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close this bookExporting Africa: Technology, Trade and Industrialization in Sub-Saharan Africa (UNU, 1995, 434 pages)
close this folderPart II. Country studies
close this folder7. Zimbabwe
View the document(introductory text...)
View the documentIntroduction
View the documentTextiles and clothing
View the documentFootwear
View the documentAgricultural machinery
View the documentConclusions
View the documentBibliography

(introductory text...)

Dan Ndlela and Peter Robinson

Introduction

Phases of industrialization

Beginnings of industrialization

Industrialization began in what was then Southern Rhodesia in the early decades of the twentieth century. By the early 1940s the country had a relatively sophisticated industrial base, ranging from the only integrated iron and steel plant in Sub-Saharan Africa to basic consumer goods industries. Around 10 per cent of GDP and 8 per cent of exports were derived from the manufacturing sector (Riddell, 1988, p. 2).

During the Second World War further import substitution took place. The establishment of the Federation of Rhodesia and Nyasa-land created a common market in what is now Malawi, Zambia and Zimbabwe. Much of the manufacturing investment to serve this market was located in Southern Rhodesia and the enterprises concerned became accustomed to serving markets in the other two countries.

The UDI period

The breakup of the Federation in 1963 was followed in 1965 by the Unilateral Declaration of Independence (UDI) by the minority government in Southern Rhodesia. Trade sanctions led to a new era of inward-looking import-substituting industrialization. In 1965 manufacturing accounted for just 17 per cent of GDP. By the end of this period, in 1980 this figure had risen to 24 per cent and the range of products produced had risen dramatically. Significantly, however, the ratio of manufactured exports to gross output dropped from about 27 per cent to 15 per cent (in 1992 this ratio was expected to be about 20 per cent), while the sector's utilization of foreign currency for raw material and capital equipment imports rose sharply.

Several features of the growth of the manufacturing sector during this period are important in understanding subsequent developments. The government created an extensive set of controls to ration foreign exchange (forex), for both investment and recurrent expenditure. With forex allocation reinforcing the tendency to monopolization in a small market, price controls were also established. These were intended to protect both producers, purchasing capital and intermediate goods from the manufacturing sector, and final consumers, especially regarding foodstuffs. Due to the political and economic repression of the black majority, a significant part of the consumer goods sub-sectors developed to serve an extremely narrow market with a surprising range of goods.

With the industrialists and the government of the day sharing a determination to overcome the impact of international sanctions, the system of controls was made to operate effectively and the highly protected system that they constituted did not lead to the gross inefficiency which has characterized other import substitution regimes. The need to adapt and innovate led to the development of a wide range of technical skills, particularly in various branches of engineering. The strong orientation to market requirements led to a proliferation of products, often produced within large, vertically integrated conglomerates.

With the strong domestic market orientation and international sanctions in place, the development of exports from the manufacturing sector was limited. The main market was South Africa, which did not abide by sanctions. Trade between the two countries was fostered through the 1964 bilateral trade agreement. This allowed Rhodesian manufacturers of items such as textiles, clothing, leather and footwear, processed food and furniture to export under preferential conditions to South Africa.

Post-independence

At independence, the new government maintained the panoply of controls over the economy, with the apparent intention of using state intervention to redirect development to benefit the mass of the population. However, the application of the controls in the absence of the rapport with the private sector that had existed under the previous regime, and the introduction of new controls on wages and labour relations, led to a situation in which the bureaucracy became a major obstacle to the running of any kind of economic enterprise. As foreign currency availability emerged as the main macroeconomic constraint, competition for access to imports became a major preoccupation for economic entities in all sectors, whether private or public.

The government's initial response was to introduce new incentives for exporters. The Export Incentive Scheme, whereby an exporter is paid 9 per cent of the f.o.b. value of exports (in Zimbabwe dollars), was introduced in the early 1980s. This was followed in 1983 by the Export Revolving Fund (ERF), which allowed exporters to have access in advance to the foreign currency needed to purchase the imported inputs required to manufacture goods for specific export orders (the ERF was scrapped in the first quarter of 1993). The ERF was targeted at the manufacturing sector; the Export Promotion Programme (EPP) catered for the mining and agricultural sectors. The Industrial Bonus Scheme allows a supplementary foreign currency allocation to be made on the basis of incremental exports achieved.

During the 1980s there had been a running debate with external agencies, particularly the World Bank, on the merits or otherwise of scrapping the foreign currency controls inherited at independence and adopting a programme of trade liberalization. The intention of such a programme would be to move towards a more open economy, forcing industries which had grown up under sanctions to face international competition and become more export oriented.

An initial study undertaken at the instigation of the Bank concluded that a high proportion of Zimbabwean industry was inefficient and should be closed down, including the iron and steel plant. The government found the conclusions unacceptable, and examination of the report revealed a poor application of domestic resource cost methodology, which would not anyway give definitive answers about long-term comparative advantage. Later and more careful studies by the Bank itself found Zimbabwean industry to be remarkably efficient, the operation of foreign exchange allocation and investment licensing having avoided many of the problems found in other countries with similar trade regimes. Even capital goods received a positive verdict. 'The conclusion that the capital goods industry in Zimbabwe is largely efficient is puzzling, since the same pervasive policy interventions in other African countries have led to disastrous results' (World Bank, 1989, p. 46).

The Bank's surprise has not led it to abandon its call for trade liberalization, or, for that matter, to draw any useful lessons for other African countries about what can be achieved by way of industrialization under a carefully managed import substitution regime. The argument for trade liberalization in Zimbabwe has just shifted ground: 'since most industries are efficient, they no longer need protection.'

Although it was not in a situation of economic crisis, in which the Fund/Bank would be able to set the main lines of policy, Zimbabwe itself has decided to embark on a comprehensive structural adjustment programme, of which trade liberalization constitutes a central element. The government's decision does not seem to have been directly related to efficiency considerations but was motivated by the political threat from the rapidly growing number of unemployed, many with a relatively high level of education, and the consequent need to move the economy from a lacklustre 3 per cent p.a. GDP growth rate to at least 5 per cent p.a., with a much higher rate of job creation than was achieved in the 1980s.

The strategy now being pursued is to borrow the foreign currency needed for investment, reduce bureaucratic requirements for investment and the conduct of business, while also liberalizing trade in order to make the productive sectors far more outward-looking and to improve the availability, price and quality of goods (consumer and producer goods) on the local market. The overall success of the programme hinges on whether the export response is adequate and sustainable, enabling repayment of the borrowed funds and a diminution of the foreign currency shortage which in the past has been the major constraint on growth and development.

The phasing of liberalization was designed to maximize export performance, while giving industries time to adjust before facing competition from competitive imports. Thus the importation of production inputs was to go onto Open General Import Licence (OGIL) before outputs, with priority for inputs for sectors in which export volumes are assured or for linkage' sectors which do not directly export but are important in the export chain. Sectors where the export price has traditionally been lower than the domestic price are to have their inputs liberalized last, the intention being that they should earn the foreign currency they need through an Export Retention Scheme (ERS).

The ERS was thus introduced at the same time as a start was made on putting imported productive imports onto OGIL, from mid-1990. The ERS allows exporters to retain a proportion of the foreign currency earned to be used to import raw materials, spare parts or capital equipment. For the manufacturing sector, the retention rate was initially set at 7.5 per cent but was raised to 15 per cent from the end of 1991 and 25 per cent and 30 per cent for the two halves of 1992. It was increased to 50 per cent in April 1993. The restrictions on the use of ERS funds were removed (except for a small negative list) and trading was allowed from January 1992.

The ERS has clearly been intended as a major inducement to Zimbabwean firms to seek out export markets. Another important factor has been exchange rate policy. Since a devaluation in 1982, Zimbabwe has operated on a sliding peg exchange rate, which has served to offset an inflation rate of 15-20 per cent, generally higher than Zimbabwe's trading partners. In the third quarter of 1991, however, the Zimbabwe dollar was devalued drastically, moving from Z$3 to Z$5 to the US dollar, but was kept at that level during 1992.

Inflation rose rapidly, however, reaching 40-50 per cent by the end of 1992, and further depreciation of the currency was undertaken in early 1993. By February, the rate was Z$6.3 to the US dollar and since then it has been at around Z$6.5 to the US dollar. If exports are to be kept competitive, continued high inflation will require further devaluations to be made. Fortunately, in the first and second quarters of 1993, inflation fell to around 30 per cent.

Finally, mention should be made of post-independence trade agreements which have a bearing on exports. Zimbabwe has joined the Lomé Convention between the African and Caribbean States and the European Community and also the Preferential Trade Area for East and Southern Africa (PTA). Lomé has been extremely important for exporters of manufactured goods but the PTA agreement has had little overall impact on trade.

Other arrangements were disturbed by the PTA, however. In particular, when both Malawi and Zimbabwe joined the PTA the bilateral agreement between those two countries was dropped, resulting in a sharp fall in Zimbabwe's exports to Malawi. On the other hand, the bilateral agreement with South Africa was continued and consolidated in 1987 and another round of negotiations to extend the agreement is presently in progress.

