Bulawayo textile companies buying machinery from collapsed South African firms to revive their operations

The government ban on the importation of second-hand clothing is paying off as some Bulawayo firms are now reviving their operations  with at least two buying machinery from textile firms in South Africa that collapsed because of the importation of second-hand clothing, Finance Minister Patrick Chinamasa told Parliament last week.

Responding to issues raised during the debate on his mid-term fiscal policy review statement, Chinamasa said the ban would in the medium to long term oost local production, employment and revenue to the fiscus.

He hoped, however, that local manufacturers would come up with prices affordable to the public because the government had extended rebate of duty on raw material used in the manufacture of clothing.

“Admittedly, the ban on importation of second-hand clothing has been one of the most painful decisions to make,” Chinamasa said.

“The stark choice confronting the nation is to watch the unchecked deindustrialization and total collapse of the clothing and textile sectors as a result of continuing importation of second-hand clothing.

“We cannot talk honestly about the revival of the clothing and textile industries in Bulawayo and other cities and towns while at the same time allowing importation of second-hand clothes – the very act that undermines that effort. We cannot have our cake and eat it at the same time,” he said, adding:  “The local manufacturers should, however, ensure that the pricing of clothing remains affordable to the general public since Government has already extended rebate of duty on raw material, used in the manufacture of clothing.”

Chinamasa said several measures introduced in his review statement to protect local industry were paying off but he was worried that people were evading these measures through smuggling.

Full response:

THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT (MR. CHINAMASA): Mr. Speaker Sir, I want to take this opportunity to thank hon. members who have contributed to the debate on proposals in the 2015 Mid-Term Fiscal Policy Review Statement. I would like to respond to the issues raised.

Hon. Chapfika, in presenting the report of the Committee on Finance and Economic Development enquired if Government has put in place measures to ensure the speeding up of beneficiation of minerals such as gold, platinum and chrome, among others. Mr. Speaker Sir, Government has taken a position to licence only Fidelity Printers as the sole buyer and exporter of gold after its exportation. On the other hand, jewellery manufacturers are also being provided with some refined gold for further processing into jewellery.

With regards to chrome, notwithstanding the lifting of the ban on the export of chrome ore, Government has ring-fenced some ore requirements for local chrome ore smelters. In 2015 alone, out of projected output of about 500 000 metric tonnes (mt), about 300 000  metric tonnes of chrome ore will be set aside for smelting, leaving only about 150 000 to 200 000 metric tonnes for export in raw form.  In 2013 and 2014, the country produced chrome ore of 355 142 and 408 422 metric tonnes respectively. Based on the above trend, together with new measures put in place during the second quarter of the year on supporting chrome ore producers through lifting the ban on export of chrome ore together with the reduction in ZESA tariffs as well as capacitation of the NRZ (currently refurbishing its fleet), this provides a conducive environment for increased production to about 500 000 metric tonnes in 2015, as indicated by the producers. The key incentive here is the lifting of the ban on the export of raw chrome.

With regards to manufacturing sector, the Committee noted that the 2015 Mid-Term Fiscal Policy Review Statement is devoid of bold strategies to retool the manufacturing industry. This issue was also raised by Hon. Dr. Kereke and Hon. Maridadi. Mr. Speaker Sir, the Government has taken a number of steps towards recapitalisation of local manufacturing industry and these include:

Facilitating a number of lines of credit, for example, from the PTA, Afreximbank and many other institutions.

 Improving the investment environment by clarifying and resolving issues around indigenisation, BIPPAs, Doing Business Reforms, among others.

Issuance of guidelines on setting lending interest rates as recently announced by the RBZ in the Monetary Policy Statement.

 Resolving the external debt overhang through various engagements with both bilateral and multilateral institutions and creditors including IMF, World Bank and AFDB. The ultimate objective is to improve relations with our creditors in order to unlock new financing in the form of lines of credit, FDI and portfolio investments, et cetera for the benefit of our industries.

The committee also recommended that duty on raw materials be scrapped and the strict penalties be imposed on finished imported products.

My response Mr. Speaker Sir is that with respect to duty on raw materials, Government has already availed a number of manufacturers’ rebates of duty which provides for customs and tax free importation of key raw materials and inputs. These include among others, the electrical manufacturers, the bus assemblers, the motor vehicle assemblers and the clothing manufacturers rebate.

Furthermore, in the 2015 Mid-Year Fiscal Policy Review, the manufacturers’ rebate of duty was extended to the Printing and Publishing Industry as well as the furniture and textile industries.  The advantage of a manufacturers’ rebate is that the benefits are availed to targeted beneficiaries.

The Committee on Finance and Economic Development commended the measures to protect local fertilizer companies. However, the Committee is concerned that the customs duty of 25% will make fertilizer very expensive, thereby negatively impacting the agricultural sector and also having a ripple effect on the economy. Hon. Chinotimba and other members also raised concerns on this issue.

Mr. Speaker Sir, my response is that measures in support of local fertilizer production are expected to boost local production capacity from 30% to 44% by year end, thereby enabling the fertilizer companies to recover their costs over a higher production base. As a matter of fact, the Association of Fertilizer Manufacturers have already made an announcement to this effect.

