be closed down. He stresses that the illegal status of these firms precludes them from contract enforcement.

~he Industrial Conciliation Act provides for the creation and organisation of employers and workers' organizations for the settlement of labour disputes. The Act establishes Industrial Councils which not only have the power to settle labour disputes but also have other governing and regulating power over their ~ndustry. E.g. as employers fear competition and employees fear retrenchment, consensus can be reached within the Councils to restrict entry into the industry. According to Makamure extensive restrictive practises exist in all industries, even for the kind of small scale activities that formal sector firms would generally not even want to engage in. These restrictions are backed up by common law, which allows restrictions in contracts specifying that an employee is bound not to set up a business in competition with his former employer. The fact that informal (illegal) operators cannot register forces them to buy their inputs and spare parts on the open market. Sometimes they are not even able to.buy certain goods, because they are made available only to members of the trade association. In addition, their informal status and lack of title deed makes it virtually impossible for these operators to borrow money from formal financial institutions. Finally, contract enforcement becomes difficult for these operators. Rasmussen (1992) reports widespread mistrust and stresses the importance of social networks in the informal sector as a result of the lack of enforcement possibilities.

3.3 ~axe.

In a report on private investment and government policy the World Bank concluded in 1989 that company taxes charged in Zimbabwe are

32 comparable to international levels and in that sense do not discourage investment. Taxes payable by private sector firms include company income taxes, taxes on dividends, branch profit taxes, withholding taxes and capital gains taxes.

Corporate Income Tax

The corporate income tax rate has been 45 per cent since 1979. This was raised to 50 per cent in 1989 but reduced to 45 and 42.5 per cent for the 1990/91 and 1992/3 fiscal years respectively. However, after various allowances and deductions, the effective tax rate is only 28 per cent (World Bank, 1989). These deductions and allowances consist of: depreciation allowances for buildings, articles, implements, machinery and utensils. The taxpayer may choose to claim Special Initial Allowances. Since 1992 the administration of these allowances has been simplified to a system on a straight line basis over a period of three years at successive rates of 50\, 25\ and 25\. Before 1992 it used to be 50' of the remaining balance in subsequent years. As an alternative to Special Initial Allowance (S.I.A.), wear and tear allowances can be

deducted. These have rates varying from 5 to 331~' per annum, depending on the item specified (e.g. for commercial buildings there is no S.I.A. available (except in growth point Areas, see below) and the wear and tear allowance is 2~\ per annum). expenditures on research. expenditures incurred before the start of business. assessed losses. These may be carried over to future years, to be set off against taxable income. Since 1992 the carry forward period may not exceed 6 years (except for mining where losses may still be carried forward indefinitely).

In addition there are a number of special deductions: A special initial allowance of 100 per cent of the construction cost of commercial buildings is offered in growth points.· In addition, an extra investment allowance of 15\ of the cost of buildings, new articles, implements, machinery and utensils (other than cars) is granted, and a tax relief of 22.5\ on

~rowth points are centres that are selected to provide services to a region and which have some natural advantage as an independent economic base. The objective of the government in creating these centres is to deconcentrate urbanisation, stimulate rural economies and increase administrative capacity.

33 taxable income for a period of five years. Finally, although not a deduction, sales tax on goods for investment at growth points is refunded. an investment allowance of 50\ of the cost of buildings erected and equipment purchased exclusively for training of employees. Since April 1992 this provision also applies to training schools.

~axation of Dividends

Dividends to both residents and non-residents are taxed at the same rate of 20 per cent.

other withholding taxe.

other withholding taxes levied on incomes from a Zimbabwean source payable to persons not resident in Zimbabwe are: Interest tax (10\) - Fees (20\) - Royalties (20\) Returns on foreign investment usually generate double taxation for the shareholders or for individuals offering services for which withholding taxes are applicable. To avoid this, treaties on double taxation have been signed with the United Kingdom, , South Africa, the , , Bulgaria and . This reduces non-residents' dividend tax, taxon fees and tax on royalties from 20\ to 10-15\.

Reaittance tax

A non-residents' remittance tax of 20\ is withheld on remittances from Zimbabwe.

Branch profit tax

A 8.4 per cent of taxable income branch profit tax is charged for companies which are not incorporated in Zimbabwe to discourage them from dOing business without being locally incorporated. capital gains tax

Undistributed profits are taxed at a 30 per cent rate whenever they are transformed into equity~ The same rate applies to gains on capital

34 disposal. However, related costs are deductible and there is a 10% inflationary allowance for each year from the date of acquisition or improvement to sale. Capital losses can also be offset.

Sales tax

A sales tax is levied on the purchase of most goods and services in Zimbabwe. The basic rate is lOt, for semi-durables the rate is 1St and for durables and other luxury items 20%. A refund of sales tax on goods of a capital nature purchased within Zimbabwe has been provided in case of so called "high priority projects" in designated growth points.

custoas dutie., surtax and aport tax

Customs duties range from a minimum of lOt to as high as 90% (for cars). Surtax is currently 20% (except for some industrial, agricultural and mining equipment), but will be phased out in the course of the ERP. Government imports and imports of public enterprises will also become subject to taxation. Import tax rates are 10%, 1S% and 20% and should be regarded as an equivalent of sales tax. As is the case for sales tax, the same refunding for priority projects in growth points applies for import tax.

The manufacturing sector pays no duties on imported capital equipment or intermediate inputs. There is also a duty drawback on exported manufactured items that use imported inputs. Onder the structural adjustment programme, companies will start paying import duty on capital equipment and raw materials. Duties on raw materials will be introduced during the second phase of the reform programme.

3.4 Price Control aegulations

Price controls date from the 001 period. They were introduced to restrain firms from exercising the market power they were given as a result of the foreign exchange restrictions and investment control which effectively insulated Zimbabwean firms from both foreign and domestic competition. Based on prices before 001, when Zimbabwe was an extremely open economy, price control regulations allowed certain increases in price, depending on rises in production cost, especially labour costs and the costs of raw materials. After independence the effects of protection on efficiency became more and more substantial and, in addition, the government started to use price controls as

35 instruments for redistribution.

In some instances, specific prices were set while for the bulk of products, controls were based on cost-plus and permissible margins 'were gazetted. Price controls are administered by a price committee in the Ministry of Industry and Commerce. Any disputes over the price recommended are arbitrated by a Prices Board appointed by the Minister. Exempted from controls were exports, goods sold by public auction, second hand goods (except automobiles), food and drinks sold for consumption on the premises (except beer), eggs, flowers, fruits and vegetables. Five different price control mechanisms have been used.

First, the Minister of Industry and Commerce could set min~um and maximum prices on specific products. This system covered agricultural produce, building materials, foodstuffs and beverages, fuels, stock feeds and . Prices of these goods were frozen in mid-1987 but relaxed in early 1988.

Secondly, some commodity prices were controlled by a fixed mark-up over cost (or a previously charged price by an established. competitor in the case of new firms), varying between 10 and 50 per cent depending on the product. annual increases not exceeding 5 per cent of the original cost were allowed without prior approval.

Thirdly, for some essential commodities like petroleum fuels whose prices were set by the Ministry of Xndustry and Commerce, but without requiring Cabinet approval.

Fourthly, ministerial approval gf price increases or pricing formulas was required in some cases. By 1989 products under this rule included newspapers, iron and steel, batteries, pork and pork products and dressed poultry, paper supplied to manufacturing and processing concerns, motor-vehicle parts, agricultural implements and chemicals.

The fifth method applied specific mark-ups over costs to wholesalers and retailers.

The ggvernment employed price inspectors, empowered to seize or remove samples of ggods and make copies of relevant company documents. Violation of price control regulations may result in a fine of at least Z$ 5,000 or the value·of the commodity sold. Retailers are expected to display prices of their commodities, which makes

36 monitoring easy. Inputs to most manufacturing SUD-sectors are obtained through parastatals, which are unlikely to violate the price control regimes. Price controls appear to have been enforced fairly effectively, although there have been notable exceptions: in 1989 a shortage of vegetable oils resulted in escalating prices in 1989. An indication that some markets did not clear comes from a "study of Monopolies and Competition Policy in Zimbabwe", where tied sales are reported in the distribution and retailing of scare commodities such as cooking oil, margarine, sugar and rice. This report also cites a newspaper stating that "more than 600 businessmen in Manicaland have been ••• overcharging or selling scarce goods conditionally." Evasion of price controls was, however, not easy, especially at the ex factory level. In some cases product mix was affected: in response to price controls firms tried to switch to new or relatively uncontrolled product lines.

When looking at the objectives of price controls and their realisation, price controls have probably succeeded in curbing monopoly power. They may well have postponed rather than reduced inflation. The use of price controls for achieving distributional objectives has been criticized because the items covered were not very important to the poor.

Under the structural adjustment programme price controls have been significantly relaxed. Between March 1991 and November 1992 specific price orders on alcoholic beverages, matches, motor vehicles and stock feeds we~e removed. Only agricultural seeds, iron and steel from ZISCO and batteries now require approval of price increase. The list of goods requiring approval of the pricing formula has been reduced to only motor vehicle parts, agricultural chemicals and equipment, and lubricating oils. Furthermore, as goods are gradually put on the Open General Import License (OGIL) list under the trade liberalisation programme, controls on domestic prices (becoming redundant in most cases) are removed simultaneously. Thus, most commodity prices have been decontrolled with the exception of basic consumption commodities (bread, vegetable oil, maize meal and fresh milk), cement, Zisco steel and fertilizers. The official reason for maintaining price control for cement and steel is the existence of a duopoly in cement productionS and a monopoly in steel while prices continue

!I This is strange, because cement was put under OGIL in 1991- Apparently this has not led to the removal of its controlled price. In a recent World Bank report (1993) the cement industry was given as an example where price controls had led to adverse effects on foreign

37 to be controlled to give an incentive to farmers.

3.5 Investment Regulations

There exists no foreign investment code in Zimbabwe, but since 1982 the government has issued investment guidelines to potential investors. These guidelines only applied to foreign investment; there did not appear to be a clear policy on domestic investment. This caused uncertainties among domestic investors. The regulations were revised in 1989 and again in 1991 to rectify this. Policy changes were announced in the paper "Promotion of investment: Policy and regulations" (1991), as part of the structural adjustment programme. The guidelines highlight issues like government stance on ownership, priority investment areas, institutional arrangements for investment, and taxation. They reflect the governments concerns in the following 6 areas :

Balance of Payment problems. This has led to restrictions on foreign exchange allocation, dividends remittances and capital repatriation. Foreign domination of the economy. Unbalanced Development, both in regional and in distributive terms. This has led to active participation of the government in investment in the private sector. The exploitation of Zimbabwe's resources. The monopoly position of the Minerals Marketing Corporation is a result of this concern.

Investment Approval

Prior to 1991 a cumbersome system of investment approval was in place. Projects had to be vetted by a series of committee~ in the Ministry of Finance such as the Industrial Projects Committee, the Replacement Projects Committee, the External Loans Coordinating Committee and the Foreign Investment Committee. In addition they had to be approved by

investment. It seems that at least one mayor foreign-sponsored investment in a cement factory was cancelled because prices were too low to make the investment profitable. So it seems that the duopoly is not the real cause, but that the price is kept below import parity for some other reason.

15 For a more elaborated discussion of these goverment concerns, see Proctor, A. (1993), ·Zimbabwe - Foreign Investment", FIAS, World Bank, Washington D.C ••

38 other relevant Ministries and organisations for the purpose of licenses and permits. In 1990, the government established the Zimbabwe Investment Centre (ZIC) in an attempt to reduce delays in approving investment projects. The various Ministries interested in the project and whose permits may be required for specific operations are requested to attend the board meetings. It is ZIC which obtains the licenses and permits rather than the companies themselves. ZIC is therefore supposed to act as a single window facility for both local and foreign investors. ZIC was established to dispense with the obstacle of bureaucratic committees for projects under Z$ 10 million. Larger investments still required ministerial approval. However, ZIC still had to submit the projects to the same bureaucratic committees (the Investment Project Committee, the Foreign Investment Committee, The Buildings Project Committee, the External Loans Committee and the Exchange Control Review Committee).

The ZIC Act, passed in September 1992 empowers ZIC with approval authority for projects over Z$ 30 million, sets time limits and designates investment promotion as a separate function of ZIC. In appraising projects considerations taken into account include: the extent to which the project utilises local resources, creation of employment, amount of foreign exchange required, impact on existing industries in the economy, and the possibility of technology transfer.

