|Exporting Africa: Technology, Trade and Industrialization in Sub-Saharan Africa (UNU, 1995, 434 pages)|
|Part II. Country studies|
The agricultural machinery industry goes back to the early years of the century. Initially based on importation and assembly during the Second World War and subsequently the UDI period, the industry has developed not only into full manufacture but also into the design and development of new equipment appropriate to the changing conditions and trends in agriculture in Zimbabwe.
Precisely because the equipment is designed and built for Southern African conditions, export markets are limited to the region. However, Zimbabwean agricultural equipment enjoys a degree of natural protection against imports from other parts of the world, as experience has indicated that the equipment is appropriate and rugged.
Similar comments may be made about South African agricultural equipment, and as that country becomes even more aggressive than in the past in exporting to the region it will emerge as the major competitor. One of the problems faced by Zimbabwean manufacturers is unreliable and increasingly expensive supplies of raw materials.
A high proportion of the steel required by the industry is produced by the Zimbabwe Iron and Steel Corporation (ZISCO), but supplies have become increasingly irregular (mainly due to deterioration of equipment through lack of investment but also to loss of skills as people of ability get fed up and leave), while prices have increased dramatically as subsidies have been removed under the structural adjustment programme. ZISCO does not produce steel plate, which is usually imported from South Africa at prices which, surprisingly, tend to be lower than those faced by South African manufacturers. Labour costs are, however, considerably lower in Zimbabwe and efforts to increase productivity will continue in order to remain competitive (see pp. 190-2).
History of firms in the sample
Origins, ownership and structure
There are four main manufacturing concerns in the agricultural machinery sub-sector. The market for tractor-drawn equipment is dominated by Tinto Industries, with competition being provided by Bain Manufacturing Company. In respect of animal-drawn equipment, there are two manufacturers, Zimplow and Bulawayo Steel Products. All but the last were covered in this study.
The longest established of these companies is Bain, which started as a distributor of tractors and farm equipment in 1922 and diversified into producing its own range of equipment in 1968. The original British owners of the company were bought out in 1989. The company is now owned by the government through Willowvale Motor Industries (50 per cent), by a workers' trust company (33 per cent) and by the directors (11 per cent). The present structure is a holding company, W. Bain Holdings, under which the main subsidiary companies are Bain Manufacturing, Bain Farm Equipment (sales and distribution) and Fiatagri (an agency for Fiat tractors). Total employment within the group is 320, with 86 workers directly involved in manufacture.
Zimplow was started in 1939 in order to achieve self-sufficiency in agricultural implements in the face of the threat of import disruptions at the start of the Second World War. The plant was located in Bulawayo to take advantage of the availability of foundries and engineering works which could supply components which it would not be economical to produce in-house' end because Bulawayo was the hub of the rail network. 'At that time, rail offered the only reliable means of transport for the fast and efficient distribution of goods to the local market and to markets in neighbouring countries - including Botswana, Mozambique, Malawi, South Africa and Zambia' (Zimplow, 1989).
At the time of independence, when the company's name was changed from Rhoplow to Zimplow, it was externally controlled through a majority shareholding by the South African company Fedmech Holdings. In 1983 Fedmech released its shares for purchase by Rothmans of Pall Mall (Zimbabwe) Ltd. which had the effect of making the company locally controlled. There is now a diverse ownership through the Zimbabwe stock exchange, although Rothmans is dominant with 49.2 per cent of the shares. The company has 122 permanent workers (14 of whom are skilled toolmakers and fitters and turners). There is little labour turnover and the majority of the permanent workers have completed more than 15 years of service. During a busy season up to 150 additional workers may be employed on a contract basis.
Tinto Industries is of more recent origin than the other two companies, although it developed by purchasing existing concerns. It was the result of a large mining house (Rio Tinto) not being able to repatriate its profits during the UDI era. In 1971, a foundry, agricultural machinery, irrigation and trailer manufacturing concerns were acquired and merged to form Tinto Industries. Since that time, further acquisitions have been made, raising Tinto's market share in tractor-drawn agricultural equipment to a dominant level of around 80 per cent. The company has also diversified (into textile and mining chemicals) in order to reduce its extreme vulnerability to downturns in the agricultural sector. The company now consists of seven operational divisions: Tinto Discs (the sole source of plough discs in Zimbabwe), Tinto Foundries, Tinto Trailers, Tinto Water Engineering and Tinto Implements are the main manufacturing divisions, with Tractor and Equipment (Pvt) Limited as a distributor of tractors and implements and Tinto Chemicals as supplier of chemicals.