As Botswana is not a member of the PTA, the bilateral trade agreement with Botswana has continued and has provided an important opportunity for Zimbabwean exporters. The Botswana agreement has also, however, provided opportunities for Zimbabwean companies (particularly in textiles and clothing sub-sectors)

to expatriate capital through transfer pricing, and has thus been controversial. A move by the Zimbabwean authorities to insist on the payment of a surtax which effectively removes the preferential access that Botswana-made goods previously enjoyed in Zimbabwe has resulted in retaliatory action by Botswana. This has had severe implications for Zimbabwean exporters.

Context of the study

Economic conditions in 1992

Even without experiencing one of the most severe droughts this century, 1992 would have been a difficult year for the economy. A critical element of the Economic Reform Programme is that government should significantly reduce its budget deficit through contraction of the public sector and the elimination of subsidies to parastatals. While progress was made on the elimination of subsidies, the additional burden imposed by the drought resulted in a much higher deficit during 1992 than had been planned, with the result that government appropriated an excessive share of liquidity in order to finance the deficit.

With the simultaneous opening up of the money market and the rapid escalation of inflation, interest rates rose to unprecedented levels (40 per cent as compared with the 10-15 per cent that had prevailed between 1965 and 1991). Delays in the payment of export incentives exacerbated the liquidity situation of many firms. With delays of six months not being uncommon, the value of the incentives was eroded. When the amount involved is as much as 5 per cent of annual turnover, which is not uncommon, this has had a negative effect on performance, including a company's ability to compete effectively in export markets.

While the liquidity squeeze led to much more efficient holding of stocks by the manufacturing sector, it also led to postponement of the investments which were meant to provide growth under the structural adjustment programme and, in many cases, a contraction in current production. Contract workers and some full-time workers were laid off during 1992 and short-time working was introduced. Tracing the economic links back, it is clear that government's reluctance to shed jobs in the bureaucracy led directly to conditions of high inflation and tight liquidity, resulting in companies in the productive sectors laying off workers. The loss of productive sector jobs, rather than unproductive bureaucratic jobs, is a major source of concern.

Besides the problems of liquidity and interest rates, production and investment were also limited by the state of infrastructures such as electricity, telecommunications and rail transport. Poor performance in these areas is a legacy of the neglect of maintenance, investment and management of key parastatals during the 1980s. The Zimbabwe Investment Centre (ZIC), which was meant to overcome the bureaucratic impediments to investment, has failed to do so. While ZIC procedures are acceptable for a large project and may produce faster results than a few years ago, this is not the case for small projects. Having to complete ZlC's 20-page questionnaire for a Z$100 000 import order (as cited by one of the respondents) was an unacceptable and unnecessary burden. Some changes to improve this have been introduced during 1993.

Other problems faced by the manufacturing sector, specifically highlighted by sample firms, were endless delays and obstructionism from the Department of Customs and the new policy on pre-shipment inspection of imports, which was seen as causing delays and unnecessarily raising the costs of imports. On the growing shortage of skills, the productive sectors were concerned that, while tax and other policies were encouraging a 'brain drain' of Zimbabwean skills, the policy on the recruitment of expatriate workers (on a short- or long-term basis) continued to be unnecessarily restrictive. Allowing ERS funds to be used for this purpose was seen as one way of reducing the impact of this constraint. This has not yet been implemented.

Although most of these problems ought to be resolvable by decisive government action, in practice they remained in 1992 an on-going drain on the energies of the productive sector. Over and above these issues, the impact of the drought in 1992 was devastating. From being an exporter of foodstuffs such as maize and sugar, and self-sufficient in most other food items, the country was obliged to find the resources to import two million tonnes of maize (the staple), plus sugar, cooking oil and a range of inputs to manufacturing that normally derive from the agricultural sector, including cotton lint. Mismanagement of the dwindling water resources in Kariba led to severe curtailment of hydro-electricity generation, requiring periodic load shedding and the subsequent implementation of a rationing system that cut supplies to manufacturing sector enterprises by 20-30 per cent as compared with their averages for the previous year.

Official estimates of economic performance are that GDP in 1992 fell by 7.7 per cent in real terms. The contribution of manufacturing fell by a larger amount (9.5 per cent), a reflection of a combination of the supply constraints such as water and electricity shortages and a precipitous fall in domestic demand. One of the legacies of the previous trade regime is the conviction that export performance should be subsidiary to a solid foundation in the domestic market. 50, although some firms responded to the decline in the domestic market by aggressively seeking out compensating exports, others were more hesitant.

Priority issues for investigation

Considering that the tight protection which has been in place at least since international sanctions were imposed against Rhodesia in 1965 is being rapidly dismantled, with the monetary and fiscal environment simultaneously altered, it is not surprising that a major preoccupation of exporters in Zimbabwe is with the policy framework. The emphasis in the current study is not on policy but on the areas of technology, product development and the firm's ability to adapt to changing world market conditions.

Although these issues are of considerable interest from the viewpoint of economic theory,² as will be seen from the case studies, these are areas in which Zimbabwean companies, or at least the larger ones, are confident. They see the challenge of exporting to be more one of finding a niche in overseas markets (or, to be more accurate, a series of niches) and ensuring that stringent delivery time and product quality standards are met, or of competing, increasingly with South African companies, for scarce foreign currency held by importers in regional markets. As trade liberalization proceeds, however, and Zimbabwean companies have to compete with imports of final goods, the challenge of achieving sustained productivity increases will be a real one. In the past, the protected domestic market was always available to cross-subsidize exports implicitly, the motivation for exporting lying in the incentives on offer, particularly the foreign currency incentives.

Manufacturing sector in Zimbabwe and choice of sub-sectors

In 1992, manufacturing constituted about 24 per cent of GDP when measured in constant (1980) prices, or 30 per cent in current prices. Manufactured exports, which included semi-processed minerals and agricultural products such as ferrochrome and cotton, are estimated to have accounted for 33 per cent of merchandise exports.

Recurrent imports for the manufacturing sector were larger than this, however. The proportion of productive sector employees working in manufacturing was estimated at 37 per cent.

Manufacturing had been set to expand rapidly under the structural adjustment programme but, as already mentioned, the drought led instead to a sharp reduction, with the volume of production falling by over 9 per cent. Not only sub-sectors dependent on agricultural inputs were directly affected: all of industry suffered from the sharp fall in incomes and hence reduction in domestic demand, while on the supply side firms had to contend with shortages of electricity and, in cities such as Bulawayo and Mutare, severe shortages of water.

As regards the choice of sub-sectors for the study, textiles and clothing were required to be chosen for comparison purposes, and are anyway critical sectors in Zimbabwe's drive to increase manufactured exports. Due to the strong linkages between them, it was found convenient to discuss textiles and clothing together (see pp. 152-48). Footwear, with backward linkages to leather production, was chosen because it is a commodity being exported into both regional and overseas markets. While entry barriers are relatively low in footwear exporting, competition is fierce (see pp. 171-3). Finally, agricultural machinery was chosen so as to include some aspect of Zimbabwe's engineering capabilities. Zimbabwean agricultural machinery has been developed for local conditions and the export market is limited to regional markets in which similar conditions apply (pp. 181-5).

To provide some quantitative measure of the size of the sub-sectors being studied, Table 7.1 gives an estimated breakdown of the manufacturing sector's contribution to GDP, exports and employment. This clearly shows that textiles and clothing are very significant in the manufacturing sector, particularly as regards employment. Footwear and leather, and agricultural machinery, on the other hand, are relatively minor sectors, with modest contributions to GDP, exports and employment.

Table 7.1 Estimated contribution of sample sub-sectors to manufacturing GDP, exports and employment 1992


Contribution to GNP

Exports

Employment

Sub-sector

Z$m

%

Z$m

%

Z$m

%

Textiles and clothing

1475

19

518

20

59000

29

Footwear and leather

165

2

130

5

9000

4

Agricultural machinery

89

1

120

5

1200

1

Total manufacturing

7760

-

2587

-

199200

-

Note: Exchange rate during 1992 was approximately Z$5 = US$1

Textiles and clothing

Background

The textile and clothing sub-sectors have played, and continue to play, a major role in the Zimbabwean economy. In addition to providing one of the most important consumer goods for the population, these sub-sectors generate significant amounts of employment and are critical sectors in Zimbabwe's drive to increase manufactured exports.

The textile and clothing sub-sectors consist of three components: production and ginning of cotton, transformation of lint into yarn and fabric, and the conversion of fabric and yarn into garments. Our attention will be focused on the last two components which with some other sub-sectors, form the hub of technologically dynamic exports from the country's manufacturing sector.

The parastatal Cotton Marketing Board (CMB) has an exclusive monopoly over the processing and marketing of cotton in both domestic and foreign markets. While in the past most lint has been exported, there has also been an increasing absorption of cotton domestically, as the local textile industry has grown. The CMB has always given priority to domestic users, exporting only what was not needed by the domestic textile industry (Mead, et al., 1992 p. 2). The Board employs about 1 500 people on a full-time basis and an additional 2500 seasonal workers.