ZIC has been criticised for the length and obscurity of its procedures and criteria. The recent approval of ZIC by the parliament and the President makes it possible for a majority of the ZIC board to come from the private sector.

3.6 Direct Foreign Investment

Government regulations on foreign investment, security of ownership, capital mobility, dividend remittances and profits repatriation have affected the foreign investment climate in several ways.

Security of OWnership

The government's view of foreign investment is that it must be complementary to local capital by enabling access to new technology, skills and foreign markets. Thus, policies and regulations have attempted to restrict foreign investment to certain priority areas. For this reason the government has closed certain activities to foreign investors. For example, in the agriculture no foreign

39 investment is not allowed. Only in selected industries up to 100 per cent foreign ownership is allowed but with a policy encouragement for the eventual transfer of majority ownership to Zimbabweans. This introduces an element of uncertainty as to government's future intentions.

During the first five years of independence, the government refused to sign any specific guarantees to foreign investors, insisting that the Zimbabwe Constitution adequately protects foreign investment. With the membership of the Multilateral Investment Guarantee Agency in 1985 and the signing of the protocols of the United States' OVerseas Private Investment Corporation this stance was abandoned. Bowever, the delay in signing may have had adverse impacts on potential investors' confidence. The government has also acceded to the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of other States. Disputes may alternatively be submitted for settlement by arbitration under the rules and procedures of the Commission on International Trade Law. Finally, the government acceded to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Regulations on dividend reaittances

Regulations on dividends and profit remittances were introduced for balance of payments reasons. At the time of independence up to 50 per cent of net after tax profits could be remitted. This was reduced to 25 per cent in 1988 for dividends on old equ~ty capital (prior to September 1979), after a temporary suspension of all remittances in 1984 and 1985. For new investment the 50 per cent limit still exists.

The government, however, allows remittance of up to 100 per cent dividends and profits for high priority projects as an incentive to foreign investors, especially for projects with self financed foreign exchange components.

Regulations on Disinvestaent

Regulations restricting capital mObility and disinvestment by foreign firms have been adopted, mainly for balance of payments reasons. Investments undertaken prior to 1979 are permitted to disinvest through either the domestic (more than 75' to approved local investors) sale of assets, with. compulsory purchase of 20 year

40 convertible 4% Government External Bonds for corporate? vendors, or through obtaining approval for a domestic sale at a discount, leading to accelerated remittance. A discount of between 331/3 and 6S per cent of the company's book value qualifies,for repatriation of proceeds via 6 year 4% Government External Bonds, whereas a discount of 6S to 7S per cent qualifies for remittance over a period of three years. For post 1979 investments, disinvestment proceeds equal to the original investment may be freely repatriated after a period of 2 years through a 6 year, 4 per cent tax free government external bond procedure.

Ose of blocked and surplus funds

The government aims at obtaining more foreign investment through the use of blocked and surplus funds. Blocked Funds are the amounts of dividends declared, partnership profits distributed or branch profits earmarked for remittance which are in excess of the allowed percentages. Surplus Funds consist of net after tax profits not declared as dividends or profits.

With the approval of an investment project capital from these funds can be given "venture capital status", which means that it can be repatriated upon disinvestment after a minimum period of five years. Since this is a way to release money from blocked funds it requires approval. Prior to 1987 investment of blocked funds required bringing in foreign exchange into Zimb~bwe equivalent to the blocked amount invested. This condition has been relaxed, such that the equivalent amount varies now from 0 to SO per cent. To stimulate investment, the government has approved the use of blocked funds for investment by third parties. The non-resident owner of the blocked funds will then be paid abroad by the investor. The Exchange Control Department can also approve accelerated release of blocked funds if the owner is willing to donate (!) of 75\ of the blocked funds to the Zimbabwe National Development Trust.

Surplus funds have, unlike blocked funds, a local currency status. They may be used for normal business operation and expansion or approved new investment. They may also be invested in savings accounts and short-term fixed deposits, but at a maximum interest rate of only 5 per cent.

Borrowing by foreign-owned companies

'Twelve year bonds in the case of individual sellers.

41 A company with more than 25% non-resident shareholding is restricted in its access to local credit. Authorized dealers in Zimbabwe are allowed to grant local credit to such a firm up to a limit determined by the following formula: (1 + resident/non-resident ratio) * (25% of shareholders' funds) Borrowing in excess of this limit requires approval of the Exchange control Department and is likely to result in additional restrictions on remittances. Exporting firms are granted freer access to local credit by the Exchange Control Department. They are allowed to borrow more than the formula limit without restrictions on remittances. In order to avoid remittance restrictions, additional exports generated as a result of excess borrowings should be at least 50% of the amount authorized in excess of the limit.

Special incentive. for export oriented project.

Export oriented projects of foreign owned companies are defined as those manufacturing or processing projects that export at least 75% of total output, or projects that have a foreign exchange requirements payback period of less than three years and are able to earn double the total foreign exchange released by the authorities within a period of five years, starting when the company is operating at full capacity. The incentives provided are: automatic approval of foreign exchange requirements for joint ventures equivalent to the domestic share of equity in proportion to the foreign exchange requirement of the project, relaxation of borrowing rules, full repatriation rights on all declared dividends in respect of the foreign shareholder, and relaxed constraints on remittances of dividends when blocked or surplus funds are used (up to full repatriation rights in case of the local use of own blocked funds of 100% foreign owned companies).

Iapediaent. to direct foreign inve.taent

Foreign exchange regulations used to be the main impediment to direct foreign investment, but are no longer a constraining factor. The main remaining obstacles are:

the cumbersome and time consuming procedures of investment

42 application and import of capital equipment, the absence of transparency, consistency and' predictability in the implementation of regulations and criteria with respect to the awarding of incentives, the risk foreign investors associate with the existence of restrictions on the remittance of profits, even if these restrictions are not effective, restrictions on the repatriation of capital, which substantially increase the risk of investment, discrimination against companies with more than 25\ foreign owned shares when investment approval and foreign exchange allocation are concerned, the fact that importation of particularly capital goods is not guaranteed and that import duties are high and rising, the threat of competition by subsidized and otherwise privileged public enterprises, the negative perception of Zimbabwe by potential foreign investors as a highly regulated economy with an unfriendly investment environment.

Changes under ZRP

The government intends to remove the sanctioning of all but "large" investment projects by 1995. As foreign exchange allocation always has been the most important consideration behind all investment regulation, there will be no reason left for sanctioning once capital goods and raw materials are fully on OGIL.

Another intention stated by the government (in "A Framework for Economic Reform" (FER» is to remove all exchange control on dividends and profit remittances by the end of 1995. A new policy with respect to blocked and surplus funds as well as capital repatriation has not yet been announced. The FlAS (IFC) has proposed to abolish the punitive interest rate on the funds and to allow free capital repatriation of all new investment. However, this would open the possibility to invest the blocked and surplus funds in fake investment projects. To avoid this control by ZIC or a similar institution would be needed.

43 3.7 Public Enterprise reform and investment in infrastructure

Under FER more autonomy has been given to public enterprises (PEs). One of the objectives of FER is to reduce the huge losses of PEs, which in 1991/92 still amounted about Z$ 600 million (half of this was due to unexpected costs as a result of the drought). The Marketing ~oards, ZISCO, National Railways Zimbabwe (NRZ) and the National Oil Company Zimbabwe (NOCZIM), which are responsible for the bulk of the losses, have all increased prices, but still not.enough to cover their operating costs. Under FER the monopoly positions of the Marketing Boards will be reviewed and competition introduced. Also, over time, ZISCO has to set its prices in free competition with imports.

Power tariffs were increased by 65\ in 1992. Postal tariffs by 25\ and telephone tariffs by 50\.

Private sector activity is still restricted in transport. Private truckers with a capacity of more than 10 tonnes (15 tonnes in the crop season) require permits. Petroleum imports are transported by a parastatal. Urban passenger transport has been carried out by the Zimbabwe Urban Passenger Company (ZUPCO). Since the mid-1980s, ZUPCO is jointly owned by the government (51\) and UTC (49\), a British company. Little investment and lack of spare parts has resulted in poor service. Waiting times are excessively long.' New investments have long been discouraged by restrictions on profit repatriation and uncertainty that stemmed from the Government regulations that determined bus fares (every adjustment requiring Cabinet approval). Last year bus fares were doubled and this has led to the mushrooming of so called emergency taxis, driving up and down certain routes.

Telecommunications services are provided exclusively by the Post and Telecommunications Corporation; no private sector competition is allowed. Telephone density is by all standards inadequate and the quality of the network is poor. During the 1980s the number of lines grew at about 2' annually, whereas demand for lines grew by 6'. Maintenance is poor due to lack of equipment and skilled manpower. Tariffs were set at artificially low levels without any adjustment mechanism. This is changing under FER. The inadequate functioning of the telephone is a major complaint of most firms, especially export oriented firms. Many firms have personnel with no other duties than

~any respondents in the RPED pilot survey (February 1993) listed the effect of this on their work force as a major problem.

44 trying to make telephone calls.

45 3.8 Local Government Regulations

Local authorities are allowed to formulate by-laws on all those aspects relevant to their locality that are not specifically covered by central government laws and regulations. Examples include by-laws on supplementary charges, building standards, licensing, land and building occupation and use, property valuation, and refuse disposal.

By their nature these local regulations differ from area to area. Formal sector firms have to pay property taxes, which are based on the capital value of built up land. The rates vary depending on the local authority between 1 and 5 per cent of the capital value per annum. Private firms are normally contracted by the local authorities for the purpose of property valuation. There exist no central guidelines for this kind of valuation and different agencies are reported to end up with different valuations for similar properties. Additions to buildings attract high additional charges. in terms of .plan approval fees and rates on capital value. The method of valuat~on operates in an inequitable manner, because rates charged for new investment are higher.

Title deeds are issued by local authorities. Often firms have to prove their financial ability before a title deed is granted, but a loan commitment from a bank can only be obtained with a title deed. Even at growth points the difficulty of securing title deeds hampers firm development and investment. The problem seems to be largely due to a shortage of certified land surveyors. The University has only recently introduced a degree program in land surveying and although the government has drafted amendments to the Land Survey Act to facilitate the use of expatriate surveyors, parliament has not yet approved this. Trading licenses, especially for hawking and vending, required by local authorities are a serious impediment to business. Often these licenses specify the exact product, the place and the amount allowed to be sold. This unnecessarily constrains flexibility and diversification.

Building Cbdes are another burden. Small and micro enterprises often consider the costa involved so high that they prefer not to be registered. Zoning regulation are very strict in Zimbabwe. Residential, commercial and industrial areas are separated. As a result small firms remain unregistered, because they cannot afford the higher rents and transportation costs connected with a stand in an industrial area.

46 Enterprises using "mechanical power" require a license under the Factories and Works Act, irrespective of their size. Acquiring such a license implies registration and often mandatory relocation in industrial area. FER suggests to exempt establishments employing less than 10 workers from this kind of licensing, in order to promote small business activity.

As part of FER a commission has been established to review local council by-laws and regulations.

3.9 Labour Regulations

At the time of independence, income distribution was very unequal. The government decided to narrow income differences by putting in place minimum wages (in 1980) and by legislating wage increases. These measures were expected to reduce employment and the government attempted to prevent this through the Employment Act of 1980 which required government permission before a worker could be dismissed.

In the first eighteen months after independence the minimum wage in industry was raised by 27% in real terms. However, in September 1983 it was allowed to drop again to its initial level. Wage scales were compressed by policies of employment boards and councils (Fallon and Lucas, 1991), and by the imposition of ceilings on wage increases.

Dismissal procedures under the Employment Act (1980) and the 1981, 1982 and 1985 amendments were so bureaucratic and time consuming that it took up to two years to obtain government approval. Applications to layoff workers were handled by the Retrenchment Committee of the Ministry of Labour. The Committee would then make recommendations to the Minister. In many cases, dismissal applications were turned down and the employees reinstated with considerable loss to the employer.

Employment of temporary workers was discouraged by a provision that casual workers must be paid at least twice the minimum wage and a restriction stating that casual workers may not be employed for more than six weeks in any three months period. The effect was that labour became more or less a fixed factor, as firms found it difficult to adjust their labour force in the face of short-run fluctuations in economic activity. Ironically, these regulations introduced an anti­ labour bias in the market since firms became reluctant to employ permanent labour. This is likely to have reinforced the adoption of

47 capital-intensive technology by firms.