Tinto Industries is a division of Rio Tinto (Zimbabwe), which is a public company with 46 per cent local shareholding and 54 per cent held by RTZ (London). Until recently, Tinto Industries employed 900 workers but the downturn in the domestic economy has led to the laying off of 155 workers.
All of the agricultural equipment manufacturers are extremely vulnerable to the success or otherwise of the agricultural season. To an extent, exporting has been viewed as a means of compensating for downturns in the domestic market, although this strategy has been limited by the fact that drought conditions have typically prevailed simultaneously across the whole region. The effect of the government's export incentive policies, particularly the ERS, has certainly been to enhance export orientation but the companies remain committed first and foremost to the Zimbabwean farmers, commercial and communal.
Bain began exporting in 1974 with substantial orders to Zambia and Mozambique. These markets disappeared as the liberation struggle intensified, and exporting resumed only after independence in 1980. Bain's main export market is Zambia but exports are also made to Malawi, Mozambique, Tanzania, Zaire and Botswana. Up to 20 per cent of production has been exported in some years but generally this proportion has been lower, especially when domestic demand has been buoyant.
The history of exporting by Tinto Industries is very similar. Within Tinto Industries, it is really only the agricultural implements division which exports. As that division accounts for only 11 per cent of company turnover and about 20 per cent of its output is exported, overall exports constitute a small proportion of company turnover. The main destinations for its exports are Zambia, Malawi and Tanzania, with sporadic export orders to Angola. Before Zimbabwe's independence, South Africa was also a significant export market.
As indicated previously, Zimplow has had an export orientation from the company's inception but the primary market has always been domestic. From independence to 1986/87, exports by value constituted up to 20 per cent of turnover, with the exception of 1983/84 when the proportion rose to 31 per cent in the face of a sharp decline in the domestic market. From 1987/88, the export proportion has been over 30 per cent, with a peak of 36 per cent in 1988/89. In the last completed financial year (1991/92) exports were over Z$5 million out of a turnover of Z$15 million.
Three factors have stimulated export growth since independence. The first is the state of the domestic market, export effort and results going up when drought reduces purchasing power in the domestic market. Related to this is the question of price control, which was introduced by the government in 1982 and finally removed in 1990. As shown by Riddell (1988), the profit squeeze that price control implied revealed the inefficiency and hence vulnerability of the company but this led to considerable efforts to improve productivity and to increase exports. Finally, the growing number of export incentives has also been significant. In particular, the ERS is regarded as a means of earning the foreign currency the company needs to replace its antiquated plant and machinery. The combination of these factors explains both the growth and the fluctuations in export sales over the past twelve years.
In 1982, Botswana was virtually the only Zimplow export destination. Since that time, marketing trips to all parts of Africa have been made and also some to Europe in the hope of selling hoes. However, the main markets remain confined to the Southern Africa region: Zambia, Lesotho, South Africa, Namibia, Angola and Tanzania in addition to Botswana. Besides direct exports to these countries, the company's products are also exported indirectly by entities such as commercial agents and aid agencies, which buy large consignments for shipment to neighbouring countries (such as Mozambique). A large proportion of Zimplow's exports are funded by donors in the importing countries but orders are also received from stockists in Botswana, South Africa and Zambia.
External factors affecting export growth
Most of the constraints described for the textile, clothing and footwear sectors apply equally to agricultural machinery manufacturers and need not be analysed again in detail. These include the mobilization of finance in the current restrictive monetary conditions, compounded by delays in the payment of export incentives, infrastructural problems, delays and obstructionism by the Department of Customs and reduced demand from Botswana because of the debacle over the bilateral trade agreement (this having a major adverse effect on Zimplow in particular). Transport is a particular problem, as road hauliers do not like transporting agricultural equipment, which is awkward in shape, and railways have started charging for a full wagon even though consignments may be much smaller.
