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Zimbabwe an Industrialsector Memorandum ReportNo. 6349-ZIM Zimbabwe An IndustrialSector Memorandum Public Disclosure Authorized May22, 1987 IndustrialDevelopment and Finance Division Easternand Southern Africa Region FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Documentof the World Bank Thisdocument has a restricteddistribution and may be usedby recipients onlyin the performanceof theirofficial duties. Its contents may not otherwise bedisclosed without World Bank authorization. CtRR!NCY aQUIVA-lS Currency Unit Zimbabwean Dollar (Z$) Exchange Rates Calendar 1985 February 1987 US$ 1.00 Z$ 1.61 US$1.00 = Z$1.63 Z$1.00 US$ 0.62 Z$1.00 - LTS$0.61 Fiscal Year July 1 to June 30 GLOSSARYOF ABBREVIATIONS AFC - Agricultural Finance Corporation AIPC - Agricultural Inputs Priority Committee AMA - Agricultural Marketing Authority CZI - Confederation of Zimbabwean Industry ELCC - External Loans Coordinating Committee FIC - Foreign Investment Committee IDC - Industrial Development Corporation IPC - Investment Projects Committee MIT - Ministry of Industry and Technology NCD - Negotiable Certificate of Deposit OPIC - Overseas Private Investment Corporation RBZ - Reserve Bank of Zimbabwe SABLE - Sable Chemicals Industries, Ltd. UDI - Unilateral Declaration of Independence ZDB - Zimbabwe Development Bank ZFC - Zimbabwe Fertilizer Co., Ltd. ZIMPHOS- Zimbabwe Phosphate Industries, Ltd. ZISCO - Zimbabwe Iron and Steel Co. - 1- BFOROMCIAL USE ONLY AN INDUSTRIALSECTOR M1(ORANDUN TABL! OF CONTENTS Page No PART1: MXCUTIVE SUHARY x - xxiv INTEODUCTION .......... , 1 PART2: MAINRKPORT I1. HISTORICAL BACKGROUND ........................ , ***** 3 The InitialPush: World War II........................... 3 The Federationof Rhodesiaand Nyasaland,1953-1963.."460.... 4 UnilateralDeclaration of Independence,1965-808.............. 5 EconomicPolicies and Performanceduring Sanctions............6 Policies... ......... 6 Performance...., *..*.*.. .****.*** ** ***.**............... 8 Sourcesof ManufacturingGrowth............................... 12 Independence to the Present.................................. 13 II. PRESENTSTRUCTURE OF THE MANUYFACTURINGSECTOR ................ , 17 Sizeof Manufacturing Sector... .. ......................, . 17 Structureof Productionby Subeector..........................17 FinancialCharacteristics....... ........................... , 19 Ownershipand GeographicalLocation.......................... 21 ManufacturingEmployment ................................. , 21 Import Dependence 25 Manufactured Exotr.. 26 Structureand Age of CapitalStock ......... 28 Investment Lvl .......,,,,,,,30 This reportis based on the findingsof an industrialsector mission that visitedZimbabwe during October-November, 1985. Missionmembers were: Messrs. Pedro Belli (economist,mission chief); Luciano Borin (chemical engineer);Carl Dahlman(industrial economist); Reginald Grills (consultant, textileengineer); William Haraf (consultant,financial economist); William Harvey (consultant,steel engineer). Messrs.Edward Mangan, (steel engineer), William Steel (industrialeconomist), and R. Venkateswaran,(financial analyst), contributedto the draftingof the report. Mr. HowardPack (consultant, industrialeconomist) contributed to the analysisof the textilesubsector. Ms. Hilda Luz Sciovilletyped the report. This documenthas a restricteddistribution and may be used by recipientsonly in the performance of their officialduties. Its contentsmay not otherwisebe disclosedwithout WorldBank authorization. - iii - Page No. Choice of Technology... .. ... ..............e.. ..........* . ........34 III. POLICy mNVIRO1fMNT......................... 36 Introduction . ....... .......... 36 Foreign Exchange Allocation System.............................36 Exchange Rate Level and Exchange Rate Management ..............37 Investment Controls . ....... * * * * * * * * * ** S ........ 39 Price Controls................... .......... ....... 41 Trade Rele...............................44 Customs Duties .o..oo.....oo......o.........o........eo.............44 Export Incentives................................. 44 Financial Policy and its Impact on Industry...................45 Labor Las...............................47 Effects of Control Systems on Industrial Incentives and Performancee o*oooooooosooo*........ S,oo* 52 Implicit Taxes and Subsidies...............................52 Transport Costs and Anti-Export Bias.......................55 Uneven Sectoral Protectiono.......... .o... .. o..... o...........57 IV* ZYMC"1ENCY.. o................................o....soseesoooososo 60 Capital Output Ratios o......o....oo......o.....o..oo..o.........o...60 Protection and Domestic Resource Cost.........................63 Technical Efficiency in the Textile Subsector .................66 Economic Efficiency in the Textile Subsector...............68 Efficiency in Steel and Fertilizer Manufacturing..............69 Problems with the Present System..............................70 V. FEODMMFNDATIONS 73 Alternative Policy Modifications 76 A Second Best Alternative.6.6.5.5.. .o. .. .. 