Under the Structural Adjustment Programme labour market regulations were relaxed (in 1990 through statutory instruments 379 and 404). Amendments to the Labour Relations Act have been made to streamline the procedures for hiring and firing of individual employees. In addition, a national code of conduct has been established through which companies or specific industries prepare their own codes through the process of collective bargaining. Direct intervention in wage setting was replaced by collective bargaining for all industrial workers. Now the government only sets the minimum wage for farm workers and domestic workers, because they are not represented by a formal workers organization. For all other workers there no longer is a statutory minimum wage.

The ceilings on wage increments have been abolished and since 1991 employment councils for each subsector have determined minimum wages by collective bargaining. However in some cases, government has intervened and refused to authorise large wage increases on the grounds that this would be inflationary and disrupt macro-economic management. The employment councils are being established for resolving all disputes involving labour issues: wages, employment conditions, removal of individual employees for misconduct or lack of suitability in the job and retrenchment for purpose of "down-sizing" or when a unit has to be closed down for lack of viability.

3.10 Skill Formation'

In industry there is a serious shortage of skilled manpower, in spite of the post independence expansion of the educational system and vocational and technical training programmes. Prior to independence, there were only two technical colleges, and since then, six more were established. Total enrolment at technical colleges was around 4000 in 1980 and this had increased to 9445 by 1990.

Before independence, Africans had very limited opportunities to go through technical training. Technical training by black Zimbabweans was discouraged in preference to white immigrants. Thus an indigenous skills base was never firmly established. Immigrants were encouraged from Britain and South Africa to come and take up strategic and

, This section draws on K. King, wIn-Service Training in Zimbabwe, An Analysis of Relationships Among Education and Training, Industry, ft and state , The World Bank, Washington D.C., 1990.

48 skilled posts in the country. Many companies relied on on-the-job training and this process developed essential skills basic to run the industry, with the workers classified as semi skilled.

Trade testing was introduced after independence to enable recognition of the skills acquired. Since Independence between 10,000 and 12,000 workers out of the 176,000 semi-skilled and half a million unskilled formal sector employees have been upgraded and certified. The shortage of skilled labour is party due to migration. Soon after independence, many skilled white workers left the country for South Africa. A few years later, this process was partially reversed and some whites came back to Zimbabwe partly because of the government's policy of reconciliation and partly because it turned out that the grass was not always greener on the other-side of the fence. However, in the late 1980s, the trend of emigration re-emerged and this time it included black skilled workers and professionals (engineers, artisans, technicians, accountants) who were, and are, seeking higher incomes in South Africa, Botswana and other neighbouring countries.

This is partly the result of high taxation in Zimbabwe. The maximum tax rate currently stands at 55\, having been recently reduced from 65\_ This rate applies to incomes above Z$ 45 000 per annum. In South Africa an annual salary of R 80 000 per year is taxed at a fixed amount of R25 000, or 31.25\. Above this level the marginal tax rate is 43\. In the case of Botswana, Lesotho, Namibia and Swaziland, the maximum tax rates are 40\, 53\, 42\ and 40\ respectively.

The effect of the high income tax rate is reinforced by the relatively high cost of living in Zimbabwe. Housing, cars and consumer durables are much cheaper in neighbouring countries to the south.

Human Resources «Pvt) Ltd estimated in 1990 that the manufacturing sector had a shortage of up to 60,000 skilled artisans. The short fall in respect of required engineering skills was estimated at 37\.10 There is a mismatch between the skill requirements of industry and the supply of skilled labour, particularly from the University of Zimbabwe. The University intake is higher in the field of social sciences compared to the natural sciences and as a result some graduates in the former find difficulties to obtain employment.

There are now eight technical colleges and fourteen youth training

lOsunday Mail, December 20 1991.

49 centres in the country. In addition, there are private colleges and these contribute to the training of professional and technical manpower. The number of registered private colleges in 1990 was 108 and these on average produce some 12000 graduates in managerial, secretarial, business, and computer and other courses.

Besides the quantitative expansion in training, new disciplines were introduced to meet emerging new requirements in areas such as wood, rubber and plastics. This was part of a government effort to address the shortage of technicians and artisans that became very clear soon after independence, with the emigration of skilled white workers.

Enrolment at technical colleges stood at 3400 in 1980. By 1990 this had increased to 9450. Table 12 below shows total enrolment by discipline at technical colleges for ~990.

~able 12

~tal Enrol•• nt at ~chDical Colleg•• , 1990 Type of Trade Automotive 720 Civil Engineering 474 Electrical Engineering 718 Mechanical Engineering 886 Wood Technology 76 Printing & Graphic Arts 270 Science Technology 794 Business Education 4333 Computer Studies 234 Library & Information Science 109 Hotel Catering 147 Cooperatives o Mass Communication 575

Training in textile technology (not listed in the Table) is offered by Bulawayo Technical College offers, but only 12 students were enrolled in this course in 1989. According to the FiVe Year National Plan (1991 - 1995) the government intends to consolidate existing technical colleges and training institutions in order to achieve full capacity utilisation within the plan period. The government also intends to standardise technical and vocational education through a certificate structure in order to streamline the courses offered by private institutions, parastatals and local authorities and government technical institutions. There will be five certificates: pre­ vocational certificate, national foundation certificate, national certificate, national diploma and higher national diploma.

so correspondence schools provide a large number of courses in management, marketing and bookkeeping. The five schools (African Correspondence School, Rapid Results, International Correspondence School, Zimbabwe Distance Education College, and Transworld Education College) enrol currently about 200,000 students.

Multilateral donors and NGOs have sponsored a number of private training programmes. The better known private training programmes, involved in industrial training, are listed below: - Ranche House College. Established in 1961 as an organization for adult education, it teaches adults practical skills, such as business management, dressmaking, Shona language and women's leadership development. - Glen Forest Training Centre (GFTC). GFTC is specialized in courses providing agricultural and technical skills to the rural population. Vocational subjects offered include agriculture, blacksmithing and metalwork, toolmaking, baking, building, carpentry, catering, dressmaking, fence making, and soap and vaseline making. All courses include a toolmaking component. In addition GFTC holds workshops tQ develop organizational skills as follow-up visits to ex-trainees indicated that lack of organization was a major cause of failure. - Zimbabwe Project, Harare. This was established in 1981, mainly to train ex-combatants. The project is involved with some 200 cooperatives and provides training in building, carpentry, welding, small-scale agriculture. - Danhiko Project, Harare. Provides 2-3 year courses in cabinet making, electronics and garment making. In addition a Rural Training Programme has been established, with courses in carpentry, welding, bookkeeping and management for graduates who want to become self­ employed in rural areas. - Mulfure College Cheguttu. Offers 2 year courses, in agriculture, building, carpentry and textiles. The objective is that graduates will set up cooperatives. - Silveira House. Offers over 100 courses in civics, nutrition, youth programmes, practical skills training, industrial relations, and some agricultural training. Finally, Oxfam supports two training centres near Bulawayo and Kariba, Red Banna runs a training centre in Harare and the Catholic Church finances two centres at Chinhoyi and Driefontein Mission.

Unlike in other African countries, such as Ghana, an apprentice in Zimbabwe does not pay, for his training. There are legal reasons for this. A trainee is either an apprentice, in which case he has to be

S1 registered as such and part of the apprenticeship costs is paid for by the levy-grant incentive scheme of the Zimbabwe Manpower Development Fund (ZIMDEV), or he is a regular employee and therefore entitled to get the minimum wage.

In the late 1950s a formal apprenticeship system was introduced in Zimbabwe, exclusively for Europeans. This system was opened up to all Zimbabweans at independence. It operates in seven fields: printing, hairdressing, building, automotive, electrical, mechanical and aircraft. According to King (1988) between 1000 and 2000 apprentices were registered annually by the Directorate of Industrial Training. This number has declined over the years and is probably below 1000 now. The main reasons for this decline are the complexity and the long duration of the ~ecruitment process and the unavailability of college space.

Most of the apprentices in the industrial sector receive their training from parastatals (mainly from the National Railways of Zimbabwe (NRZ) whose school is now formally an annex of the Bulawayo Technical College) and the government itself (via the Registrar of Apprenticeship). As private enterprises seemed to have lost interest in the system, it gradually shifted from an in-service training mode to a preservice training system.

There is a wide variation of in-plant training, ranging from purpose­ built training complexes to systems that hardly offer any off-the-job training. Some of the larger "companies nowadays have their own training programmes. As most of the applicants for these training systems have form 4 education some of these courses are quite different from the traditional learning on the job or the apprentice system. Multinationals use modern educational methods such as learner­ directed training schemes and criterion referenced instrUction. On the other hand there are large firms that do not have a company training policy, but simply organize training when they have a need for it. The smaller firms have even less training policy. In practise many small firms train the most promising of their unskilled workers on the job.

Employment of expatriates has been hampered by many bureaucratic procedures. Since 1991 three year contracts (five years in case of highly specialized skills) have to be approved by the Zimbabwe Investment Centre. The main criterion is that the job cannot be done by a zimbabwean resident. Work permits and residence permits have to be obtained from the Immigration Department. Expatriates on contracts

52 exceeding two years are allowed to remit with permission of the Exchange Control up to one-third of their salary. The result of the delays in the approval of particularly work permits for short term visits of expatriates to install or introduce some new technology impose unnecessary costs on investors.

The informal sector in Zimbabwe does not have an institutionalised apprenticeship system. NCOs offer courses in technical skills such as metalwork, sewing, carpentry, bread making and other areas in which small scale enterprises operate. There is a spill-over of skill formation from the formal sector: informal sector entrepreneurs usually start their business after having worked and become skilled in the formal sector.

3.11 Financial Interaediation

Compared to many developing countries, the financial intermediation system of Zimbabwe is well developed and highly sophisticated. The financial sector consists of the central bank (the ), five commercial banks, four merchant banks (accepting houses), five finance houses, two discount houses, three building societies, insurance companies, pension funds, the Post Office Savings Bank, development finance institutions and the Stock Exchange.

The two discount houses accept call money from banking and other institutions. They invest this in short-dated assets such as treasury and other bills and government securities.

The five commercial banks are: ANZ Grindlays, Barclays Bank, Commercial Bank, Standard Bank and the Zimbabwe Banking Corporation (Zirnbank). The government has a controlling interest in the Commercial Bank and Zimbank. Commercial bank lending is mostly short term to finance working capital requirements of industry and agricultural finance. Most of the loans are lines of credit (overdraft facilities), with real estate or commercial assets as collateral. Under certain circumstances, medium-term lending is granted (three to seven years), but normally this type of lending is catered for by merchant banks or finance companies.

There are four merchant banks, some of which are subsidiaries of commercial banks. These are the First Merchant Bank (Anglo American Corporation), Merchant Bank of Central Africa (a consortium of overseas banks), Standard Chartered Merchant Bank (Standard Bank), and

53 Syfrets Merchant Bank (Zimbank). Merchant banks, or accepting houses, are geared mainly to corporate needs and large account holders. They finance foreign trade through acceptance credits, process commercial letters of credit and foreign bills of exchange, provide short term financing, bridge financing, and foreign exchange transactions and dealings. Merchant banks and commercial banks are Zimbabwe's only authorised private foreign currency brokers. Merchant banks also engage in the floatation of public companies and are authorised to underwrite new issues, manage portfolios, raise development capital, and arrange financing for mergers and takeovers.

The five finance houses are: ANZ Grindlays Finance (ANZ Grindlays Bank), Fincor (a private company), Scotfin (Z1mbank), Standard Finance (Standard Chartered) and DOC (a public company). These normally provided finance to purchase both consumer durables and capital equipment on a hire purchase basis. However, in the mid-1980s the government issued a directive that led to a shift of the finance houses from financing consumer durables, to focusing on financing capital goods. Finance houses used to lease capital equiprneftt, but this has been inhibited by the tax regime. Sales tax is applied to both the principal amount and the finance charges and also on the terminal value if the item is subsequently sold to the lessee. At least one of the finance houses has introduced a new service, namely debtor financing (termed factoring). With factoring, DOC undertakes to pay up to 80~ of outstanding debts upfront, and this enables a company to maintain its cash flow and concentrate on its core business activity while leaving the finance house to collect the outstanding debts.

There are three building societies, the Central African Building Society (CABS), Founders Building Society and Beverly Building Society. They specialise in providing mortgage finance for existing buildings and new construction activities. They are also significant providers of funds to government and local authorities, through their holdings of short-dated stock and they play a major role in providing funds for the development of low cost housing schemes.