As with the other sub-sectors studied, one of the main problems is obtaining basic raw material supplies from a parastatal whose efficiency has for various reasons declined sharply in recent years. In this sub-sector, it is supplies of steel from ZISCO which are at issue. The government has put pressure on ZISCO to expand its product range to include any sections it could possibly manufacture and which are required by the domestic market. This pressure came at the same time as ZlSCO's ability to produce was declining. The result was that the time between ordering and delivery of particular sections began to increase, with even common sections only being produced once or twice per annum. The outcome was that production in the engineering sector has often been held up for lack of raw materials.
The companies responded by building up large stocks of raw materials, a necessary hedge against supply disruptions but a policy which became very expensive when interest rates rose dramatically under structural adjustment. Costs rose especially when the requirement that parastatals should become commercially viable led ZISCO to increase its domestic prices by more than 200 per cent over 1991 and 1992. Despite the large devaluation in 1991, the Zimbabwe dollar export price of steel is still well below the domestic price. Rival companies in other countries (for example, Agrimol in Malawi, which is a direct competitor with Zimplow) can purchase ZISCO steel more cheaply than Zimbabwean companies can.
Partly in recognition of this and partly to increase its own margins, ZISCO introduced an export incentive scheme in the last quarter of 1992. This allows companies exporting ZISCO steel in finalized form to claim a rebate on the purchase price of the ZISCO steel input. This results in the effective price coming down from the regular domestic price of an average of Z$2 000 per tonne to as low as Z$1600 per tonne, as compared with ZlSCO's average export realization of Z$1000 per tonne. With the differential remaining large, and given the benefits to the country of exporting steel in a higher-value-added form after manufacture into final products, consideration should be given to offering even larger discounts on steel for export manufacture under this scheme.
Government pricing and procurement policies also have an important role to play in creating the conditions under which companies will increase exports. This arises partly from the entrenched perception amongst the firms in the industry that exports should be based on a sound domestic market performance: Fundamental to success in the export market is the necessity for reasonable and fair profits in the local market so as to enable manufacturing exporters to meet external competition on a competitive basis.' (Chairman's Review, Zimplow, 1985). Besides price controls on the output of the sector itself, which have now been lifted, the prices of agricultural commodities, the availability of agricultural credit through parastatals such as the Agricultural Finance Corporation and from the commercial banks, and the government's own agricultural and rural development support policies all have an effect on domestic turnover and hence on companies' ability to compete on domestic markets.
It is not only the companies which stand to benefit but also the rural communities which government programmes are supposed to serve. For example, in the current drought relief ploughing programme, more effort should have been made by government to have donor funds released in time for an adequate range of implements to he provided with the tractors which have been purchased to assist peasant farmers with ploughing. Similarly, the project put forward by Bain for dam scoops to be purchased for use with government-owned tractors deserves support, as the concept is to utilize the huge capital investments already made in mechanized power during periods when the tractors are not in use for agricultural purposes. The benefits of constructing a large number of small dams at minimal expense would not be difficult to demonstrate, even in the absence of the extreme drought conditions experienced in the current year.
One of the main problems for Zimbabwean exporters is the availability of foreign currency in the target markets. As mentioned previously, this is often strongly influenced by the willingness or otherwise of the donors to provide finance for imports of equipment from Zimbabwe. The fact that Zimbabwean products are superficially not price competitive is significant in a market where the decisions are often made by rotating expatriates, rather than by the farming community itself, which would be aware from experience of the logic of paying a higher price for products that are significantly more appropriate and longer-lasting than products developed for conditions in other parts of the world. It is in circumstances such as these that a significant market in Tanzania was lost by Tinto Industries.
With the advent of ERSs, the above pattern is beginning to change and, at least in respect of tractor-drawn implements, much of the export business is now handled directly with individual commercial farmers. This applies particularly to the Zambian market, where there is now 100 per cent export retention for farmers. The immediate effect of this has been to expand a market which had contracted sharply in the face of extreme foreign currency shortages, but the trend towards individual farmer control over foreign currency (in Malawi, Mozambique and Zimbabwe as well as Zambia) is one that raises longer-term concerns.