The price of lint paid by local spinners and weavers was subsidized to the tune of Z$2-6 million per year in the early 1980s and the subsidy rose to Z$75 million in 1990-91. While part of the cost of this subsidy was born by the government, over the years the largest share of the subsidy for spinners and weavers has come from the price they were able to pay to growers, which was lower than it would otherwise have been. Partly as a result of this, the number of commercial farmers growing cotton declined by 20 per cent between the mid-1980s and 1990. While this slack was at first taken up by small-scale communal farmers, since 1988/89 the number of communal farmers growing cotton has also declined (Mead, et al., 1992, p. 3).

The spinning and weaving industry is dominated by five large companies, two of which produce 60 per cent of the total textile output of the country and account for close to 75 per cent of the fabric supplied to domestic users. These five firms together employ about 12000 people and the value of their sales is about Z$500 million. In addition there are 45-50 registered small and medium-size enterprises engaged in spinning, weaving and finishing off textiles and knitting cloth, providing employment for an additional 9000 people; giving a total of 21000 employees engaged in spinning, weaving, knitting and finishing textiles.

Employment within the clothing sub-sector has increased by over 65 per cent since 1984. In 1982 there were 113 clothing manufacturers; by June 1992 the clothing sub-sector consisted of over 250 companies employing over 24000 people. Knitted clothing, including T-shirts, underwear, hosiery and jerseys, is also manufactured, employing about 9000 people. There are also small and medium-size garment manufacturers who operate without registration. Whilst it is difficult to estimate the number of such enterprises or the employment they provide, the numbers are not insignificant.

The figures quoted here do not include some thousands of people engaged in retail dressmaking and tailoring, or the large number of garment cooperatives established in rural areas. An estimated 100 000 people are employed by these small firms as tailors and dressmakers. The clothing sub-sector is thus one of the most labour-intensive sub-sectors in Zimbabwe's manufacturing sector.

The clothing sub-sector manufactures a wide range of garments including work clothing, menswear, children's wear and women's clothing from housecoats to high-fashion garments. Some items have very low mark-ups which ate counter-balanced by other, more fashionable and higher-risk garments which require higher prices to be viable. This is particularly so in the fashion industry where prints and colours change from season to season and year to year, making unused fabrics and undelivered garments saleable in succeeding seasons only at very heavy discounts.

Some of the garment manufacturing firms are highly export-oriented, not only to the South African market and the countries of the East and Southern African sub-region but also to the more sophisticated and competitive European and North American markets. These firms have enjoyed considerable growth in exports in recent years in spite of the sub-sector's inability to obtain competitive raw materials and the rising input costs, which cannot be passed on because both the home and export markets have become increasingly competitive. These difficulties have been further exacerbated by the current drought and high interest rates pervading the economy.

History of firms in the sample

Origins, ownership and structure

The six firms surveyed in the present study have production experience ranging from 24 years to over 50 years. Four were established during the 1950s (Table 7.2).

All but one of the firms were established as family enterprises to supply the domestic market. Family ownership appears to have contributed to the steady growth of some firms. Most often the dynamism has come from the family members who provided the vision, the will to survive and continuity of management.

The oldest firm in the sample, Bernstein Clothing, was established in 1939 by the Meyer family to manufacture clothing, mainly shirts, for the domestic market. It has experienced all the phases of industrialization described on pp. 143-8.

The growth in manufacturing and exporting activities can be illustrated by the case of Concorde Clothing Company, which developed from a wholesale business established by the Lessem family in 1944. Along with their wholesale business, they established a small workshop for the manufacture of khaki shorts and shirts. In the early 1950s they were already exporting garments to the UK. By 1959 both the wholesale and manufacturing operations had grown substantially and the business was transformed into a clothing company by the name of Concorde Clothing. This was done with the assistance of a French company, Boussac, which provided short-term technical assistance in setting up the new company. The technical assistance took the form of providing technology and machinery. Experts were sent from France to guide the movement into manufacturing better-quality shirts' lounge shirts' trousers, etc. Personnel from Boussac stayed for about six months at a time, and the French company continued for some years to sell high-quality fabrics to the Zimbabwean firm and to provide the much-needed technical assistance.

Fashion Enterprises. established in 1959, started as a small manufacturing enterprise to supply the domestic market, while exporting small numbers of garments to Zambia and South Africa. Exports to South Africa' however, constituted the first serious attempt to develop the firm's export markets. There was little difficulty in entering the South African market in both the big chain stores and the small boutique shops. From the start Fashion Enterprises set up a comprehensive agency to promote its exports into South Africa. This was the major initial investment by the firm in the South African market.

The only enterprise in the sample which was not initially a family business was David Whitehead Textiles Limited, established as a textile mill in Chegutu, Zimbabwe, in 1952. The company was established as part of a strategy to set up textile mills in the British colonies by a Lancaster-based textile company, David Whitehead UK.3 Following the takeover of David Whitehead - UK by Lonrho in 1970 the latter acquired a 65 per cent holding in David Whitehead Textiles.4

In terms of structure, the larger and more entrepreneurial firms have a high degree of vertical integration. The two textile firms in the sample are typical of the larger firms in the sub-sector. These firms started with the manufacture of fabrics and gradually integrated backwards into spinning and weaving. For instance, in the case of David Whitehead Textiles, its raw material - cotton yarn - was initially purchased from what was then Rhodesian Spinners in Kadoma. The main production activity of the firm was to weave and dye fabrics for the domestic market and neighbouring countries. In 1960 David Whitehead Textiles purchased Rhodesian Spinners, which is now its spinning division, from the government. Two years after going public on the local stock exchange in 1968 the company purchased C.W. Hall in Gweru, which became its hosiery division.

The largest clothing firm in the sample, Fashion Enterprises, also started as a manufacturer of garments but with time became vertically integrated. Under the Fashion Industrial Holdings Group of Companies, there are two garment manufacturing firms (Fashion Enterprises and Julie Whyte) serviced by an in-house textile printing and dyeing firm (Screentone).

Thus, compared to their counterparts elsewhere in the third world, many large clothing producers in Zimbabwe - like large producers in other sectors of the economy - are highly vertically integrated, undertaking many peripheral or non-core activities rather than purchasing from more specialized outside suppliers. Two factors help to explain this tendency. First, the shortage of raw materials and other inputs since 1965, at the onset of UDI, has eroded the firms'

trust in domestic markets to supply the much-needed inputs of goods and services. The Zimbabwean economy is still a shortage economy. In this situation, large firms have been under considerable pressure to take whatever steps were necessary to ensure that they had access to a regular supply of inputs. Secondly, the often non-competitive environment in which large companies operate has meant that, to be assured of a more reliable supply, they have been able to get away with paying a risk premium; the resulting higher costs being easily passed on to final consumers.5

There is reason to believe that both these factors should be changing. Some vital inputs continue to be placed under the OGIL, and the operation of the ERS has enabled firms to procure a wide range of inputs on easier terms than before. But because of the current drought, the rather slow liberalization of the supply of the required inputs and the continued monopolistic tendencies, especially among the large suppliers, the existing vertically integrated structure of the large firms is likely to persist among the textile and garment producers.

Export history

Though originally established for the domestic market, Zimbabwean companies in the textile and clothing sub-sectors carried out some export activities from the 1960s and 1970s, albeit at very low levels. For example, Concorde Clothing became the first local clothing company to export garments by airfreight to the London C&A shops in 1963. These exports continued for only three years. During the UDI period the company switched its exports to South Africa.

The two textile mills in our sample have exported since the 1960s but their export growth has been lacklustre. For example, in the early 1970s David Whitehead Textiles had insignificant exports to South Africa. In the mid-1970s, because of the shortage of foreign exchange, the government agreed to let the company export yarn to Europe and retain the proceeds in order to purchase machinery. That market was retained for a while but because of the thriving domestic market around 1980 the company concentrated on supplying the domestic market. Only small amounts of canvas and yarn were exported to South Africa. Cotton Printers, the other textile mill in the sample, exported cheap bed sheets to South Africa in the 1960s. By 1982 its exports amounted to Z$1 million - all to South Africa.

Table 7.2 Profile of Zimbabwean textile and clothing firms

Firm

Year established

No. of employees

Main products

Textile firms:




David Whitehead

1952

4900

Loomstate fabrics, and some yarn

Textiles




Cotton Printers

1952

1500

Yarn, loomstate fabric, bed linen, indirect fabrics exported through other firms

Clothing firms:




Fashion Enterprises

1959

2500

Women's and children's dresses. pants, skirts blouses, unstructured jackets. Men's shorts

Concorde Clothing

1959

459

Men's trousers, shirts, suits, casual wear

Bernstein

1939

385

Shirts and men's trousers - dresses were produced in the past

Femina Garments

1968

136

Women's wear (skirts, blouses, maternity) and children's wear

Source: Fieldwork interviews

Most companies only started thinking about promoting exports in earnest around 1988. After 1990 exports started rising substantially in both volume and value terms. One of the firms' exports rose from Z$0.5m in 1980 to Z$10.5m in 1990 and to Z$44.6m in 1992. In volume terms its exports of fabric increased from 4.2 million metres in 1991 to 7.8 million metres in 1992. Domestic sales revenues dropped from Z$120 million in the first half of 1992 to Z$83 million in the second half' while exports increased from Z$17 million to Z$27 million in the same period. Another textile firm's exports amounted to 40 per cent of total production in value terms and 55 per cent in volume terms in 1990/91. In certain production lines as much as 90 per cent of the fabric (in volume terms) was exported, but this is likely to come down to 70-75 per cent when the domestic market picks up.