There are about 50 insurance companies and over 1200 pension funds operating in Zimbabwe. These are essentially long term investors. Sixty percent of their assets must be invested in government and parastatal securities and the rest is normally in property, equity, corporate debentures and some direct industrial term loans.

54 The government has set up the Zimbabwe Re-insurance Corporation as a wholly owned state institution to deal with the outflow of foreign exchange arising from re-insurance. The role of the corporation is to create, develop and sustain local retention capacity of re-insurance business.

The Credit Guarantee Company (CGC) was formed under the name of FEBCO in 1978 and was resuscitated in the late 1980s to overcome problems faced by commercial banks in lending to small firms due to arrears that had risen to a level where banks had curtailed lending to small firms. CGC is jointly owned by the Reserve Bank (50%) and the five commercial banks (10\ each). It operates by extending guarantees of up to 50\ of the amount being loaned by a commercial bank for a small project.

There are two development finance institutions, namely the Small Enterprise Development Corporation (SEDCO) and the Zimbabwe Development Bank (ZDB). SEDCO was established in 1984, to provide financial assistance and training services to small scale enterprises. ZDB, established in 1985, is largely owned by the government (51%). Other shareholders are: the Reserve Bank (7%) and the (8%), with the remaining 24% shared among the Commonwealth, European, Finnish, Dutch and German development agencies. As a development bank its objectives are to provide medium to long term loans, equity and technical support to productive enterprises in the country. The bank favours projects that are in line with national developmental objectives such as employment creation, foreign exchange saving or generation, development of linkages and the promotion of indigenous ownership and management.

There are several investment institutions that can be used by the manufacturing sector in raising investment capital by way of joint ventures. These include the Venture Capital Company of Zimbabwe (VCCZ), Zimbabwe Development Corporation (ZDC), Africa Enterprise Fund (AEF), Manna Corporation and Hawk Ventures Ltd. In general, these provide equity and other forms of financing, and in some cases technical assistance to new and expanding business ventures of different sizes. 1I

IIIn addition, there are several foreign institutions which do not have offices in Harare, but which offer equity finance for small enterprises in African countries. These are listed in the ZDB/CZI handbook on project finance.

S5 Zimbabwe is one of the few African countries with a stock exchange. The average market capitalization in 1988-91 was remarkably high: 20.5% of GOP. On this indicator the Zimbabwe stock exchange belongs to the top six of the eighteen stock markets covered by the IFC Emerging Markets Data Base, well behind Malaysia (93%, i.e. approximately the us ratio), Korea, Chile and Jordan (all in the range of 40-50 per cent), but close to Thailand (26 per cent) and far ahead of Brazil, Venezuela, and Nigeria (all less than 10 per cent).12

Inforaal financial institutions

Many starting and small-scale enterprises who do not have collateral required for formal sector loans, borrow from informal financial institutions. In rural areas commercial informal lending is not very common; informal lending is usually restricted to family members or takes place in saving clubs. In urban centres informal commercial lending is rife. Two important forms of financial intermediation are:

"Chiabadzo" financial aarket. Here a contact person, trusted by both the lender and the borrower, brings the two together. The contactman guarantees repayment (although this is not legally binding).

Lending .anaged by the eaployer Participating employees save through wage bill deductions. Funds are deposited in formal financial institutions. Participants can borrow from the group's savings and repayments are again deducted from wages. Although very close to formal lending, this system is in fact illegal.

The informal sector is clearly capable of generating funds. Lenders are often those whose economic activities provide them with cash when wage earners are short of cash. Such lenders include marketeers, salesmen, smiths, self-employed mechanics, traders (with Botswana and the RSA), salesmen of beer (·shabeens·) and cigarettes. Scme members of ROSCA's use their payout to start a credit facility. The most important characteristic of the informal financial sector is its flexibility.

12A. Oemirgug-Kunt and H. Huizinga, "Barriers to Portfolio Investments in Emerging Stock Markets", mimeo, World Bank and Tilburg University, September 1992, Table 1.

S6 Performance of the Financial Sector

The financial sector in Zimbabwe is very well developed and sophisticated, and extremely conservative. Commercial banks do very little development lending. They have strong portfolios, high after­ tax return on capital rates and very little bad debt and write-offs. Lending decisions are largely based on a firm's credit history, earnings, strength of its balance sheet and provision of collateral. Such policies are seen as discriminatory by emergent, indigenous businesses and small firms, who are bound to perform poorly on these criteria. These prerequisites, restrictions on investment and the rationing of foreign exchange curtailed demand for credit. The corporate sector has financed most of its projects from retained earnings and equity capital. This despite the fact that real interest rates have been consistently negative. Exchange control made capital flight difficult so that the private sector had no alternative to domestic investment.

On the other hand the supply of credit has been limited by the existence of blocked funds and surplus funds and recently also by liquidity requirements of the Reserve Bank of Zimbabwe. These liquidity requirements imposed on financial institutions facilitated government borrowing as government bonds were included in the range of approved assets. This forced these institutions to hedge the inflation risk by acquiring land and real estate.

From independence until quite recently the banking sector of Zimbabwe has been characterised by excess liquidity. The liquidity ratio of commercial banks, accepting houses, finance houses and building societies has' been consistently higher than the statutory minimum (Table 13).

57 Table 13 Liquidity Ratios of Financial Institutions ------I 1984 11985 1 1986 1 19871 1988 I 1989 I 1990 I 1991 ------COMMERCIAL 44 46 I 44 45 I 42 44 44 42 I ------BANKS I I ACCEPTING 47 48 I 46 49 I 43 41 47 45 I I HOUSES------I I FINANCE 24 25 I 24 27 I 22 22 15 16 I I ------HOUSES I I BUILDING 18 22 I 23 21 I 25 24 20 18 I I ------SOCIETIES I I Source: Quarterly Economic and Statistical Review. Notes: the statutory minimum liquidity ratio for commercial banks and acceptin9 houses was 40' from June 1984, 15' for finance houses from December 1989 and 15' for buildin9 societies from May 1984. With effect from 11 October 1991 the statutory minimum was lowered to 10' for all institutions.

Financial institutions have primarily functioned as a means of channellin9 private sector savin9s to the public sector throu9h short term loans to the A9ricultural Marketin9 Authority and throu9h the purchase of medium and long term government bonds. The central government budget has been, and still is, a major user of domestic financial resources, primarily from the institutional investors and the Post Office while the Agricultural Marketin9 Authority has borrowed extensively from commercial banks. In the past, it was possible to fulfil a large public sector borrowing requirement without crowding out investment because of foreign currency shortages. The availability of foreign exchange for both working and fixed capital was the binding constraint on production expansion and as a result, the demand for private domestic credit was correspondingly depressed.

There has been no direct intervention in the allocation of credit to the private sector. However, in recent years, the government has put pressure on commercial banks to increase their lending to small firms. In response, some commercial banks have established structures to deal with small businesses. For example Standard Chartered Bank established a "Small Business Loan Schemeft and a "Small Business Unit" (SBU) in 1988. Barclays Bank launched its "Small Business Unit" in August 1989, while Zimbank created a small Business Services Division in October 1990. These small business units provide a mixture of financial support, advise and training to small firms.

58 Monetary policy

The Reserve Bank of Zimbabwe has generally used traditional monetary instruments, especially the determination of liquidity ratios and discount rates. Open market operations have also played an important role. Up to the end of 1989, the Reserve Bank fixed the minimum lending rates and maximum deposit rates for banks and finance houses. As a result, the level and structure of interest rates remained stable while inflation rose during the past few years. Beginning October 1989, the Reserve Bank adopted an active monetary policy stance in which indirect methods of controlling credit and money supply and regulating the financial system are used. The Reserve Bank has influenced credit allocation, e.g. by the implementation of its rediscounting policy. This was not only done by setting a rediscount rate, but also by quantity restrictions on rediscounting and, in one case, even by closure of the rediscounting window for a certain period.

At the same time the Reserve Bank introduced a new interest rate policy. The minimum overdraft rate was abolished and a Base Lending Rate (BLR) introduced. "Essentially, the new system involves introduction of Base Lending rates (BLR) which are fixed taking into account prevailing market interest rates. Maximum lending rates which are discriminating on the basis of sector are set by stipulating specific margins over the BLR. ftI3 In August 1990, the BLR was raised and minimum rates on consumer credit, and demand and savings deposits were introduced. This marked a departure from earlier practice. With minimum rates stipulated, rates on savings and demand deposits could move up to any level. As a result real interest rates are now positive, but borrowing rates are still below the rate of inflation. Under these circumstances Banks are obviously not very keen to lend. Indeed, informal sources have reported that overdraft facilities are used up to the limit, whereas on the other hand money was deposited in savings accounts. The BLR and its add-on maximum margins is due to be abandoned by the end of 1993, according to FER.

In general, it can be said that, from the second half of 1991, the Reserve Bank has applied a restrictive monetary policy. The monetary squeeze has become a major constraint on manufacturing.

13 N. Ndoro, "Structural Adjustment and Financial Sector Reforms", paper presented at the ZIOS Workshop on the Economic Structural Adjustment Programme in Zimbabwe, November 1991.

59 While interest rates were freed for other financial institutions, the mortgage rates for building societies continue to be controlled at a lower rate. It has been estimated that in the past six months building societies lost Z$ 300 million to other financial institutions as a result of the controls.'~ The solution to the problem of the building societies is to allow them to compete with other financial institutions, e.g. by offering negotiable certificates of deposits which would enable them to offer rates which are competitive with other financial institutions.

3.12 Busin.ss Support Systems

Business support systems can be broadly placed in three categories: those provided by the government, by the private sector, and by donors or NGOs. Government activities include the establishment of the Zimbabwe Development Bank (ZDB) and the Venture Capital Company of Zimbabwe (VCCZ), the recycling of blocked and surplus funds to these institutions and the founding of the Credit Guarantee Company. The functions of these institutions are not limited to the traditional provision of finance; in addition they provide extension and training.

The government is in the process of establishing the Scientific and Industrial Research and Development Centre (SIRDC) under the auspices of the Research Council of Zimbabwe (RCZ). The main objective of SIRDC is to promote industrialisation of the country by developing indigenous industrial technologies. This will cover fields such as energy, microelectronics, mechanical engineering, building and construction and biotechnology. Through SIRDC the government promotes industrial research to harness and develop local technological capability and potential.

Private sector institutions for business support include the Indigenous Business Development Centre (IBDC), the Confederation of Zimbabwean Industries (CZI) and the Zimbabwe National Chamber of Commerce (ZNCC). The main function of these institutions is to lobby the government for improvements in the business environment.

The other category of business support systems are the financial institutions which have been discussed above. There is a range of small private companies which assist budding entrepreneurs to prepare projects for funding and project approval by government authorities.

l-rhis is based on an interview with a CABS official.

60 The demand for such services arises mainly because of the highly regulated environment and this is likely to change with deregulation and liberalisation.

Support to Saall-Scale Enterprises

As mentioned before, SEDCO was set up to support small-scale enterprises by providing finance and extension services. SEDCO emphasises training since it believes that this is of crucial importance in complementing finance to determine the success of small enterprises. The following extension services are offered by SEDCO:

Management training and counselling, including record keeping and cash management. Entrepreneurship development, which is offered to those who want to start new firms or expand existing ones. This programme is aimed at developing confidence and planning, selling and research skills. Technical services, which includes technical skills upgrading, consulting assistance to small enterprises and bookkeeping and secretarial services. Information on investment opportunities and project profiles. SEDCO advances short, medium and long term loans to small enterprises. Collateral is not a requirement and emphasis is on project viability. SEDCO's activities are limited to the formal sector. Indeed, its attitude to the informal sector is quite hostile.

Donor agencies and NGOs have support programmes particularly for small enterprises, e.g. CIDA (through SEDCO and CGC), USAID (through CZI), ODA (through lBDC) and the World Bank (through SEDCO) and the lLO "Improve Your Business" programme through the Employers' Confederation of Zimbabwe of (EMCOZ). MostNGOs that deal with small scale enterprises offer a package of finance and training.

3.13 Foreign ~rade Regulations

Until recently Zimbabwe's trade regime was highly regulated especially with respect to imports. The corner stone of these regulations was the administrative allocation of foreign exchange. A modified version of this system still exists despite the trade liberalisation programme introduced in 1991.