This is because the agricultural support industry needs to operate on a sector-wide basis, with adequate supplies of inputs, whether domestic or imported, in order to fulfil its critical supporting role to the agricultural sector. Not only is it inefficient for companies to go through all the export procedures for each individual farmer, individual access to foreign currency is leading individual farmers to keep significant stocks of spare parts, while the agent has virtually none. For example, for a particular tractor model, Bain is aware that there are now over 600 overhaul kits sitting on individual farmer's shelves in Zimbabwe, while the company has fewer than the 20 which they would aim to have in stock to serve the existing national fleet. Buying to best advantage and maintaining what amounts to a shared pool of spares are key roles which the agricultural support sector is meant to perform.
From all points of view (the individual farmer, the agricultural support sector and the nation), these unintended consequences of the ERS system amount to a highly inefficient use of foreign exchange resources. The weakening of agricultural support companies not only makes it more difficult for them to compete in export markets, it also disadvantages farmers who produce mainly for the domestic market and do not have access to ERS funds.11
Technology, productivity and human resources
Characteristics of demand in target markets
As mentioned previously, export markets are limited to the Southern African region, plus to some extent East Africa. Attempts to market Zimbabwean products further afield, for example in West and North Africa, have been complete failures, as agricultural conditions are so different in those areas and existing suppliers are very well established.
The strategy of Zimbabwean exporters has been to market sound equipment, suitable for African conditions. Success in exporting has arisen from having a strong, robust and appropriate product. Where companies have failed to gain access to markets or have lost markets, they say customers have been taken in by superficial characteristics, such as the superior finish of much of the equipment imported from elsewhere as compared with the Zimbabwean product, and its lower initial price. The Zimbabwean companies believe they will ultimately regain any markets lost as the superiority of their products and after-sales service becomes evident. The companies are not, however, resting on their laurels, as they realize that price is important and productivity and efficiency have to be improved in order to offer a competitive price. The export incentives provide some flexibility, allowing the export price to be lower than the domestic market price if this is necessary to secure an export deal. The companies find it demoralizing to be competing against firms from countries such as Brazil and India, where the export incentives offered by their governments enable products to be landed at prices which are sometimes below the input costs of the Zimbabwean manufacturer.
In respect of animal-drawn and hand implements, Zimbabwe's well-publicized success in peasant farming helps to promote a positive image of Zimbabwean implements. In addition, in the market for animal-drawn implements there is a lot of conservatism, based presumably on the good performance of a mature product. The customers are said to like what their grandfathers bought, even as far as the colour is concerned, a green plough being considered stronger than a red one. These perceptions seem to apply as much in export markets as in the domestic market. In foreign markets, care has been taken to deliver always on time and to choose agents who will always carry a full range of parts and provide proper after-sales service.
Bain and Tinto have design departments staffed by highly qualified engineers and agriculturalists. Both companies have a policy of continuous improvement and innovation, not only to keep ahead of one another but with an eye on the fact that with export retention, Zimbabwean farmers are now in a position to import equipment from elsewhere if they so choose.
Bain, for example, has five people in its R&D department but expects ideas also to come forward from other parts of the company and from contacts with the farming community and other agricultural researchers. Within the Bain product range there are items which are produced on licence but many items are the result of their own development. The reversible disc plough, chisel tiller, ridge hog, seed press, tandem dam scoops and crumbler provide examples. Recent development work has concentrated on equipment for reduced tillage systems, which are gaining acceptance as research results have proved promising.
Tinto is also working in this area and is justly proud of a recently developed pneumatic direct seeding drill, which leads the world in zero tillage planters. It is being successfully used in Zambia as well as Zimbabwe. Interest has been shown from as far away as the US and Canada and world-wide patents have been taken out.
Because of the extreme conservatism mentioned in the previous section, Zimplow has scant need for product development, although a plough suitable for use by women has been developed in recent years. Export orders have occasioned some development work, however. For example, for the Botswana market Zimplow developed a range of equipment for flood plain cultivation. With only a 60-cm depth, the conventional ploughs and cultivators had to be modified quite considerably.
Technology and productivity
As with other industries in Zimbabwe, much of the equipment used to produce agricultural machinery is antiquated and inefficient from a technical viewpoint, if not necessarily from an economic one. With the pressures induced by restrictions on the domestic market, including in the case of Zimplow price control on its output and the need to compete on export markets and become more efficient as protection is lifted under the Economic Reform Programme, all the companies have made strenuous efforts to increase efficiency and productivity.