Zimbabwe's clothing companies, like the textile mills, have been exporting piecemeal since the 1960s and the 1970s, hut the more serious drive towards export-led growth started in the second half of the 1980s and the early 1990s. Thus Concorde Clothing exported garments to the UK between 1963 and 1965, thereafter switching exports to South Africa until 1981, when the company turned to the domestic market. The current export drive by Concorde Clothing began in 1985 when 15 000-20 000 units were exported to the UK. By 1992 export volumes to the UK market had risen to 100 000 units and new markets were being opened up in France and Holland. The two companies, Concorde Clothing and Bernstein, had an average export growth rate of 55 per cent from 1991 to 1992.

In 1978/1979 Fashion Enterprises, the largest exporter in the clothing sub-sector, started exporting to Western Europe and these exports had increased by 1980. The firm's exporting activities were greatly assisted by the introduction of the ERF. In 1986, 11 000 units were sent to the USA, rising to 250 000 in 1992. In value terms Fashion Enterprises' clothing exports increased by 400 per cent from 1980 to 1990 and since then by an average of 65 per cent per year.

Largely because of the slump in the domestic market, export production has risen as a proportion of total production. One of the clothing company's exports represented 22.5 per cent of total production in 1992. In terms of units. another firm's exports represented 70-75 per cent of total production, while in value terms they represented 50-55 per cent of total production during the same year. This increase in the export share came about as a replacement for the loss in the local market.

The smallest firm in the sample, Femina Garments, concentrated solely on the domestic market until 1987, when small numbers of garments were exported to Germany. A serious export drive started only in 1990, with increased exports to Germany and small volumes going to Botswana.

The sudden rise in exports in recent years can in part be explained, paradoxically, by the drying up of foreign currency allocations to importers by 1988/89 and by the introduction of the ERS (see pp. 146-7). The ERS enabled exporters to earn the much-needed foreign currency. In other words, in order to get imports, companies had to be exporters. The introduction of the Economic and Structural Adjustment Programme (ESAP) and the decline in the domestic market as a result of the current drought have helped to accelerate the programme.

External factors affecting export growth

As shown above, the recent growth in exports in the textile and clothing sub-sectors has been quite impressive despite the difficult circumstances faced by individual companies. The principal external factors that were found to be adversely impacting on the export growth of textile and clothing sub-sectors are (1) inability to obtain export finance at a competitive cost and (2) problems of obtaining competitively priced raw materials. Other factors adversely affecting firms' export growth are connected with infrastructural problems and bureaucratic and policy obstacles. Whilst the supply side of the most important inputs is not competitive, the companies cannot pass on these high and rapidly rising input costs because both the domestic and export markets are intensely competitive.

Ability to mobilize export finance

In the Zimbabwean case, company size is a significant factor in determining the firm's ability to mobilize financial resources in general, including export finance. This is mainly because the larger companies deal with larger volumes compared to their small counterparts. Thus whilst the smallest firm in the sample (Femina Garments) increased its exports by an astronomical figure of 218 per cent from 1990 to 1991, this was in value and volume terms far less than the larger firms in the sample. During the same period, the slowest export growth in the sample, in percentage terms, was that of Concorde Clothing at only 8 per cent but because of Concorde's size this represented a greater increase in terms of value than Femina achieved.

On the other hand, Fashion Enterprises combines both large volumes and high export growth: 129 per cent from 1990 to 1991 or an increase of US$31 million compared to Femina Garments' increase of US$48 000. In Zimbabwe, where resources, and especially finance, are not freely available in the market on a competitive basis, larger companies have more access to these resources than the smaller firms. A company that has successfully exported before is further assured of the critical foreign exchange resources for upgrading and replacing its machinery and equipment and procuring spare parts through its utilization of the ERS. Such resources are not easily available to new exporters and especially not to small firms, which can only obtain ERS funds at a premium price. At the prevailing interest rate of over 30 per cent, access to export finance becomes prohibitive.

However, all exporters face similar problems with regards to mobilizing export finance, which is a major problem for textile and garment exporters. It normally takes 90 days for export orders to be paid, and local companies insist on obtaining an irrevocable letter of credit. But in practice textile mills say that it takes up to 9 months from the time cotton is purchased from the CMB to the time when export proceeds are received. Cotton purchases have to be paid for within 7 days. One garment manufacturer said it normally has an 8-month cycle for exports to the US and 2-3 months for Europe because of airfreight arrangements. In the meantime the companies have to finance their production through bank bills, which is expensive given the high interest rates prevailing in the economy. Before the domestic market collapsed, companies financed export activities from the more lucrative domestic market.

Raw material problems

Both the textile mills and clothing companies face problems with regard to raw materials, although in different ways. The main raw material problem faced by textile mills appears to be the pricing structure of cotton from the CMB, while that of the clothing companies is related to the price and delivery quality of fabrics from the textile mills.

As shown above, the problem of cotton prices and deliveries from the farmers is an historical one dating from the 1980s, when a number of farmers abandoned cotton growing because of the low price paid by the CMB, This in turn has led to rationing of cotton to the textile mills. By June 1992 they were allocated only 60 per cent of their requirements.

The problem has been further compounded by the commitment of the CMB to export part of the lint instead of supplying all that is available to the local mills. The export parity price of cotton has been more attractive than the domestic price paid by the mills.6 On the other hand, the clothing sub-sector's biggest and most long-standing problem is obtaining suitable raw materials, especially fabrics for both the local and export markets. The position faced by the clothing manufacturers was recently summarized by the Zimbabwe Clothing Council as follows:

Locally-produced fabrics are in the main unsuitable for the clothing export market, increasingly so since world fashion trends have dictated a swing to fabrics with a high proportion of special weaves, blends and finishes not available from local textile mills. Even the few types of fabric local textile mills can produce frequently cannot be used for export because of unreliable quality and deliveries and the unfortunate practice adopted by most mills of refusing to hold prices at contracted levels. (Zimbabwe Clothing Council, 1992, p. 2)

This creates insurmountable difficulties for clothing manufacturers attempting to cost their exports in a rational manner. An equally insurmountable problem is the high reject rates on local fabrics, which can exceed 15-20 per cent. These rates have become a norm and sometimes as much as 50 per cent of fabric delivered is unusable even at the lowest-budget end of the local market. The two firms interviewed confirmed these high rejection rates. Reject garments due to fabric flaws, especially poor weaving and dyeing standards, often lead to the cancellation of export orders. Even in the local market, such garments are sold at a considerable discount and in some cases at well below cost.

Such problems would generally not exist where there is competition among producers. Free competition would normally ensure that suppliers would adhere to quoted prices irrespective of subsequent increases in their own input costs, and that their products would be competitive in terms of quality and delivery times. Lack of competition in the textile sub-sector is likely to permit the industry to continue to increase prices at will without any improvement in quality, variety and reliability in deliveries.

However, as a result of the rationing of foreign exchange, local clothing manufacturers cannot readily obtain the imported fabrics which are demanded by both domestic and export markets. The representatives of the clothing sub-sector are, therefore, arguing that their inputs should be brought under OGIL as soon as possible, so there can be a realistic adjustment period before they have to face competition from imported finished clothing when that is finally put on OGIL.

In the Zimbabwean case these problems are made possible by the foreign exchange shortages and an almost monopolistic textile industry, in which over 250 clothing firms are effectively supplied by just five textile companies, of which two provide 60 per cent of the total textile output of the country.

Some of the textile mills recognize some of the problems faced by the clothing industry. As a step towards supplying the varieties of cloth required by local clothing firms, at least one textile mill has contemplated reducing style choice at the level of spinning and weaving by concentrating on continuous processing, while introducing more varieties or ranges at the level of dyeing and finishing. In Zimbabwean production conditions, to be competitive in terms of cost-effectiveness, a mill must produce a minimum run of 3000 metres of fabric at a time. This strategy is meant to enhance the competitiveness of textile mills by responding to customer requests within the minimum threshold of a company's production programme.

Textile mills confirmed that 30-35 per cent of the fabrics they produce would not pass international standards. As a result these are normally sold to local clothing firms. Their suggested solution is to invest in laboratory and shade-matching equipment. Two of the firms interviewed claimed that they already had plans to improve the quality of their products, as demanded by local garment manufacturers. This is becoming more important given the lack of competitiveness of local gray-cloth fabrics in the world market, a situation which is turning more textile mills to develop 'indirect exports': supplying good-quality fabrics to local clothing firms which, in turn, manufacture garments for export.7

Technology, productivity and human resources

Characteristics of demand in target markets

In the past, Zimbabwean textile and garment manufacturers failed to take advantage of the abundant raw cotton, low labour costs and reasonably good experience of textile manufacturing to exploit international markets. Only towards the end of the 1980s were the more entrepreneurial firms prodded into action by the decline in sales on the domestic market and the desire to earn more foreign currency, which could be obtained through the export incentive scheme and more recently through the ERS. But by this time the availability of raw materials had become a major problem and domestic labour costs had escalated following the introduction of minimum wages and a general increase in wages during the 1980s.