At six monthly intervals, the Ministry of Finance and the Reserve Bank forecast foreign exchange receipts and earnings. The amount available for imports is determined as a residual after deductions for known commitments such as debt servicing. The amount is then allocated

61 through the Direct Local Market Allocation (DLMA) mechanism by the Ministry of Industry and Commerce to more than 30 competing item heads which include government ministries, parastatals, specific sectors and products, and various commercial and industrial import categories. IS

Allocations to the private sector are determined as follows. An established applicant's allocation is a fixed share of the global amount, based on past use of foreign exchange. New applicants need to satisfy certain criteria such as the ability to source imports more cheaply than established 'users or to produce for exports. The decision is usually made on an ad hoc basis., New entrants only become entitled to a regular foreign exchange allocation after several successive ad hoc allocations and satisfactory performance.

In order to utilise the foreign exchange allocated, an import licence from the Ministry of Industry and Commerce is necessary. These import licences are issued almost automatically to holders of foreign currency allocations: their purpose is to monitor rather than allocate the use of foreign exchange.

There are no explicit restrictions on exports except the compulsory remittance, to Zimbabwe, of all export earnings. However, the overvaluation of the and the protective effects of the foreign exchange allocation system to import competing industries indirectly tax the export sector. The 9\ export subsidy that manufacturers were entitled to was not enough to compensate for that. Assistance to exporters, especially in the manufacturing sector, has been afforded through schemes such as the Export Revolving Fund which seeks to provide exporters easier access to the foreign exchange needed for imported inputs used in manufacturing for export markets.

Exchange Rate Policy

The Zimbabwean dollar has been overvalued throughout the 1980s - hence the need for strict exchange control. Compared to rates the dollar was overvalued by at least 50\ at independence. Despite the 20 per cent devaluation in 1982 and its gradual depreciation thereafter, the gap between official rates and black market rates widened and in September 1983 the official dollar rate was at least six times the black market rate (World Currency Yearbook 1984).

l~. Davies, 1988.

62 Between 1983 and 1989, the depreciation of the Zimbabwean dollar was marginal. Since 1989, the Zimbabwean dollar has depreciated considerably; by 8 per cent in 1989, 12 per cent in 1990 and 36 per cent in 1991. It remained stable during most of 1992 at the rate of Z$ 5.00 per US$. But even in 1992, after these rounds of devaluation, the dollar was still overvalued by at least 50\ (World Bank 1993).

The trade regulations and exchange rate policy described above have several negative implications for the economy. The foreign exchange allocation system favours established firms, thus creating considerable barriers to new entrants. Restrictions on imports of consumer goods protect domestic production. Private investment, both new and replacement, is seriously constrained by the rationing of foreign exchange. Foreign travel to identify new markets or take knowledge of new technology is very strictly rationed. Partly as a result of this, capital goods are old and outdated, leading to uncompetitive production by international quality standards. The rationing of foreign exchange leads to rent seeking. The bureaucratic procedures for allocation of foreign exchange, import licensing and operating trade through authorised institutions are inefficient and time consuming.

Trade Policy Reforms

The Economic Structural Adjustment Programme includes: abolition of foreign exchange rationing, reforms of tariff policy, reform of exchange rate policy and improved export incentives.

The administrative system of foreign exchange allocation is to be dismantled and replaced by a more market based system of allocation. An Open General Import License (OGIL) system has been put in place. This system introduced two kinds of OGIL, one unrestricted and the other restricted to the user. Under restricted OGIL a specific firm is allowed to import an unlimited amount of a certain product and is automatically allowed to purchase the foreign exchange needed, but is not allowed to resell domestically. The OGIL eliminates the foreign exchange allocation system, reduces the amount of bureaucracy involved in conducting trade and hopefully, improves efficiency in resource allocation. For goods not under OGIL specific import licences continue to be required. (This falls under the "Direct Local Market Allocation System" and the licences are therefore sometimes referred to as licences under DLMA.) The licence is granted automatically in the case

63 of "No Currency Involved" (NCI), i.e. when the importer uses his own foreign exchange or uses ERS funds.

The old process is to be phased over a period of 5 years (1991-95) beginning with raw materials imports; then intermediate inputs, machinery and capital equipment; and finally consumer goods and other manufactured products towards the end of the reform programme. By then all items have to be under unrestricted OCIL.

Although the trade liberalisation started well and was ahead of schedule at the beginning of 1992 with 40\ of imports free of licensing restrictions (under ERS or OCIL), at present OCIL is behind schedule.

As foreign exchange controls are eased, tariffs will become the principal protective instrument for domestic industries. Most raw materials and capital goods are subject to the minimum 10\ tariff. This minimum tariff was introduced in October 1991 concurrent with the abolition of the manufacturers' rebate. Tariffs on other goods vary between 2S and 30 per cent, except for luxury goods where a minimum levy of 35\ applies (but some items such as motor vehicles or personal computers are charged up to 90\). In addition a surcharge equivalent to the domestic surtax is levied. Finally, an additional (temporary) 10\ tariff is levied on goods under OCIL. It is the government's intention to abolish the surtax and the OCIL tariff and to have an average base tariff of 14\ by the end of 1995, as compared to an average of 9\ in 1991. This is expected to be achieved by a 20-30 percent tariff on final consumer goods, a 15\ tariff on intermediates and a 10\ tariff on raw materials and capital goods.

since the trade liberalisation programme began, in August 1991, the Zimbabwean dollar has depreciated by over SO per cent. It is the government's intention to have an exchange rate that is consistent with complete removal of the foreign exchange rationing mechanism by the end of 1995.

In the past, and especially since 1989, the Zimbabwean government has introduced a number of incentive schemes to promote exports. These include the export revolving fund, export promotion programme, export retention scheme, incremental export bonus scheme, import duty drawbacks and the export incentive scheme (a 9\ export subsidy to manufacturers). The first four schemes provide foreign exchange,

64 needed to import 'raw materials and intermediates, to exporters, outside the regular allocation system. The Export Revolving Fund, introduced in 1983, allowed approved exporters to import intermediate inputs and raw materials with foreign exchange that was to be repaid from export earnings. The Incremental Export Bonus Scheme allows exporters who increase their export earnings additional foreign exchange allocations (30\ of the increase) in the next year. The Export Promotion Programme allocates special funds to export activities in agriculture and manufacturing. Finally, the Export Retention Scheme (ERS), by far the most important scheme, allows exporting firms to retain a portion of their export earnings (currently 30\). This system partly replaced the Export Revolving Fund and the Bonus Scheme. Until recently ERS funds were only tradable in goods, but since mid-1992 ERS funds are denominated in foreign exchange. This greatly enhanced trade in ERS funds. ERS funds are currently sold at a premium of around 22\ (down from 40-50\ in mid- 1992). An awkward restriction to the use of ERS funds is that they cannot be used for the payment of services.

In the early stages of trade liberalisation these schemes will continue to have an important role. However, as the foreign exchange allocation system is gradually dismantled, they will become redundant as inputs are put on OGIL. Both the 9\ export subsidy and the duty drawback on imported inputs for export products, available to domestic manufacturers, will be removed.

65 AHMOTATED BIBLIOGRAPHY ON MANUFACTURING IN ZIMBABWE

African Developaent Bank (19??), Zimbabwe Ipdustrial and EXPOrt PFo.otion study. The study aims at identifying and studying industrial subsectors and individual enterprises that are important for development and in which Zimbabwe has either global or regional comparative advantage. It also aims at studying the requirements of rehabilitation or further investments in the identified subsectors and at identifying constraints barring industrial development and to recommend measures needed to stimulate industrial production. The study concludes that Zimbabwe could increase its exports if it modernises the capital stock production issues, liberalises price control, amends the labour legislation and establishes a central export promotion body.

Bate.at, B., Sachikonye, L.N. and Sibanda, A.B. (1986), The working conditions of f ...le woFkers ip the food processing ipdustFY in Ziebabwe (with special Feferepce to capneries), ZIDS working papers, Z.IDS, Harare • The objective of the study was to analyse both the working conditions and specific problems experienced by female workers in -the industry. Food processing is found to account for about 25\ of the total manufacturing industry. The canning ~ector is observed to be the major employer of casual, seasonal and contract female labour in the industry. Some of the findings of the study are that: Only 3\ of all trained female workers were engaged in production. In 1981, 5771 females were employed in the manufacturing sector of which 796 were in the food-processing sub-sector and most were semi-skilled. Most women employed in the canning industry are casual workers and are paid very low wages. Employers of female workers often ignore regulations concerning minimum wages, working hours, maternity leave and general working conditions when hiring casual labour. In most companies women are excluded from the operation of machinery. Some female workers were employed to do heavy manual labour. Female workers do not receive training to take up male dominated jobs. The maternity leave and breast feeding regulations applied only to permanent workers. There was generally no transport, accommodation and canteen facilities. In some companies, occupational health safety was poor. Female workers are poorly represented in trade unions and workers' committees in the canning industry. Internationally there is a concentration of female workers in the food industry, especially the food processing industry.

Chanakira, H. (1992), The role and structure of the aoney aarket in Z~abwe, Upiversity of Z~abwe JouFPal of Econoaic., 1992, University of Z~abwe, Barare. The Reserve Bank, Commercial Banks, Merchant Banks, Finance and Discount Houses, Building Societies, Insurance companies and Pension Funds are listed as participants in the money market. Individuals are said to playa minor part. For an efficient market, suitable regulatory bodies and an efficient and reliable communications system is required. The instruments of the money market are given as;

66 Treasury Bills; Agricultural Marketing Authority Bills; Bankers Acceptances; NCDs; government, municipal and ESC stock and Bonds. The roles of the Reserve Bank and Discount Houses are explained. The total volume of the money market instruments available in the market is found to be Z$ 1 560 million.

Chimedza, R. (1990), Zimbabwe's Informal Financial sector: An Overview, working Paper AEE, Department of Agricultural Economics and Extension, Faculty of Agriculture, University of Zimbabwe, Barare. This paper deals with informal financial institutions. The main ones that are described are: Savings clubs, which mainly exist in rural areas. Their objective is to stimulate members to save and maybe to get higher interest rates by combining all savings in one account. Savings are for investment purposes. There is no credit element and deposits are made in formal institutions. Savings clubs members are mainly women. Rotation Saving and Credit Associations (ROSCA's), which exist in both rural and urban areas. Members engage in contractual saving. The funds are not deposited in formal institutions, but are paid out to members in turn. Mutual Aid Societies: Burial Societies. These are actually a kind of insurance. Savings are deposited to meet cash requirements in crises and periods of high expenditures (e.g. funerals). No lending or borrowing takes place. The basis of this kind of provision is solidarity and mutuality. Informal lending. Lending in rural areas is based on trust and is often only offered to family. In urban centres informal commercial lending is rife. The most important forms of financial intermediation are: "Chimbadzo" financial markets, where a contact person, trusted by both the lender and the borrower brings the two together and guarantees repayment. Lending managed by the employer. A ROSCA-type of arrangement, that also allows borrowing, based on deductions from salaries.

Chinyoka, S.V. (1988), The role of financial Institutions in the Development of Small-scale Industries in Zimbabwe, Paper Presented at a Symposium on the promotion of Small-scale Entrepreneurs and National Development, Nyanga. The paper discusses the importance of the development of Small-scale industries and their contribution to the Zimbabwean economy. It also analyses the role of the financial sector with respect to the development of this sector. The paper found that the small-scale industrial sector is still underdeveloped relative to other countries at the same level of development. Furthermore the commercial banks have ignored the needs of the rural black businessmen. The paper recommends that: the government should force commercial banks to lend funds to small-scale rural enterprises; the government should ensure that its developmental institutions, especially SEDCO, are well funded; the government's better funded institutions (IDC and ZDB) should provide services to small-scale entrepreneurs so that they benefit from their operations; and the financial institutions must enhance entrepreneurship development, management/technical training and research and development.

67 Chipika, S. (1990), An Aqro-Processinq study of Zimbabwe, iTDG, Barare. The study tries to identify: Priority geographical and technical areas for agro-processing. Priority socio-economic groups for assistance or support. suitable and interested organisations with which I.T.D.G. could collaborate. The study revealed price control regulations and foreign exchange constraints as the major constraints facing the food processing sector in Zimbabwe. The availability of packaging material should be improved so as to promote exports. The study lists opportunities for technical intervention by I.T.D.G. The study also looked at existing agro­ processing technologies; fruit and vegetable production; commercial fruit drying; potential for small scale oil extraction; small scale peanut butter making; fish production and processing in Zimbabwe; small scale baking projects and; small scale dairy development in Zimbabwe.