Bain, for example, has benefited in recent years from an International Trade Centre (ITC) project which seconded a master welder to assist in improving performance on the shop floor. Apart from offering training in welding skills and suggesting changes in component design to improve weld strength and overall finish, the person concerned also made suggestions about plant layout, handling equipment and maintenance. The changes implemented have had a marked effect on efficiency. In addition, in the last two years a start has been made on replacing equipment which was second-hand in 1966, when production was started. At the same time, with the change in ownership, directors and workers have acquired a direct share in the business and the effect of this on productivity, although difficult to measure, should also be significantly positive.
Tinto, with the foresight to anticipate the changes that structural adjustment would require, has gone further in changing its production management system. By employing a local consulting organization, the Kawasaki Production System has been introduced. This is essentially a 'just-in-time' production system, which has been particularly successful in improving productivity and efficiency at the Norton factory. This may be because of the 'collegiate' atmosphere at that plant (most of the workers live together close to the works), or because the types of processes at the Harare plant are less amenable to the changes that the system requires.
Significant financial savings have arisen from cutting down on work-in-progress, which has also allowed for a 60 per cent reduction in working space. In addition to improving production management, the company is undertaking various capital investments such as the refurbishment of the foundry at the Harare works, the installation of an arc furnace control system to improve energy efficiency and the acquisition of computer-controlled machining centres.
As mentioned previously, Zimplow increased its productivity markedly during the 1980s in order to increase profitability in the face of price controls on the domestic market. Referring to Bulawayo Steel Products as well as Zimplow, Riddell notes that:
factories were radically reorganized, with production lines altered from a series of separate and uncoordinated operations to a continuous flow system; more rapid throughput meant that stock levels could be reduced; staff training education was initiated to upgrade workers and identify particular tasks in the overall production process; new skilled staff were employed on the shop floor, leading to higher quality products being produced and to improved designs of traditional lines... the squeezing of profit margins induced the most dramatic increases in manufacturing efficiency that the firms had experienced in 15-20 years.(Riddell, 1988, pp. 37-8)
By 1992, however, Zimplow reported that productivity had declined relative to 1988 levels, despite the replacement of equipment during those years This is attributed partly to the general malaise in the country, perhaps affecting people in Bulawayo more than most due to the on-going water crisis, and to problems in obtaining raw materials from ZISCO. To overcome the latter, the company is now holding up to two years of stocks of some items, which is extremely expensive in current financial market conditions.
Human resources and the development of skills
From the viewpoint of the availability of skills, engineering industries are much better off for skilled labour than specialized industries such as textiles or footwear. This is because there is an established national system of apprenticeship and formal education for artisans through the technical colleges and for qualified engineers through the University of Zimbabwe (in future to be complemented by the National University of Science and Technology in Bulawayo). There have been persistent reports that the standards of technical education have been falling in recent years, the effects being more severe in some areas than in others. For example, personnel for machine shops, such as fitters and turners, are far easier to find than those needed for foundries, such as pattern makers.
The incentive structure in the general economic environment (including factors such as high personal taxes, restricted access to imported goods and foreign currency for travel, and high inflation) is leading to a significant brain drain of Zimbabwean skills. Countries such as Botswana and South Africa are providing opportunities for employment, undermining the value for Zimbabwe of its considerable investment in the education and training of engineering staff.
At present Bain and Zimplow have all their foundry work done outside the company. Bain gave careful consideration in recent years to establishing its own foundry but the problem of obtaining the skilled personnel necessary and the fact that a good deal of outside work would have had to be obtained for the foundry to be viable, argued against the project. Bain is pleased about its negative decision now, because it would otherwise have been saddled with much higher prices than originally envisaged due to devaluation and very high interest charges.
Other than foundry work and Bain's purchase of plough discs from Tinto, none of the companies in the sample is regularly involved in subcontracting. Particularly at present, when demand is depressed and companies are seeking to find sufficient work to keep their production staff occupied, subcontracting would not make sense. Even in boom conditions, subcontracting is not a mode of operation that has been adopted in the past.
This could well change in the future. The unfolding of the structural adjustment process is having a marked effect on the way businesses are run. For example, tight liquidity and expensive credit have led to much more careful management of stocks and of work-progress. Subcontracting would be merely a further step in reducing overhead and inventory costs and may thus come to be adopted in the future.