This is expected to result in a reduction in prices. I already have a commitment from the fertilizer manufacturers that current prices are expected to decline by 20% due to increased volumes of production.

Let me add that recently I have received a communication today from ZFC that it is now already on 100% production capacity and this is encouraged by the measures that we have so far taken.

On revenue collection, the Committee recommended that a simplified tax formula be adopted and that all revenue collected be channeled to the Consolidated Revenue Fund.

My response Mr. Speaker Sir is that this proposal could be considered in the context of the 2016 National Budget. This also addresses concerns raised by other honourable members.

Hon. P. Sibanda suggested that instead of increasing taxes on imports, the opposite should have been done in order to stimulate consumption thus import duty should have been revised when our industry has capacity to produce and compete efficiently with imports. He also emphasized the dangers of increasing poverty levels.

My response Mr. Speaker is that from the outset, let me point out that we should endeavour to increase consumption of locally manufactures goods. The liquidity challenge we are currently experiencing is a result of the huge import bill which has undermined the economy.

In this respect, in my Mid-Term Policy I proposed extension of manufacturers rebate of duty on selected sectors in order to allow importation of raw materials and inputs duty free, thus encouraging local production.

I further proposed to increase duty on finished goods only under circumstances where the local industry has capacity to produce.

Hon. Misihairabwi-Mushonga advised that the ban on second clothing should have been restricted to second hand undergarments. A reasonable number of honourable members also raised concern over the ban of second hand clothing given the low incomes of most citizens and also the prevailing high unemployment levels where citizens have been surviving on selling second hand clothing.

My response Mr. Speaker is that the proposed measure is supportive to both the textile and clothing manufacturers. I need to say that in my last stay in Bulawayo, I visited some of the companies which are now reviving and resuscitating their operations and in one or two of the companies, I was advised that in fact they are buying machinery from collapsed textile industries in South Africa which have collapsed largely because of importation of second hand clothing. We do not want to go through that route, we should stem that tide. So, in the medium to long term this will boost local production, employment and revenue to the fiscus. The public is also protected from disease due to contamination of the clothing.

Admittedly, the ban on importation of second hand clothing has been one of the most painful decisions to make. The stark choice confronting the nation is to watch the unchecked deindustrialization and total collapse of the clothing and textile sectors as a result of continuing importation of second hand clothing. We cannot talk honestly about the revival of the clothing and textile industries in Bulawayo and other cities and towns while at the same time allowing importation of second hand  clothes – the very act that undermines that effort. We cannot have our cake and eat it at the same time.

The local manufacturers should, however, ensure that the pricing of clothing remains affordable to the general public since Government has already extended rebate of duty on raw material, used in the manufacture of clothing.

Hon. Misihairabwi-Mushonga also advised that the local tanneries have no capacity to produce leather products; hence export tax should not be levied on raw hides.

My response Mr. Speaker, is as already highlighted in the 2015 Mid-Year Fiscal Policy Review Statement, the local tanneries are facing shortage of raw hides and skin to further process into wet blue and leather thus undermining the value chain linkages and employment prospects within the industry. The measure was instituted with a view to ensure availability of raw hides and skins to local tanneries. I must say that yesterday I had a meeting with one of the local tannery company which actually said the measures introduced are already beginning to bear fruit; where they were running short of raw hides and skin, they are now almost back to 100% capacity. That is how things should be.

Hon. Zindi is concerned that the removal of groceries from the travelers’ rebate will expose families to hunger.

My response Mr. Speaker is that the measure is meant to promote local industry as well conserve the much needed foreign currency.  Continued importation of groceries is not necessary since these are already readily available.  Furthermore, there is need to dispel the perception of some consumers who view imported groceries as superior to locally manufactured goods.

Hon. Cross proposed that the land rentals should have been differentiated in terms of ecological region.

Mr. Speaker Sir, my response is that whilst the proposal has been noted, the administration of differentiated land rentals would however, pose challenges.

Hon. Mudarikwa had something to say on duty on fruits and vegetables. The hon. member bemoaned the situation where readily available fruits and vegetables are imported such as sweet potatoes, madhorofiya, that is prickly pears and magogoya, that is yams. Mr. Speaker Sir, my response is that Government has levied high duty on vegetables and fruits ranging from 25% plus surtax for fruits and  vegetables imported from the region and 40% plus surtax on imports from the rest of the world.

The Ministry of Agriculture, Mechanisation and Irrigation Development also controls importation of fruits and vegetables through licenses and permits. So, if there is any continuing flood on our market of vegetables and fruits from the region and from elsewhere, which is still competing with locally produced products, I can only say that these goods are not coming lawfully into the country. The major challenge that has affected the local horticulture industry and farmers is the rampant smuggling that needs to be addressed and that should be addressed as a separate matter.

Mr. Speaker Sir, I want to once again thank all those hon. Members who made their contribution to the Mid-Term Review Statement. I thank you.

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