Croaw.ll, C. aDd Moor. (1988), Rapid A•••••• ent of Rural carpentry Enterprise. ip Ihth.t»we, i1:DG, Barare. The study describes the needs and problems of rural carpenters and how training might be delivered. It also investigates on the present operating environments of carpenters in Zimbabwe and the potential for a wood tool project. The total number of carpentry enterprises in Zimbabwe is approximately 4,000. In 1982 1,300 people were employed in the woodwork and furniture industry and produced 7.3\ of total manufactures. Mechanised production has been decentralised closer to rural markets. There is low demand for furniture in the rural areas and the demand is seasonal. Employment is found to be seasonal as well. Rural products are found to be between 25\ and 77\ cheaper than urban equivalents. Carpenters do not obtain credit on raw material purchases but sell their items on credit. The quality of work in Zimbabwe is found to be low due to the quality of timber and sheet materials. Both home made and purchased tools are used. Few carpenters had all required tools. Material costs, cashflow, material shortages, transport, tool shortage and demand are some of the specified problems in the industry. Major constraints are carpenters' lack of resources, delayed payments and distance from raw material supplies. The study recommends that national training institutions, independent training centres and missions be established. The manufacture of tools must be established.

CTA ECODoaic and Export Analysi. Li.Ilited (1991), BCC Saall Enterprise Credit Scbe•• New.lett.r. The main objective of the EEC small enterprise credit scheme is to generate income and employment opportunities in Zimbabwe through the provision of credit to those currently denied access to the mainstream financial system. The study found that no financial institutions in Zimbabwe have focused their activities on the informal sector. It is argued that the informal sector lacks security. The study recommends that past banking performances are a good indicator of the character and suitability of the applicant requiring a loan. The banks limit their lending because of high transaction costs of administering small loans. The paper recommends the establishment of an 'Apex institution' that will be responsible for block loans to a variety of institutions which will lend to their respective client groups. The small-scale firms must be provided with support services such as marketing assistance, training and business consultancy. The stUdy found that

68 women fail to acquire credit due to lack of collateral security. The paper recommends that specific facilities be provided for assisting women applicants.

Davies, D.(1992), Macroeconomic apects of Zimbabwe's "Transition from socialism", mimeo, Department of Economics, University of Zimbabwe, Barare. The paper examines the evolution of economic policy in Zimbabwe, 1980 - 1990. It explains the extent to which the Zimbabwean economy was controlled since independence till 1990 and the impact of these controls on the whole economy. It also explains how the government of Zimbabwe began to explore the possibilities of economic liberalisation in the late 1980s. The paper analyses Zimbabwe's macroeconomy in the 1980s using a three - gap decomposition of national income in an ex post accounting exercise.

Environmental and Developmental Activitie. (ERDA) (1990), Women in the informal .ector: A Zimbabwe Study, (prepared for the World Bank), ERDA, Barare. Used for World Bank Report:

World Bank, ~e Informal sector in Zimbabwe: The Role of Women, Report Ro. 9006-ZIM, 1991. The paper aims at constructing a profile of women's involvement and economic contribution in the urban and rural informal sectors and also to define the constraints facing women in the informal sector. The study revealed that the establishment of SEDCO by the government has not benefited women's co-operatives and businesses which remain unregistered. The paper recommends that the councils should set aside funds specifically for women's activities. The study found that women did not get formal credit since they are in the informal sector. It is recommended that the government addresses the needs of the women in the informal sector with regard to training, marketing and technical assistance.

Fallon, P.R. and R.E.B. Lucas (1991), The Impact of Changes in Job Security Regulations in India and Zimbabwe, The World Bank Economic Review, Vol. 5, No.3., The World Bank, Washington D.C. This paper examines the effect of labour laws, requiring government permission to retrench workers, on demand for employees in Zimbabwe and India, using time series data in 64 manufacturing industries. Little evidence is found indicating slower adjustment of employment levels following the introduction of the laws. However, demand for labour declined after introduction, although the concurrence with Independence obscures a causal relation in Zimbabwe.

Government of Zimbabwe (1991) , A Framework for Economic Reform (1991 - 95), Government of Zimbabwe, Barare.

This document outlines the structural adjustment programme which the government of Zimbabwe has embarked on. Changes already introduced are described and detailed plans for the future are documented. It also contains a financing plan for investment and foreign exchange. Finally a detailed time schedule is presented indicating when policy changes will be implemented.

69 Governaent of Zimbabwe (1992), study of Monopolies and eompetition Policy in Zimbabwe, Report subaitted to the Inter-Ministerial eommittee on the Monopolies eoaaission. This study analyses industrial concentration, restrictive business practices, and regulations affecting the industrial sector in Zimbabwe, as well as the impact of the structural adjustment programme on these three items. The study concentrates on the manufacturing sector, but also looks at commerce, services and the financial sector. Both private and public enterprises are reviewed. Finally, policy recommendations are made for institutional, legislative and procedural changes to regulate market power and restrictive business practises in Zimbabwe.

Bancock D. (1987), An evaluation of the potential of introducipq Low eost carpentry hand tools aade of wood ipto ZjMbabwe, I~, Barare. The study deals with the formal and the informal sector with emphasis on urban and rural carpenters. The main constraints faced by the informal sector are lack of working capital, materials transport, workshop and storage space, skills, and sales and marketing facilities. Rural carpenters had no access to the carpentry tools. Even if they were available, the prices of the tools were found to be prohibitive. The study found that most of the tools in the sector were old and in poor conditions. Due to the foreign currency constraint, the study found that there was a shortage of tools in shops. Locally produced tools were found to be of poor quality. Because of shortage of tools the study recommended the introduction of cheap wooden hand tools. For the introduction to succeed, the study asserted that a reputation for the precision, quality and durability of the wooden tools need to be built up. The government through the ministry of education and manpower have institutions to promote carpentry and also some non governmental organisations are involved. Belasing, A.B.J. (1987), Rural Industry and the coaaunal lands economy in Zimbabwe, Journal of Economic and Social Geoqraphy, TRSG, Barare. The definition of rural industries used in this article refers to non­ farm activities, manufacturing, traditional crafts and other types of activities. Host of the industries are owner operated. Non-farm employment within Zimbabwe's communal lands is found to be between 3 and 4\_ The paper recommends that provisions should be made to enable households to make the transition to a permanent full-time undertaking_ The rural disposable income is found to be low causing inadequate demand. The paper reveals that no thorough research has been done to show the linkages between rural industrial activity, rural households and the economy at large. There is a low turnover in the industry. Rural industries are found not to be an important source of wage employment. It also found that skills are transferred from father/mother to son/daughter. It has been revealed that rural enterprises have been growing in Zimbabwe and competition in retail has become stiff while market shares became smaller. The paper recommends that support be given to rural industries so that they diversify the communal lands economy. This support would be in the form of subsidised credit, technology services, marketing, management, vocational training, and other specialised services. There should be a rural industry adviSOry and extension system to reach out into communal lands.

Berbst, J. (1990), State Politics in Zimbabwe, University of ZiMbabwe, Barare.

70 The book provides an insight into the politics of post-Independence Zimbabwe. It concentrates on seven subjects: the redistribution of land, the setting of agricultural producer prices, foreign investment policy, minerals marketing policy, the allocation of health care resources, and the setting of minimum wage levels. These are treated in the context of racial accommodation, the interplay of ideology and pragmatism, the role of the ruling party and the leadership of Robert Mugabe.

Buman aesources (PVT) Limited (1990), SR consultant, Small Business needs survey, prepared for the Friedrich Naumann Foundation, Friedrich Neuaann Foundation, Barare. The paper aims to survey the perceived needs for consultancy advice of the owners or managers of small business in Zimbabwe. The paper revealed that members of the informal sector consider tax levels in the formal sector to be prohibitive and that there is no incentive for them to join the formal sector. The paper recommends that both the formal and informal sectors need training and technical advice in general management, accounting/bookkeeping, security, marketing, advertising and selling. These are most recommended for businesses in growth points. The study recommends that an Advisory Centre be established, staffed by retired entrepreneurs to provide training and advice to small-scale business people.

IMAMI Development (1990), Impediments confronting the Informal Sector Enterprises in Zimbabwe, (prepared for UNIDO), Unpublished Paper, Barare. The objective of the study is to identify and analyse the effects of the regulatory environment confronting the informal sector, in order to find the best way in which this sector may contribute to development. The paper identifies four major government policy impediments to entry into the formal sector by informal sector enterprises: (1) fiscal policy, (2) labour regulations, (3) zoning regulations and, (4) methods of allocating scarce foreign exchange. Other problems identified include price controls, transport problems, shortages of raw materials and the availability of finance. The study recommends that a support service be created to facilitate registration of micro-enterprises as well as to provide technical advice on overcoming various impediments to growth.

International Labour Office I southern African Team for Employment Promotion (SAT£P) (1984), The Informal Sector in Zimbabwe, Its Potential for Employment Creation, A Report for the Ministry of Labour, Manpower Planning and Social Welfare, by N.P. MOYo, R.J. Davie., G.C.Z. Khone and L. Pakkiri, lLO, Barare. This study gives a description of the informal sector of Zimbabwe on the basis of a survey among 772 urban and 245 rural entrepreneurs. Subjects like ownership, education, past occupation, reasons for joining the informal sector, activities, location, work hours, income, competition, pricing and financial resources are given attention. The creation of employment and skills as well as the procurement of capital and equipment get special attention. In addition the informal sector is compared with the formal sector, links concerning material inputs, capital and financing, marketing, labour, and ownership are described. Finally recommendations are made to solve the problems perceived and stimulate employment in the informal sector. These recommendations comprise training facilities, marketing facilities, and access to capital and financing as well as raw materials.

71 Jirira, E.O. and Jassat, E. (1987), Industrial Development in Ziababwe: The case of women in manufacturing activities, A ZIDS consultancy report for the ministry of community development and women's affairs, lIDS, Barare. The study attempts to identify and recommend realistic steps for increasing the contribution of women in the manufacturing sector of Zimbabwe. The study reveals the structure and organisational status of the manufacturing sector in Zimbabwe. The government regards the manufacturing sector as the Kingpin of the economy and its policy thrust has been on creating favourable conditions for this sector's growth. The study found that although women participate both in the formal and informal manufacturing sector, their contribution could be enhanced if the government promotes the women's organisation. The study recommends long-term measures to increase the effectiveness of the ministry of community development and women's affairs. The ministry should make sure that the small women's groups in various . forms of manufacturing form proper co-operatives. The "Women's World Banking", should liaise with this ministry. The study also recommends that the bias against female investors should be removed. The donors are encouraged to support also large women - oriented income generating projects making sure that they become self sustainable in the long-run. The study asserts that women should be educated and trained to increase their participation in the manufacturing sector. It is recommended also that the decentralisation of industry will improve the women's contribution in the manufacturing sector.

Eadenge P.G, Ndora B. and Ivizvai B.M. (1992), Ziababwe's Structural Adiustment Programme: The first year experience, SAPES Books Monograph aeries No.2., &APES, Barare. The book analyses the first year experience of Zimbabwe's Structural Adjustment Programme. It gives the general background to the structural adjustment programme in Zimbabwe and the social and political implications of the programme. The book stresses that: the price decontrol was effected except on basic consumption items; some goods were put on the open general import licence scheme; government wage and salary determination was replaced by collective bargaining; cost recovery measures were started and this caused social hardship began.

King, E. (1988) r In-Service 'fraining in Ziababwe, AD ADalysis of the Relations amongst Educatiop and Zraining. Industry and the State, Occasional Paper no. 21, centre of African Studi.s, Edinburgh University, Bdinburgh. This study has been carried out as part of a series of studies of in-service training in Africa, undertaken by UNlDO in collaboration with the aECO Development Centre. The study provides a detailed picture of formal in-service training both in-plant and in vocational training centres. The special apprenticeship system of Zimbabwe as well as the system of upgrade training is discussed in a historical context. A distinction is made between government initiatives, parastatal and private sector training. The changing relation between in-plant training and the formal education system is addressed. Direct entry technical schools, vocational training at secondary schools, correspondence schools and private sector management training are dealt with. Finally, a few remarks are made on

72 in-service training and education in the informal sector. King mentions that the apprentice mode (for the happy few) and upgrade training are both finanoed by a levy via the ZIMDEV fund. There is .no apprentice system in the informal sector, apparently due to striot labour regulation with regard to minimum wages and job protection. Finally, it is important to note that the whole system of vooational training and eduoation is in transition.