Production costs escalated during the 1980s, mainly due to increases in wages and other inputs. The opening up of the economy and general reduction in subsidies paid to public utilities (e.g. energy and transport) have also contributed to rising costs of production. This is in addition to the unpredictable price hikes by the local textile mills and the 1991 devaluation of the Zimbabwean dollar, which has increased the cost of imported raw materials, mainly fabric and the trim content of the garment.

Despite these problems, the textile and garment firms, especially the larger and more entrepreneurial ones, are aggressively seeking and establishing contacts in both the regional and overseas markets. Various methods have been used in order to penetrate these markets. Export contracts have been obtained through personal contact with overseas agents, chain stores, or posting independent agents in those markets. The more established enterprises have their agents in these markets, while others are in direct contact with the importers. More recently Zimtrade, a trade promotion organization co-sponsored by the government and the private sector, has assisted newcomers in the export market by organizing exhibits for Zimbabwean exporters in both the regional and overseas markets.8

Whilst in certain cases such markets are receptive, Zimbabwean manufacturers come under tremendous price pressure. More subsidized products from countries such as Pakistan and China take advantage of the falling price of fabrics in overseas markets. For example, the price of gray-cloth fabric has fallen from US$1.15 in 1987 to US$0.79 in 1992, a situation that is not helped by the near-monopolistic price of raw materials in Zimbabwe.

The firms interviewed are succeeding in varying degrees: exports accounted for between 20 per cent and 75 per cent of their production. Besides maintaining market shares in the more established markets, both textile and clothing firms are establishing footholds in new markets, especially in European and North American markets, where some of the larger firms have established solid export contracts. All the firms are seeking to raise their market share urgently in order to replace the shrinking local market.

Companies involved in the search for these markets are confident of increasing their market shares. Wage rates at least became competitive following the currency devaluation of September 1991, although this has been eroded by recent pegging of the exchange rate during a period of significant inflation. Managers are confident of maintaining the present levels of skills and production quality in Zimbabwe's textile and garment industry. The larger companies with access to modern equipment and technical expertise are able to maintain market shares and even increase them.

However, only the larger white-owned enterprises are in a position to take advantage of such opportunities, because of the concentration of experience, skills and overseas contacts required to make export contracts possible. The smaller operations do not have the resources to engage consultants to explore overseas markets. Because the price of exports must cover all the exporter's direct costs, including administrative costs, the higher the volumes exported the lower the production costs. Even when they are able to get export orders, small delivery volumes mean they cannot use containerized cargo, which is cheaper than airfreight cargo. There is, therefore, a need for government policy to facilitate the development of exports among the smaller enterprises.

Design capabilities

Zimbabwean textile and garment manufacturers have, over the years, developed design capabilities. Design was initially for the domestic market but some of these designs have been progressively adapted to the demands and specifications of external markets. Textile mills often have technical development departments which, beside their long-term project development, look into market requirements, especially the need for new varieties and styles of fabrics. In general R&D is done on a small-scale basis.

Most of the garment manufacturers said that they had no designers to speak of, especially in men's garments. Instead, a typical Zimbabwean firm needs a good merchandiser to put together a collection of colours and new styles for each approaching season. On the basis of this market information and trends the designer and factory pattern makers put up new patterns for the market. Once the market needs are identified and assessed, development takes the form of designing the product to suit the specification of the market. In other words, the local designers only copy fashions and trends from overseas.

Fashion Enterprises, the leader in women's clothing, have, however, acquired CAD/CAM facilities for their long-run production for the export markets. The company's design capabilities have been developed jointly with overseas customers or through promoting its in-house designs for both the domestic and export markets. Alternatively the exporter's own designed ranges can be promoted side by side with those of the customer. Because of changes from season to season, the companies maintain their in-house capability to design and develop new products in accordance with the desires and whims of the market.

Technology and productivity

In most of the textile and clothing firms, management positions are occupied by people who have been with the firms for a long time. In one garment manufacturing firm, the production manager has been with the firm for over thirty years and has thus seen all the changes and transformations in the production processes over time.

These have involved changes in aids to manufacture, fusing processes and the introduction of automatic markers.

There are, however, quite glaring differences in the technological processes adopted by companies in the sample. They range from firms with outdated plant and machinery to a few companies that can boast of the most modern plant by any standards. For instance, the Fashion Enterprises plant is comparable to any plant of its kind in Europe and North America. Modernization has not been limited to processing fabrics: advances have also been made in the area of merchandising, which is crucial for the development of the firm's own export ranges and when working with overseas-based agents to develop and quickly respond to customers' requirements.

Productivity has steadily improved because of improvements in technology and management techniques. One textile mill reported that in those areas where labour accounts for around 90 per cent of value added, e.g. in hemming, there have been many improvements in labour productivity. Both the textile mills said that the wage cost of the conversion of raw materials into finished products has been kept low while volumes produced have increased. This has been made possible by a number of factors including improved training of labour, improvements in production programming and reducing the varieties and styles produced in the production runs.

Two companies in the sample reported using an incentive bonus system to achieve higher levels of productivity. In one, the management sets an output target for every section. Any production above this point is rewarded by a bonus system on a percentage basis. The second bonus system rewards the department that achieved the best results at the end of each year. A third is the general bonus, which is awarded to all the workers depending on the general performance of the firm. This is given at the discretion of the board of directors of the company.

There are, however, still problems of low production quality because of old machinery, which would have been replaced long ago if foreign currency had been available. This is especially the case in the spinning of yarn. Despite these problems, in the regional context Zimbabwean textile firms have a competitive edge, even over their South African counterparts. This is mainly due to a prolonged history of protection of the textile industry in that country.

The production costs of clothing firms which have the larger portion of their production geared for the domestic market are badly affected by the uncompetitive prices and unpredictable quality of local fabrics. Though their wage rates and unit costs are not comparable to those in Asian countries, local garment exporters are fairly competitive in the context of Sub-Saharan Africa, including South Africa.9 The strength of local firms has been their reliability in producing quality products and delivery on time.

All the companies in our sample have strict quality control systems in place. Quality is regarded as an important part of production. There is a quality control department in each of these firms, but in addition quality standards are insisted upon at every stage of the production process. In one firm, management said that their in-house training programmes insist that quality and output go hand in hand. A trainee is only brought into the production line after achieving 75 per cent efficiency in both quality and targeted output levels. In other words, the concept of putting quality in the forefront of production is treated as a long-term strategy for companies in the export business.

Production linkages and subcontracting

Though the textile and clothing sub-sectors have quite well-developed forward and backward linkages, most of these linkages are limited to purchasing raw materials and other inputs between enterprises. Companies within the sub-sectors also cooperate closely in the event of machine breakdowns and exchange technical expertise among themselves. One large firm has a record of passing on to other firms those export enquiries they cannot handle.

This leaves out one kind of link between firms - the inter-firm trade in unfinished inputs in the form of Cut-Make and Trim (CMT). CMT is a system under which a producer is subcontracted by another producer or, more generally, a distributor to produce garments to the latter's precise specifications, with the fabric and designs being supplied by the distributor. It has gained importance in recent years but is largely limited to subcontracting between local distributors and micro and small enterprises (MSEs), rather than among exporting firms.10

Most of the larger firms in the textile and garment sub-sectors are less likely to be involved in any form of production linkage because of the high level of vertical integration in their production. Among the garment manufacturers, the more vertically integrated ones (such as Fashion Enterprises), which combine under one roof garment manufacturing, fabric processing and textile printers and dyers, have had more success in processing their export orders. This is because they have better control of their stocks, quality of fabric and delivery times than firms dependent on textile mills for all their raw materials.

Firms are also afraid that if they subcontract on a CMT basis to a competitor, they may in the process lose their market to the competitor. Moreover, the non-exporting firm has no incentive to support an exporter because it will not share the export incentive. The compensation for this must, therefore, be an attractive price for the CMT. Two garment manufacturers confirmed that they have engaged in CMT business when the price offered for subcontracting was attractive.

Human resources and development of skills

Most of the general skills required in both the textile mills and garment manufacturers are obtained internally within the firms. The companies have adopted aggressive training programmes and retain their skilled personnel for as long as possible. In addition to in-house training programmes, promising middle-level personnel are often sent abroad on secondment and for formal training. Taking advantage of its overseas connections, David Whitehead has sent most of its high-level people to obtain the Higher National Diploma in Textiles in Lancaster in the UK

One Bulawayo-based company, Cotton Printers, prides itself on recruiting graduates of the Textile Designing Department of the Bulawayo Technical College. At higher levels the textile mills recruit people with basic skills such as loom mechanics and chemical and electrical engineers. These receive in-house training to become textile specialists. They are often sent for specialized training in South Africa, the UK and other countries. At the management and supervisory levels companies make use of training opportunities provided by the Institute of Management.