6 *e. .*... 81 PART 3: SUBSECTORALSTUDIES 83 VIe TEXTILES ......... ,84 Introductioloooosooooeosoosooeaoo neso 84 Markets ~~~~~~~~~~~~~84 - iv - Page No. Garment Exports........................ 85 Machinery & Equ npment,. , 85 Age of Machinery..........*...... .... ***.es.*..,,,... .e 85 Conditions of Machinery.os e.g........,.,..,,,.*...,*.,...., 86 Quality of Management. .......................... 86 Efficiency..,,,.......................,..,,,..,,,...........,, ,. 87 Machine Efficienciese s.., e..s...... ...........,O, g . ,.87 LaborProductvity . .... g.,. ..........g 88 Energy Utlization,.. ................ e,, 89 Domestic Resource Cost......... , ,eg 90 Relative Total Factor Productivity.........................90 Constraints ......... , ,., ,., , 94 VII. FERTILIZERS .. ................ .g..*5g.,, ,,.,,96 Introduction........................,,,, ,,,, ,,......96 M a r egg ek geeegge e *5 eggsts.... g 5 ee egggg.gge.e ..... s ggeeec e 96 5 ,.,,,,,,,,....555g55e5e *598 Sable Chemicals Industries, Ltd. (SABLE)....,,,,,,,,,.........98 ZimbabwePhosphate Industries, Ltd. (ZIMPHOS) ..........gee.e. 99 ZFC and Windmill..... Managementdmll. .. *5ee ............ .......... gg eege e. ss 100 Economic Efficiency 101 Constraints ...... gge...se...... esesee. 555C.1 0 1eeggO Pyrites. c.ge .5 .e..... sSce .g.g.. e.g e,.. .101 Pricing Structure..... , . ... , e ...... e 102 STonLCIII. (ZIS.O) ...............................................104 HistoricalBackground. e .e to. e. s e . ee e .. e. 104le GeneralDescription. ..... .. ..... ...... ,.,.. ,, .104 Markets. ................. e,,,C.,,,,,,, geg.ggg ,gg 5e5e55g 105 Efficiency...... .....e5e,, ,, eg.ee g *..ee.g*ae c ee.a.. 110 Technical Efficiency.gg.geggeg.e.. go gee. e. s ,ee.e. 110 Economic Efficiency ....... .. ....... 112 Constraints.. .. ssge..eg eeee*e.g...e.g ,,,.,,. 5e. .5 ,.,e115 Alternative Possibilities for ZISC0 .. 115 STATISTICAL APPENDIX .. ,.g ..... g.. 118-164 - v - LIST OF T3ZT TABLES Page No. CHAPTR 1: I.1 Selected Economic Indicators, 1939-1953................. 3 I.2 Common External Tariff of the Federation of Rhodesia and Nyasaland .......... .,, 4 1.3 Selected Economic Indicators, 1954-1965................. 5 I.4 Inflation and Interest Rates, 1966-1979................. 7 I.5 Effects of Sanctions on Exports......................... 9 I.6 Expenditure on GDP, 1973-1975, Selected Years........... 10 I.7 Sources of Industrial Growth, 1965-79................... 12 I.8 Subsectoral Structure of Production, 1967, 1975, 1979, 1982.................................. 13 I.9 Growth Rates of the Main Productive Sectors and Demand Components, 1980-84.................................. 14 1.10 Sources of Industrial Growth, 1979-82................... 15 1.11 Real Growth Rates of Exports, 1980-84, Percentages...... 16 CHAPTERII: II.1 Selected Economic Indicators, 1970-84................... 17 II.2 Distribution of Manufacturing Units, Output, Exports, Employees, and CapitalStock......................... 18 II.3 Structural Characteristics of Manufacturing Subsectors.. 19 II.4 Main Financial Indicators of the Public Traded Companies 1 9 8 0 -84 ~~~~~~~~~~~~20 II.5 Sources and Uses of Funds of Fifty-Two Publicly Traded Companies, 1980-1985.... .. ............. ....... 20 II.6 Percent Distribution of Employment by Sectors........... 22 II.7 Skill and Racial Distribution of Manufacturing Employment Compared with Total Employment in Non-EducationalEstablishments 1981..81.............. 23 II.8 Nationality of Professional Skilled and Semi-Skilled Employed: Manufacturing and Total Employed in Non-Educational Establishments 1981.................. 24 II.9 Balance of Trade of the Manufacturing Sector, 1982...... 25 II.10 Shares of Total Exports....... .. .......... 26 II.11 Export Growth Rates at Constant 1980 US Dollars......... 27 II.12 Distribution of Capital Stock According to Sector and Type of Investments, 12.2 28 I1.13 Unit Cost Comparison Between Open-End and Ring Spinning under Alternative Wage Rate Assumptions..... 35 II.14 Unit Cost Comparisons between Three-Loom Technologies under Alternative Wage Rate Assumptions..............e35 - vi - Page No. CHAPTUIII: III.1 Exchange Rate Premium, 1980-83 .........................39 III.2 Concentration of Manufacturing Firms, Employment, and Output, .......... 1 982 . 40 III.3 Domestic Prices of Steel and Fertilizer Products Relative to Production and Opportunity Costs, 1985.. 43 III.4 Real Effective Rate for Industrial Exporters....
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