Lenneiye N.M. (1990), Report on Small Scale Enterprise Policy, prepared for a Seminar hosted by the I~ and ,the Ministry of Industry and Commerce, I~, Barare. Various problems of small-scale enterprises were reviewed at the seminar and it was concluded that production must be promoted to meet and stimulate demand. Marketing opportunities and strategies and a sound marketing infrastructure must be established for a success of the small-soale enterprises in Zimbabwe. The seminar recommended that; (1) government, and NGOs should provide financial and institutional support to the development of a marketing organisation. (2) marketing organisations for this sector should be enoouraged, and these will be run profitably and a subsidy could be given for 3 to 5 years on a sliding scale; (3) purchasing of products from this sector should be decentralised; (4) financial institutions must decentralise those services that apply to small scale enterprises; (5) financial institutions must change their negative attitude towards the small entrepreneur; financial liberalisation must be effeoted; (6) small scale enterprises must be given technical assistance; (7) large manufactures must be encouraged to sub-contract some of their activities to small-scale enterprises and; (8) appropriate incentives must be provided.

Maya, R.S. and B. ~ngoona (1989), ownership structure of the Manufacturing structure, Vol. II, ZIDS consultancy report No.9., Department of Industry, science and ~echDology, Barare. The objective of the study was to assess the extent of foreign ownership of capital in Zimbabwe's manufacturing sector. The results are based on some 667 companies in the manufacturing sector. The studies findings are that: 1 The companies have a total issued share capital of $546,1 million. 2 About 38% of the capital is foreign owned. 3 Foreign ownership is distributed among 14 different countries of which Britain and South Africa control 70% of the foreign owned capital. 4 The local ownership is estimated at 58% of total manufacturing issued share capital. S Most of the capital in local hands is privately owned with only $50,2 million being public sector funds. The study gives the names of the companies with direct government investments and those with IDC investment as well as companies with investments in the 14 different countries.

Makamure, E. (1983), ~he Legal Constraints on the Informal Sector in Zimbabwe, Law Department, University of Zimbabwe, Barare. This paper lists central government laws and by-laws from local authorities, that affect the informal sector. Most formal sector manufacturing enterprises are incorporated under the Companies Act (1973). Under this Act firms have to be registered. Besides

73 registration, a formal licence from the central or local government is required. Under the Urban Council's Act and the Rural Council's Act, the Councils are entitled to alienate and reserve land for public use. The Councils also affect enterprises through licensing and trading regulations, such as the Control (Hawkers and Street Vendors) By-Laws. The Factories and Works Act provides for the registration and control of factories and the regulation and control of conditions of work in factories (health, use of machinery, etc.). The author notes that if the Act were to be enforced strictly, virtually all informal enterprises would have to be closed down. He stresses that the illegal status of these firms precludes them from contract enforcement. The Industrial Conciliation Act provides for the creation and organisation of employers and workers' organizations for the settlement of labour disputes. The Act establishes Industrial Councils which not only have the power to settle labour disputes but also have other governing and regulating power over their industry. The fact that informal (illegal) operators can not register forces them to buy their inputs and spare parts on the open market. Sometimes they can not even buy certain goods, because these are only made available to members of the trade association. In addition their informal status and lack of title deed makes it virtually impossible for these operators to borrow money from formal financial institutions. Finally, contract enforcement becomes difficult for these operators.

McPherson, II.A. (1991), Micro and SMall-Scale Enterprises in ZUababwe: Results of a COuntry-Wide Suryey, GENIRI bcuical Report 25, GENIRI, Maryland State Uni:versity, Michigan. The paper examines the micro and small-scale enterprises in Zimbabwe. It reveals that1 (1) there are some 845 000 primary micro and small­ scale enterprises; (2) about 1.6 million people are employed in these enterprises; (3) the enterprises are both in towns and rural areas of which most of them are in the informal sector; (4) the sector is dominated by small manufacturers; (5) over 97\ of the proprietors are black female and male Zimbabwean citizens; (6) almost 60\ of the proprietors had not received more than primary education; (7) there are some forward linkages in terms of customers and inputs; (8) females dominates in this sector. The paper listed the following as the major constraints in this sector; market, finance, raw materials, regulatory, location, transport, labour and utility problems.

Mead, D.C. and P. Kunjeku (1992), Busine.s Linkaqes and Bnterprise DevelOPIDent in ZUthabwe, Unpublished Paper, University of ZUlbabwe, Barare. This paper concentrates on business linkages between large and small enterprises in Zimbabwe. It examines existing business linkages, what led to their establishment, and what constraints limit their growth. Case studies are provided of three subsectors of manufacturing, garments and textiles, metal products and leather and footwear. The paper concludes that Zimbabwe has a dualistic economy with weak linkages between small and large firms. Firms used to prefer to do things -in-house-, facilitated by lack of competition in what can be described as a shortage economy. The opening up of the economy and the increase in competition could to give way to emergent indigenous small enterprises and boost subcontracting. lI1Distry of Finance, Beonoaie Planning and De"elopaent (1991), Saall­ scale In"est-eat: Policy Issues and options for Rural Industrie., ZERO .orkiDg paper .0. 29, ZERO, Barare.

74 The paper reveals how the government of Zimbabwe has tried to enhance the role of the Small-scale industrial sector in development through the TNDP and FFYNDP. The aim was to enlarge ownership of the means of production by locals and promote the decentralisation of industrial activities. The paper considered the following as the major problems faced by small-scale entrepreneurs1 (1) inadequate loanable funds; (2) lack of incentives for banks to lend (3) stringent collateral requirements and negative perception of small-scale enterprises by lending institutions and (4) restrictive licensing systems, local authority regulations, by-laws, limited advisory, research and extension services; (5) shortage of foreign exchange. The paper listed income tax incentives for the establishment of a business at a growth point. The new criteria for project approv~l be ZIe now considers (i) Nature, magnitude and ownership structure of project; (ii) foreign exchange earnings, (iii) import savings; (iv) employment creation; (v) promotion of decentralisation and; (vi) monopolies. The paper reveals that to improve the investment climate and encourage the development of the small business sector, the main emphasis is on the relaxation of domestic controls, to increase domestic competition and hence complement the trade liberalisation programme. Kutaabirwa, s. (1986), A Report on Woaen'. Acce •• to Credit in Z~abwe, (prepared for the African Developaent Bank), Barare. The objective of the study is to investigate women's access to credit facilities in zimbabwe and tot highlight difficulties women experience in acquiring credit. The study revealed that the Zimbabwean government legislative measures have not adequately addressed the social, legal and institutional problems women face in acquiring credit. Commercial banks denied credit to women because women do not plan their intended businesses, they fail to come up with specific and viable business proposals, and do not have the confidence necessary to convince bank managers of the credit-worthiness of their proposed ventures. The paper recommends that SEDCO extends its positive action in support of women in business. It further recommends that training for women is needed in: (1) business administration and management, (2) bookkeeping, and (3) market research and proposal preparation.

Mutambirwa, S. (1989), Entrepreneurship and Small EnterDrise Development for Women in Zimbabwe, (prepared for the International Labour Office), Unpublished Paper, Barare. The study aims to identify existing and potential women entrepreneurs and then determine what input and assistance is required in the advancement of their business. The study concludes that the government has failed to promote women entrepreneurs. ~he study gave the following as the major barriers to small enterprise development: (1) transport problems, (2) access to foreign exchange, (3) shortage of goods and, (4) the difficulty of acquiring business premises. The study concluded that women needed to strengthen their skills in the following areas: (1) business readiness, (2) identification of business opportunities, (3) entrepreneurial skills, (4) initiativ~, (5) problem-solving, (6) project formulation, (7) business planning, (8) business management policies, (9) taxes and government policies, (10) marketing, (11) finance and, (12) personnel and time management.

Rcube M. (1992), What is the Economic Theory behind ESAP, University of Zimbabwe Journal of Economics, 1992, University of Z~abwe, Barare.

~he article describes the related problems of high inflation, the budget deficit and the balance of payments deficit. ESAP is a package

75 of economic policies designed to solve problems created by government control. The article asserts that for ESAP to achieve all its goals economic management must be conducted in a coherent way.

Bdl.la, D. Kaliyati, Zwizwai, and Mutungwazi (1990), A .tudy of the tran.f.r of T.chnology and t.chnology acqui.ition in the a.tal and aetal good••• ctor in Zimbabwe, T.chnology Policy Studies in Ba.tern and South.rn Africa, aanu.cript r.port 242 •• The study considers. the theoretical case for effective technological acquisition and the development of the metal goods industry in Zimbabwe. It also looks on the technological innovation and research as well as development activities in Zimbabwe. The study revealed that Zimbabwe is the only Sub-Saharan state with an integrated iron and steel plant which can satisfy national demand and channel the surplus into the regional market. This development is found to be a result of the inward looking strategy adopted during the 001. The metals and metal products sector is leading the manufacturing sector in producing diversified equipment for the national economy. Zimbabwe is found to have a high degree of sub-contraction involving very small firms. The study reveals that Zimbabwe lacks research and development related institutions which could support the metals and metal products sector. The study found that many companies in the metal goods sector were operating far below capacity because of the lack of demand for their products, lack of adequate machinery, skilled labour, foreign currency, customs regulations, labour relations, price controls and the size of the market. The study asserts that planning for inter~ industry and inter-sectoral linkages can be encouraged through the creation.of intermediate and capital goods sectors. The study recommends that there is need for a policy of increasing the domestic and foreign consumption of iron and steel products from Zimbabwe. It recommends also that there is need for a policy of encouraging local control of the metals and metal products sector. The paper also recommends that there is need for a strategy for importing new technology to enhance the manufacturing sector. Research and development institutions must be established and the training of science and technological workers should be undertaken. The study also recommends the coordination of manufacturing sector activities under an industrialisation strategy.

Byathi - Mdluli V. (1980), The aanufacturing industry in Zimbabwe: Towards a new order. An econoaic aDd .ocial .urvey, working paper. vol. 1, (UN 1980). The paper reveals that the manufacturing industry plays a leading role in the economy in terms of its contribution to GOP. In 1977 22,7% of fixed capital formation was in the manufacturing industry. From 1964- 71 the foodstuffs sector took over till 1973. In the colonial period industry depended on food processing, clothing and footwear, furniture, and tobacco industries. Most of the industrial centres were found to be in Harare, Bulawayo, Gweru, Mutare, XweXwe, Kadoma and Masvingo. The study states that in 1965, 79 246 people were employed by the industry and by 1976 the number rose to 146 900. The industry lacked skilled manpower and depended on skilled immigrants. The paper highlighted on what the independent Zimbabwe was to do to promote the manufacturing sector.

Pric. Wat.rhouse, Africa Inv•• taent Corporation - Int.rnational (Ale) (1986), An A••••••• nt of the Private S.ctor in Zimbabw., by A. MacDonald and J. B. Panedi••

76 The study provides an overview of Zimbabwe's economic performance and examines the country's public and private sectors, opportunities for private investments, and facilities for and obstacles to the establishment of the AlC: and to assess the investment potential for the AlC. The study found that no strong incentives to investment in Zimbabwe exist. The private sector is hindered by the government's increasing participation in private companies; the government's bureaucracy, which delays project approval; minimum wage policy; foreign exchange shortage; restrictive exchange controls; high income tax rates and import duties; the size of the market; and restrictive policies on new business development.

Bas.us.en, J. (1992), The Local Entrepreneurial Milieu, Enterprise .etwork. in Saall Ziababwean Towns, Re.earch Report no 79, Dept. of Geography, Roskilde University, Roskilde, Denaark. PhD Dissertation, on which the following article was based. The essence with respect to the manufacturing sector can be found in the article. In addition the dissertation provides general background information on the economy of Zimbabwe and some Case studies.