In general, the skilled workers required by the clothing sub-sector are designers, pattern makers, cutters and machinists. These core skills are complemented by experienced supervisors and middle and senior management personnel. Skill development is mainly by in-house training. Recruits with either 'O' or 'A' level qualifications are taken on at the lowest levels and are given routine tasks before being trained to perform tasks in all sections of the firm starting. Middle and senior management positions have often been filled by people who started from the lower echelons of the shop floor. There were exceptions to this rule in the past, especially before independence when middle and senior positions were filled by personnel recruited overseas, often people with family connections.

Since the early 1980s this source of recruitment has almost dried up and a shortage of well-trained people at middle and senior levels has become a serious problem. A major problem facing the clothing industry is inappropriate training. The current training undertaken at local public and private colleges does not produce suitable candidates for the industry. These colleges do not use the standard industrial machines employed by firms, a situation that results in college graduates arriving at factories without experience in handling state-of-the-art machinery and equipment.

In order to fill this gap, the Zimbabwe Clothing Council (ZCC) is in the process of setting up a training school for the clothing sub-sector which will complement training at the factory level and provide further sophisticated training for the sub-sector. The new school will concentrate on providing appropriate training in project management, designing and maintenance.

Footwear

Background

Shoe production must have been amongst the earliest industries established in Rhodesia, but large-scale factory production only took off after the Second World War. As cattle breeding has always been important, the availability of leather stimulated the development of the industry. The other major raw materials are canvas, which is locally produced, together with imported rubber and more recently plastic.

Hide production is dominated by the parastatal Cold Storage Commission (CSC), although in recent years private abattoirs have become increasingly important as a source of hides. At the next stage of leather production there are six tanneries, the four main ones being owned by three shoe manufacturers: Bata, Superior and G&D Shoes. These three vertically integrated enterprises, with combined employment of about 5 500, thus dominate the sub-sector. There are also four medium-size shoe manufacturers with about 250 workers each, five small but mechanized shoe manufacturers with about 50 workers each and a large number of artisan enterprises, mainly involved in repair but also in the manufacture of shoes (Mead and Kunjeku, 1992, p. 21).

The demand for shoes in Zimbabwe would appear to be in excess of one pair per person per annum, although the actual consumption is highly dependent on economic conditions. This year, with the combined effects of the drought and the downturn induced by structural adjustments, domestic demand has dropped precipitously except for the high end of the market. In that segment, there is a remarkable range of locally made shoes on offer, as diverse a choice of styles as is available in many industrialized countries. Bata alone is presently making 3 00(}4 000 styles in a country with a population of only 10.4 million.

Since the initiation of trade liberalization, a significant proportion of raw materials needed in the shoe industry, such as chemicals, has been put onto OGIL. This has considerably eased input supply problems. Domestic input supply has also improved in some respects. Competitive imports of finished shoes will only be allowed in the closing phases of the liberalization process. It is local production of cheaper footwear, such as plastic and canvas shoes, which will be most under threat from imports from the Far East, especially China. Manufacturers of high-fashion leather footwear believe that, if they use the intervening years to improve productivity, they will be able to compete with comparable imports with little or no tariff protection.

History of firms in the sample

Origins, ownership and structure

The three main firms studied have very different origins and resulting structures. The Zimbabwe Bata Shoe Company (henceforward referred to as Bata) is a wholly owned subsidiary of Bata International, based in Canada. Despite its vast size (Bata has a presence in over a hundred countries), the Bata empire is still in some ways run along the lines of a family business, with one of the Bata family visiting Bata in Zimbabwe at least once a year. In other ways, it is a sophisticated modern multinational. with considerable autonomy being given to local management in order to provide the requisite motivation and setting to maximize creativity and productivity.

In Zimbabwe, Bata consists of a vertically integrated leather and shoe manufacturing concern, together with the largest chain of wholesale and retail shoe outlets in the country. Zimbabwe Bata is the third largest Bata subsidiary internationally. The production side consists of three units on the same site as the head office in Gweru (tannery, canvas and rubber, leather shoes), a sports shoe factory in Kwekwe (manufacturing, inter alia Adidas shoes under licence) and a plastic shoe factory in Mutare.

Superior Footwear was started in 1967 by da Costa, an immigrant from Portugal. It is now part of a group of companies with specialized functions, including a leather tannery (Imponente Tanning), shoe component manufacturers and an engineering workshop for machinery construction and maintenance. The group is controlled by the da Costa family through Superior Footwear Holdings, which was registered in 1991. In addition to members of the family making decisions at board level, key management positions are held by them.

Cathula Sandals is a more recent company, formed in the 1970s by Mr Mpofu, at a time under the UDI government when it was difficult for blacks to go into business. Starting from hawking leather goods after hours while still in full-time employment, Mr Mpofu moved through successive stages: setting up of a production unit in his home, opening a retail outlet in town, expansion of the production unit into successively larger hired premises, opening further retail outlets, building a retail outlet and finally building a factory. At the time of the interview, the construction of the new factory was stalled at window height, due to financing difficulties. To carry out the building, Mr Mpofu had started a construction company, and in order to overcome difficulties in obtaining imported raw materials, he had also set up a buckle manufacturing concern. Besides marketing through their own outlets, Cathula also sells to large chains, including Bata.

As Table 7.3 shows, the three companies are of very different sizes and capacities. The figures are not directly comparable, because the product ranges are very different. The majority of Bata's large output consists of canvas, plastic and rubber shoes, with only a relatively small proportion of leather and fashion footwear. By contrast, Superior concentrates only on the upper end of the market for high-quality leather shoes. Cathula only manufactures sandals, which are much less demanding from a production viewpoint than shoes. Superior and Cathula are in the process of establishing new factories; planned capacities for these are given as well as current capacities.

Shorter interviews were held with officials of two other companies: Footwear and Rubber in Bulawayo and Italian Styles in Harare. Both of these companies have been hit by the decline in domestic demand. Footwear and Rubber has laid off 160 workers and has reduced production from 2 000 to 600 pairs per day; Italian Styles is working a 3-day week, producing 150 pairs per day. This contrasts with Bata, which has managed to avoid any lay-offs or short-time operations, in no small measure because of its ability to export, in particular to increase its exports to South Africa rapidly to make up for the shortfall in domestic demand. Prior to independence Footwear and Rubber used to be a major exporter of footwear to the region, before UDI maintaining a branch office in Lusaka; exports now are mainly to South Africa, with about 16 per cent of normal production going to this market.

Table 7.3 Employment and production capacity of sample firms

Firm

Employment

Capacity


Shoe production

Total

(pairs/day)

L Bata

1 650

3500

50000

Superior Footwear:




present

190

450

800

planned: shoes

210

470

1500

plus uppers

-

-

3000

Cathula Sandals:




present

30

42

400

planned

125

138

2000

Source: Company interviews

Export history

Within the sample, Bata is the main company exporting footwear. Superior has exported shoes in the past but these have mainly been small, sporadic consignments. Cathula has been approached by potential customers from the region but is yet to export.

Internationally, Bata's main objective is to provide affordable footwear for the people of the countries in which it operates, so that exports are secondary. In Zimbabwe's case, apart from exports to South Africa under the bilateral trade agreement, there was little scope for exports during the UDI period. Since independence, Bata has responded to downturns in domestic demand, and to the growing array of export incentives, by attempting to break into new export markets. These efforts have not always been successful: mistakes were made in exports to France and Italy a few years back, resulting in the loss of those markets. The lessons from this experience are being applied to the European markets presently being developed (principally the UK).

With the advent of the ERS and the present downturn in the domestic market, production for export is being given priority. As a result, the domestic market tends to suffer shortages of particular styles and sizes but one of the advantages of being vertically integrated and dominant in the domestic market is that Bata retail outlets and the ordinary Zimbabwean customer have to put up with this. At present, Bata exports approximately 20 per cent of its production (10 000 pairs per day or about 3 million pairs per annum). Export value has grown rapidly in recent years (partly as a result of devaluation) to about Z$30 million (US$6 million) in 1992 and was expected to reach Z$40 million (US$8 million) in 1994.

Bata's main export markets are in South Africa (60 per cent of total exports), Botswana (10-15 per cent) and the UK (10 per cent), with the balance being spread over a variety of countries. These include Namibia, Angola, Zambia, Malawi, Tanzania, Burundi, Ghana and Uganda in Africa, and Australia, New Zealand, the US, Ireland, France and Italy elsewhere in the world. In African countries, exports are generally made either to agents or to other subsidiaries of Bata. In the UK, exports are made directly to suppliers of large retail chains.

During the 1980s Superior became a major exporter of leather, the approach adopted being to start at the lowest level (wet blue) and, working with established customers abroad, to add value progressively by exporting product that has been through further stages of production (to crust and then to finished leather). Shoe manufacture is seen as the final stage in this process and, in order to make the sort of concerted effort that is required for the successful export of footwear, a new factory has been built and is presently being commissioned. Superior plans shortly to expand its footwear exports significantly, starting with exporting shoe uppers and moving into the export of finished shoes. Ultimately footwear exports will be a major component of the company's activities.

The reasons for Cathula not exporting, despite enquiries about its products from potential customers in Africa (Nigeria, Kenya, Swaziland, South Africa and Botswana), are significant. Cathula would have liked to respond but did not have the foreign currency needed to purchase the imported inputs which would have been required. The company was unaware until very recently of the existence of the ERF, which was specifically set up to overcome this problem. Cathula did spend some time lobbying the Ministry of Industry and Commerce for an increased foreign exchange allocation but was not during that period informed by Ministry officials of the existence of the ERF. The lobbying was successful, so much so that in the present period of poor liquidity, the company is unable to access all of its foreign currency allocation because it is unable to put up the corresponding amount in Zimbabwe dollars.

The record of Cathula has some clear lessons for support agencies set up to assist companies to become established and to export. These would include the Indigenous Business Development Centre and Zimtrade, both of which have been alerted to the experience documented in this study.

External factors affecting export growth

Ability to mobilize export finance

Provided that companies are well run, size has numerous advantages when it comes to competing in export markets. One obvious aspect is the ability to mobilize export finance. A company such as Bata can more readily raise export finance from banks than less well-established concerns, or can simply absorb the costs of foreign market development, including having to wait for payments for goods exported.

While neither Bata nor Superior specifically complained of lack of finance as a constraint to expanding exports, both companies are experiencing some difficulties with the tight monetary conditions currently prevailing. Cathula, however, has over-extended itself in constructing a new factory, to the extent that money borrowed for working capital has been used, to the bank's displeasure, for fixed capital purposes. With the rise in interest rates, Cathula is now unable to do more than make the required monthly repayments. As the bank has refused to make further loans so that the new factory can be completed and used, the future is gloomy. As the company is unable to make full use of its existing foreign exchange allocations and is not significantly constrained on the domestic market, and since margins on exports would be unlikely to be as high as domestic ones, Cathula does not see any reason to pursue export markets actively.

Raw material problems

In the past, the availability and price of imported raw materials have been problems. In recent months, however, many of the required inputs have been put under OGIL, allowing currency allocations to be used for the remainder, topped up, if necessary, by ERS

allocations earned from exporting, or from buying surplus ERS from others at a premium. While availability has improved through these mechanisms' prices have also gone up markedly, partly through the sharp devaluation of 1991 and partly through new taxes which have been introduced to curb imports and raise revenues; these include a 20 per cent duty on all goods brought into Zimbabwe on OGIL.

The quality and reliability of supply of domestic raw materials remains problematic. This applies particularly to leather, where the following underlying causes can be noted:

· lack of care of hides by cattle owners, the premium system introduced by the CSC of Z$10 per hide being insufficient to change practices such as branding in the rump rather than the neck and not protecting the animals from damage on barbed wire fencing.

· deterioration in the services and supervision in government departments such as veterinary services and parastatals such as the CSC

· additional deterioration in the current year due to drought stress on the animals.

· the large-scale production orientation of the country's tanneries' which are not geared to produce the quality that is needed to make shoes for export to sophisticated markets.

In the past, smaller consumers of leather felt that too much leather was being exported, in particular the better-quality leather. There was some justification for this assertion, as the workings of the exchange control regulations at the time made it imperative for the CSC to export untreated hides and for the tanneries to export treated hides and finished leather, even when there was a shortage of leather on the local market. This situation was clearly irrational from a national economic viewpoint and one of the benefits of trade liberalization will be to eliminate such anomalies. With 70 per cent of the imported inputs to the tanning industry now on OGIL, and new equipment installed to bring capacity in the later stages of tanning into line with the capacity to produce wet blue hide, the situation should improve markedly.

For the small shoe manufacturer, problems with leather availability and quality are compounded by the fact that the three tanning groups are also vertically integrated with major shoe companies: Bata, G&D Shoes and Superior Footwear. The tanners counter that their own shoe factories suffer the same problems that outside shoe companies do in securing regular supplies of high-quality leather.

This may in general be true but it is none the less the case that when a special order of leather is required to meet an export contract' the vertically integrated enterprise is in a much better position to put pressure on the tannery to produce the quality and colour of leather required in time. A particular example was cited in the interviews: a European client had approached both Superior Footwear and Italian Styles but only Superior was able to respond, as Italian Styles found itself unable to obtain the requisite colour leather from its normal supplier, Imponente, the tannery belonging to the Superior Footwear Group. There is no suggestion that Superior had tried to sabotage Italian Style's efforts but simply that Imponente was not geared to provide what was required in this particular case.

Italian Styles sees the availability of leather as the primary constraint in pursuing export markets. Since it cannot guarantee the quality of leather which may be available, the company feels it should not accept export orders. The present situation is that some consignments of leather are first rate but others are 'shocking'; reliability is essential if companies are to succeed in exporting high-quality (high-value added) footwear. The solution may eventually lie in placing leather on OGIL (hides have already been put on OGIL but not finished leather). In the meantime, some of the second-tier shoe manufacturers are looking to small, independent tanneries to produce the quality of finished leather needed to meet export orders for shoes.

Once finished leather is on OGIL, shoe manufacturers will be able to choose between locally produced and imported leather. This will force local producers to be more competitive in quality and service, with price determined by the world price plus duties on imports. Shoe manufacturers should not then have grounds to complain of discrimination and inability to produce the highest-quality goods for export due to shortages of leather. For the exporter, able to claim duty rebates, the price should also be close to the price faced by competitors in other countries. Already, with the possibility of using ERS funds for importation, some of the shoes being made for export are using imported leather, although Zimbabwe itself is a significant producer and exporter of leather.

Infrastructural problems.

As mentioned on p. 149, deterioration in the quality of infra-structural services and failures to expand supplies fast enough to cater for demand are beginning to impact directly on productive activities. Besides the problems now common in Zimbabwe of making contact with suppliers and customers by telephone or other forms of telecommunication and of obtaining reasonable transport services, and the challenge of managing production within the monthly quota of electricity allocated by the supply utility ZESA, there are specific problems encountered by companies in the sample.

Specific instances of the general problems cited in the interviews will illustrate their importance. For example, the new factory being built by Superior has had to contend with considerable problems with respect to electricity and telephones. In order to obtain an electricity connection, the company itself had to purchase the equipment that ZESA would normally be expected to supply. As far as telephones are concerned, the PTC has not allocated any lines to a factory which will employ over 200 people, producing for export as well as the domestic market. Requests to have lines transferred from the old factory 4.5 km away have been turned down. It is hard to accept that the technical difficulties cited would be insurmountable if the PTC (Post and Telecommunications Corporation) were to adopt a more constructive and determined posture.

Superior is also considering the purchase of stand-by electricity generators to obviate the risk of an unscheduled power cut resulting in an entire consignment of hides and tanning chemicals having to be destroyed. With nine tanning drums operating simultaneously in the tannery, the risk is substantial. A single such incident would justify the purchase of the stand-by equipment (approximately Z$1 million). The company is reluctant, however, arguing that the country surely should have higher priorities for the expenditure of foreign currency, not least being the need to allocate sufficient quantities of foreign currency to ZESA for effective maintenance to reduce the risk of unscheduled load shedding or blackouts.

Bureaucratic and policy obstacles

While welcoming improvements as imported inputs go onto OGIL, the companies continued to identify bureaucratic and policy issues as major problems inhibiting export growth. Again, the problems being faced, whether on-going or related to the 1992 drought-distorted economic climate, are general to the manufacturing sector (see the list on pp. 148-50) but some concrete examples may serve to bring home their significance.

For instance, several respondents complained about the Department of Customs. Customs' insistence on sticking to the letter of their duties, even when there is little or no customs revenue involved and delays could cost the country not just one particular export order but perhaps a valuable relationship with an overseas client, goes beyond being exasperating into the realm of economic sabotage.

For example, in preparing an export order for the UK, Bata was requested to tag the shoes with bar codes. As these could not be produced in Zimbabwe, Bata requested their UK customer to supply the tags, which were duly sent but then seized by Customs and held while deciding what tariff to apply. Although these were of no intrinsic value and destined anyway for re-export, Customs refused to release the tags for long enough to threaten Bata's ability to meet the deadline for the export order, in a situation where meeting the deadline was one of the primary demands of the customer.

Another example is the trade practice of sending samples to manufacturers, asking them to return 'counter-samples' and quotations, which might then lead to export orders. When such a parcel is received by Customs, it sends notice to the recipient of the need for an import licence, which requires application to the Reserve Bank through a commercial bank and thereafter application to the Ministry of Industry and Commerce. As the counter-sample is typically required within days, such procedures rule Zimbabwean firms out of consideration.

Technology, productivity and human resources

Characteristics of demand in target markets

Bata's main regional markets (South Africa and Botswana) are not dissimilar to the Zimbabwean domestic market. Bata supplies its agents in those countries, who are also major manufacturers in their own right, with styles in canvas and leather which complement their own ranges. In the case of South Africa, Bata puts forward suggested designs for each season (twice per year) and manufactures those selected by its agent. Deliveries are made to final customers in South Africa, with a small commission being paid to the agent. Bata is sufficiently well known in the relatively large South African market for export business to be secured at short notice. Thus during 1992, Bata was able to arrange additional export orders to South Africa to compensate for the decline in the domestic market in Zimbabwe.