Bas.us.en, J •. (1992), The Saall Enterpri.e Environaent in Ziababwe: Growing in the Shadow of Large Enterpri.e., IDS Bulletin, vol 23, no 3, IDS, University of Su.sex, Brighton. The paper highlights lessons from the flexible specialisation paradigm, discusses the large enterprise domination in Zimbabwe and enterprise linkages and the local environment. On the aspect of enterprise linkages and local environment the paper discusses the following issues : enterprise specialisation and market segmentation; inter-firm linkages and enterprise co-operation; professional and social networks; distrust and low exit costs; lacking family succession; and the local government and hierarchical networks. The paper asserts that Zimbabwe's industrial structure was largely brought about by means of state - enforced cohesion which hampered entrance of small black entrepreneurs. Despite the structural .barriers, new enterprises have merged and occupied different lower levels of the industrial hierarchy during the past ten years. Entry conditions are higher in· the manufacturing sector since large investments and skills are required. On policy issues, the paper asserts that small enterprises are crucial in the industrial process and contribute to skill formation, employment creation and domestic competition. The paper therefore recommends that for the promotion of small enterprises highly positioned company employees such as engineers and professionals must be encouraged to start independent businesses. The other dimension is to strengthen the linkages between the large and small enterprises. To promote small enterprise clusters, authorities must introduce title deeds, encourage local business associations and pay to entrepreneurs' needs in urban planning.

Riddell R. (1988), Industrialisation in Sub-Saharan Africa: COuntry ca.e study - Ziababwe, ODI working paper 25, ODI, London. The paper found. that Zimbabwe has the most advanced and diversified manufacturing sector in the Sub-Saharan Africa (SSA). By 1985/86 the manufacturing sector contributed over 25\ to GDP and employed 16\ of the formal sector labour force. In 1985 manufactured exports were almost 50\ of domestic exports. The sector consists of 1260 separate units producing over 7 000 different products. Most of these activities are located in Harare and Bulawayo. The manufacturing sector expansion played an important role in the overall economy. By

77 the mid-1980s about 170 000 people were employed in the manufacturing industry. On the ownership structure of the sector most companies were owned and managed by settler whites or by foreigners until the 1980s. Blacks remained in the informal manufacturing sector. In 1982 foreign companies owned 48% of the total assets in the manufacturing sector. The paper revealed that during the period 1952 to 1983 over 25% of the gross output of the sector was from the foodstuffs sub-sector. The growth of the sector was enhanced through the import substitution during the CDI. The manufacturing exports have been rising since 1982. Zimplow and Bulawayo Steel products are major manufacturers of hand tools and animal drawn implements while Tinto Industries makes machines and drawn agricultural implements. On analyzing the foodstuffs subsector the paper found that the volume index of this subsector was increasing from 1964 to 1986. The ratio of manufacturing volume added for the manufacturing sector aa a whole was fluctuating between 1938 and 1982. Food exports as a proportion of total manufactured exports between 1938/9 and 1982/3 were falling and this also applies to external manufactures trade in foodstuffs in relation to gross output of the foodstuffs subaector. The raw material inputa come from the agricultural sector which is sometimes affected by drought. There are foreign exchange shortages, price controls and demand constraints faced by the sub-sector. The paper discussea intra­ manufacturing linkages present in Zimbabwe. stoneaan, C. and L. Cliff. (1989), liababwe: Politics, Bcopo.ica and SOciety, Pinter Publishers, London and New York. This book offers a general political and economic overview of Zimbabwe. The authors discuss the political structure of the country, outline the social structure and its dynamics, survey the main characteristics of the economy and describe recent government policies.

Sverrisson, A. (1'90), Bntreprepeurship and Industrialisation, A ca.e Study of carpenters in Mutare. Ij-eabwe, ••search policy Studies Discussion Paper No. 186, .esearch Policy Institute, University of Lund, Lund. Wood working enterprises were the main focus of this study with the objective to investigate local innovation and adaptation of intermediate technology in small private enterprise. The study found that: (1) Innovation in small enterprises in Zimbabwe is taking place continuously in spite of poor policies pursued by the government which are not conducive to the growth of small, private enterprises, (2) In enterprises which are taking the first steps in the process mechanisation does not simultaneously occur with corresponding innovation in production organisation, bookkeeping and marketing; (3) The actual needs, of small firms are ignored rather than being addressed. This is because the promotion of these firms contradict with other policy objectives; (4) Direct government intervention is va.luable to relatively established firms and enterprises coming from cottage industry to manufacturers. These would benefit from selection deregulation.

78 Sverrisson, A.(1992), F~exible Specialisation and Woodworking Enterprises in Kenya and Ziababwe, IDS Bulletin, Vol 23 Ho. 3., IDS, University of Sussex, Brighton. The article starts by providing a comprehensive working definition of flexible specialisation. woodworking enterprises in Mutare and Nakuru which are towns in Zimbabwe and Kenya respectively are analyzed. These enterprises differ in sizes and levels of technical sophistication. The labour organisation in all studied enterprises are found to be similar irrespective of the degree of mechanisation. On the level of enterprise co-operation the article found that the enterprises overlap and may be regarded as collectives. Similar raw materials and other inputs are used. Similarly, skilled labour is also employed. the enterprises are found to cooperate in the form of borrowing back and forth of sophisticated tools. The article reveals that there are no commercial links between carpentry shops and main­ street furniture shops. There are no credit relationships between carpentry firms and credit institutions. On the expansion or survival of these enterprises, the paper recommends that measures which strengthen enterprise clusters and environments should be adopted.

Sy~ve.ter, C. (1991), Ziababwe, ~he ~rrain of Contradictory Developaent, We.tview Press, Boulder - San Francisco - Oxford. The book concentrates on the post-independence period and focuses on the continuities and discontinuities in the historical pattern of the political economy. It considers the politics of anticolonial struggle and post-independence state-building, the economic policies designed to balance the needs of agriculturalists, mining interests and industrialists; and the social pressure to define the nature of authentic culture. The book particularly gives an excellent description of the plan periods in the 1980's and the effectiveness of government policy.

URIDO Regional and Country Study Branch (1987), Ziababwe, Ipdustrial Development Review Series, URIDO, Vienna. This Review presents a brief factual and analytical survey of industrial development in Zimbabwe. Data are primarily drawn from national and international publications. No survey was undertaken. The review is divided into two parts: First, an analytical part, which gives an overview of the economy and its manufacturing sector and a detailed review of the structure and development of the manufacturing industries. Second, an overview and assessment of plans and policy measures, relevant to industrial development, governmental and other institutions involved and the country's natural, human and financial resources. URIDO Regional and Country Studies Branch, Industrial Policy and Perspectives Division (1989), Human Resources in Ziababwe's Industrial Development - ~he Current and Perspective COntribution of Women, URIDO, Vienna. The study presents an overview of relevant institutions in Zimbabwe and gives some inSight in the differences between the formal and the informal sector. The most interesting part constitutes of the results of a survey among 244 female entrepreneurs in the informal sector. 85' of these entrepreneurs are sole owners of their business. Apart from co-operatives the government stimulates the formation of "income generating groups· (registered by the Ministry of Community Oevelopment And Nomen's Affairs (CDNA». Co-operatives are more formally

. 79 organized and registered under the co-operative societies act (250 as industrial co-operatives). Lack of credit or other financial resources is reported (by 43% of the women) to be the main obstacle to expansion.

VSAID (1990), Draft Project Identification Document: Zimbabwe Business Development, Report Ro. 613-0232, VSAID, Barare. The objective of the paper is to assess the current capacity of Zimbabwe private and public institutions to provide training for the private sector, for the purpose of identifying a targeted business development project to stimulate private industrial expansion and investment that will lead to job creation while much of the project identification document focuses on the situation and needs of large­ scale business it is stated that the Confederation of Zimbabwe Industries (CZI) believe that the greatest potential for job creation ~ies with the small-scale enterprise sector. To realise some of this potential, it is recommended that a comprehensive survey of existing small-scale businesses in both the formal and informal sectors be conducted to serve as a data base for broader, multi-donor initiative to provide counselling and credit services to Zimbabwean entrepreneurs; to provide technical assistance to the corporate sector to support small business development and to provide assistance in identifying and expanding subcontracting arrangements with larger firms.

World Bank, Countr:y Progr... Departaent I, Bastern and Southern Africa R.gional Offic. (1985), Ii Mbabwe. COuptry Bconoaic Meaorandua: Perforaance. Policies and Prospects, Report Ho. S4S8-ZIM, by Mr Zdenek Drabek, •• a., The Wor~d Bank, Wasbington, D.C.

Wor~d Bank, Industrial Developaent and Finance Division: Bastern and Southern Africa Region (1987), ZiMbabwe. AD Industrial Sector Meaorandua, Report Ho.6349-IIM by B. Mangan and R. Venkateswaran, The World aank, Washington, D.C.

World Bank, Southern Africa Departaent (1987), Ziababwe. A Strategy for Sustained Growth, Report Ho.6981-IIK (2 voluaes) by Michael Walton, carlos Blbirt, Uran Singh, Mansoor Dailaai, Peter Fallon, Rob Davi•• , World .ank, Wasbington D.C.

World Bank, Southern Africa Departaent, Africa Region (1989), 1 j ababwe. Private Inve.bent apeS Governaent Policy, Report Ho. 7646-IIK by Man.oor Dailaai and Michael Walton, The World Bank Wa.hington, D.C. The paper aims to analyse the relationship between government policy and investment by the private corporation sector; and to examine the regulatory framework for corporate investment and recommend policy changes that could contribute to the development of a supportive framework for a recovery in private investment. The paper recommends: (1) relaxing supply-side constraints on investment, (2) reducing actual and perceives risks to investment, (3) faCilitating investment decision-making, (4) encouraging efficient investment choices, (5) broadening ownership of the business assets of the country and, (6) encouraging investment in the small-scale sector.

80 World Bank, Southern Africa Department, Industry and Energy Operations (1990), Zimbabwe, The Capital Goods Sector: Investment and Industrial Issues, Report No. 7692-ZIM, The World Bank Washington, D.C. World Bank (1991), Zimbabwe: Progress Report on Structural Adiustment, Report prepared by the World Bank, July 1992, for the Zimbabwe Consultative Group Meeting February 18-19, 1992. World Bank (1992), Zimbabwe: Progress Report on Structural Ad;ustment with Drought, Report prepared by the World Bank, November 1992, for the Zimbabwe Consultative Group Meeting, December 2-3, 1992. World Bank (1992), Zimbabwe: Policy Frame Paper, 1992-1995, Report prepared by the World Bank for the Zimbabwe Consultative Group Meeting, December 2-3, 1992.

World Bank (1993), Zimbabwe - Foreign Investment, A Proposed Programme of Assistance from FIAS, by A. Proctor, The World Bank, Washington D.C. World Bank (1993), A Policv Agenda for Private Sector Development, Green Cover Report by P. Belli, M. Schankeraan, O. Ahaed, and D. Donaldson, The World Bank, Washington D.C.

Zimbabwe Foundation for Education with Production and Development Technology Centre, (1988), Feasibility study for the production of low cost wooden woodwork tools in Zimbabwe, University of Zimbabwe, Barare. The study was on the feasibility about the potential of commercial production of wooden woodwork tools. The study revealed that there is an unsatisfied demand for wooden tools. In conclusion the project is said to contribute towards the enlargement of employment opportunities and manpower development, towards strengthening the manufacturing sector; increasing ownership of Zimbabwean productive enterprises; saving foreign currency through import substitution. The market for these wooden tools includes the SADCC/PTA region. The study also recommends intensive promotional activities to increase demand.

Zwizwai B., And Powell (1991), Saall scale metal working I light engineering industries in Zimbabwe. A Sub-Sector Study, ITDG, Harare. The objective of this study was to examine the constraints and opportunities that small-scale metal-working industries face. The paper views possibilities of promoting the development of these industries. The paper summarises the arguments for the promotion of small-scale enterprises. It also spells out the role of small enterprises in promoting flexible specialisation. The availability of raw materials and finance, and the low level of the development of technology are identified by the study as the major constraints to the small-scale metal-working industrial development. It is revealed that ZISCO concentrates on supplying export markets and neglects the local market. The paper recommends that ZISCO should give preference to the local market. Product diversification is also recommended in the study. The vertical integration of such small metal working industries and large sectors is called for. This will be possible through the upgrading of the informal sector technology and sub-contraction by the large scale sector. The paper further recommends that intermediate technology transfer units (ITTUs) be established and promote the development of small scale metal working industries. These units would upgrade technological levels used by small scale industries by among

81 other things demonstrating new technologies on the site in the informal industry, providing technical and commercial advice, providing on-the-job training opportunities, selling on hire purchase of machine tools and manufacturing equipment and provide latest technical services. These (ITTUs) would facilitate easy applications for loans and these units would acquire raw materials in bulk to resale to their members. These units are said to facilitate an easy market penetration.

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