Overseas markets are far more demanding in terms of style' finish, overall quality and delivery time than the regional markets. This is because Zimbabwe cannot become a large volume exporter in Europe or America, so it must find special niche markets' often involving developing a personal rapport with customers. Zimbabwean companies are prepared to supply small orders (10 000 pairs or less), while companies in other countries are said to be interested in much larger orders (e.g. Indonesia, supplying an order of 1 million pairs). Zimbabwe is thus well placed to serve some of the smaller developed markets, such as Australia with a population of 14 million.

In the UK market, in which Bata and Superior are presently active, the companies have to be able to offer alternative designs, responding to subtle changes in style and fashion. On the production side, quality depends both on careful production management to achieve the required craftsmanship and on supplies of uniformly high-quality inputs. Finally, adhering to agreed delivery dates is considered to be particularly important by the UK importers, because the marketing of shoes is carefully phased and any unforeseen delay is likely to result in reduced sales and being left with unwanted stocks.

Reliability, in terms of quality and delivery times, is thus the watchword for Zimbabwean shoe exports to overseas markets. Inter alia, this implies that orders whose quality and delivery cannot be assured have to be turned down. Bata made several errors during the 1980s in exports to France and Italy: the company now regularly carries out a critical path analysis for. the production of an export consignment and carefully monitors each of the critical activities to ensure successful completion of the work.

Design capabilities

Both Bata and Superior have acquired their own CAD facilities, coupled to laser pattern cutters, in recent months. This technology was first introduced to the Zimbabwean shoe industry through a grant from UNIDO to the Leather Institute, the equipment being installed in the Institute's premises in Bulawayo. It is unfortunately not much used at present but is available for use by the smaller companies in the industry.

Bata already has a very strong product development department, with a staff of 11, together with a sample factory with a staff of 35. This has enabled Bata to offer prospective buyers visiting Gweru a wide range of styles which have been discussed and agreed, with samples being produced during the visitor's stay. In one case, it is reported that the visitor returned to Europe with 1 000 samples! The CAD equipment will facilitate interaction with the client and help to speed up the whole process. As is clear from the discussion in the previous section, speed of response is an important attribute which overseas shoe importers are looking for.

Technology and productivity

As is typical in Zimbabwean manufacturing, much of the equipment in shoe factories is old enough to be considered museum pieces elsewhere in the world. It is, however, also 'appropriate' in that it is operational and is readily maintained with local skills. Productivity, in units such as pairs per person per day, is low by international standards (from 7 to 45, with international levels two to three times higher for comparable styles) but the total costs of production, reflecting the written-down costs of the antiquated but operational equipment and relatively low labour costs, would appear to be competitive. Productivity could be improved by reducing the number of styles being produced, while cost efficiency is already being improved through more efficient stockholding, a spin-off of the present tight monetary conditions.

Despite the continued productivity of old machinery, it is none the less significant that the footwear companies in a position to do so are importing modern, sophisticated equipment with a view to being able to compete not only on export markets but with imported footwear once the final product is put onto OGIL. Bata, for example, will be installing new export production lines in Gweru in 1993 and has just commissioned a three-colour screen printer at its Kwekwe factory. Coupling this with a combined lasting and two-colour plastic sole injection moulding machine, it should be possible to attain internationally competitive productivity of high-fashion sports shoes and sneakers. The German technicians who come out regularly to ensure that production standards for the Adidas footwear being made under licence are adequate are well satisfied with the performance of the Kwekwe factory. Bata will be introducing an across-the-board efficiency improvement programme (the Swiss USO-9000 system) during 1993.

In its new shoe factory, Superior Footwear has installed an ultramodern rink' system to be used particularly for export production. A computer-based diagnostic and training system has also been commissioned. This enables a supervisor to view on a computer screen the performance of a trainee during a session of work, identify problems and suggest ways in which improvements to quality and productivity can be made. The company foresees improvements in skills, productivity and hence the quality and price competitiveness of the final product. This will benefit the local market as well as the export market.

The third company studied, Cathula, uses far less sophisticated machinery, producing a product (sandals) for which indications of being hand-made may often be a positive marketing trait, rather than a negative one. Like many companies during the UDI period, Cathula has reacted to problems associated with a shortage of foreign currency by innovating. For example, the machine in use for printing transfer patterns on shoes, and much of the equipment in the buckle making plant, have been designed and built by the company. The drive and skills required for such innovation are thus not confined to the old established companies.

Human resources and the development of skills

Now that the supply of materials, especially imported inputs, has become easier, the availability of skills is emerging as the limiting constraint. On the shop floor, several companies are experiencing difficulty in finding suitable supervisory staff, and skilled personnel are also needed, particularly for product design. In order to keep abreast of developments, regular exchanges need to be made, with Zimbabwean designers travelling abroad and overseas designers visiting Zimbabwe. Under current foreign exchange regulations, such visits are apparently difficult to arrange but the benefits could be quite considerable in terms of maximizing value added in export markets. International organizations such as UNIDO have supplied consultants from time to time (e.g. to assist Superior in commissioning its new shoe factory), but it is generally felt that the limited duration of such visits has restricted their usefulness.

Since there is no formal training, such as polytechnic courses on footwear design and production, available in Zimbabwe, all of the companies interviewed have some means of providing in-house training. Due to its size and corporate culture, in-house training is most comprehensive at Bata, which offers various kinds of training programmes, to all its staff and has developed the infrastructure necessary to do this. The Leather Institute would like to see regular training being offered for the benefit of the industry as a whole.

Up to 1991, the British Council gave scholarships for Zimbabweans to study leather technology in the UK. At present, both Superior and Cathula are themselves sponsoring employees or family members undertaking courses in leather technology and shoe design in the UK.

Zimbabwe shoe manufacturers attempt to keep abreast of the latest developments in styles, production processes and equipment by subscribing to international industry journals, belonging to international associations of leather and footwear institutes (such as the Shoe and Allied Trade Research Association, based in the UK), and attending trade fairs where new equipment can be viewed and selected. Bata, as part of a multinational, has the advantage of getting much of this information through Bata's international network but the local company is not obliged to take the parent company's advice on issues such as the choice of equipment.

Subcontracting

There is strong resistance to the idea of subcontracting. Companies are used to having tight control within their organization of each stage of production and the idea of putting out work to others and then being reliant on their performance to meet quality standards and delivery requirements is anathema. The suggestion that production for the domestic market might be subcontracted if there were to be a surge in export demand which would require the full capacity of the company's own facilities is also not appealing. There is a fear that markets would be lost to subcontractors, who would in time make contact and establish relations with the ultimate client, whether this be an export or a domestic market customer. This has in fact been the experience of some firms which have experimented with subcontracting (Mead and Kunjeku, 1992, p. 25).

The only example given of subcontracting by the companies interviewed is the stitching of moccasins for Bata in (Gweru. This is regularly undertaken by cooperatives, which may legally be paid on a piece-work basis. The first time a cooperative was approached by Bata was during a boom period, when the company found it did not have the personnel to carry out this function. While subcontracting this particular function has apparently been very successful, the idea has not been carried across to other functions which might profitably be handled in the same manner. This reluctance to subcontract is one of many barriers to entry that a small producer is faced with in a market dominated by efficient enterprises.

Agricultural machinery

Background

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.

Export history

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

General

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.

Export retention

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.

Design capabilities

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.

Subcontracting

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.

Conclusions

The aggregate performance of the manufacturing sector since the start of the structural adjustment programme has been poor. In terms of volume of output, for example, the Central Statistics Office reports a rise of 9 per cent between February 1991 and February 1992, but then a fall of 25 per cent between February 1992 and February 1993 (February is used in preference to January because many firms shut down for part of January). Manufactured exports increased each year in Zimbabwe dollar terms but declined when measured in US dollars, by nearly 20 per cent between 1990 and 1991 and a further 5-6 per cent between 1991 and 1992. This poor export performance is particularly worrying since the start of the SAP marked an intensification of export incentives for manufacturers, rather than a change in direction which might have been expected to be disruptive.

There are no data on investment but indications are that investment in manufacturing has been very low. There was a large backlog of project submissions to the ZIC in 1991 but the sharp increase in interest rates and later exchange rates caused many investors to reassess their projects, and a large proportion was scaled down or shelved.

In contrast to the macro figures, a more positive picture has emerged from interviews at the micro level. While it is still too early to make a definitive judgement, in general it would appear from the survey that the major intentions of trade liberalization and ESAP do seem to have been realized, at least in the larger companies.

Improvements in productivity and competitiveness have come about as a result of investment in equipment and through better production management and training, sharpening of technical skills and a greater orientation to exports. Many companies in the sample, for example Bata in leather and footwear, Cotton Printers in textiles and Fashion Enterprises in clothing, invested in new machinery and equipment in the period leading up to the commencement of ESAP in 1990. They also undertook export market development, which in turn stimulated the other positive changes which have taken place.

The introduction of the ERS, enabling exporters to earn much-needed foreign exchange, has been of central importance in reorienting industry towards exports. However, the liberalization of imports which the free use and tradability of the ERS have made possible has had some negative effects on the drive to increase manufactured exports. Firstly, access to imported raw materials has led companies in sectors such as clothing and footwear to use imported fabrics and leather increasingly as raw materials, rather than the Zimbabwean-based products, which would maximize the value-added content of exports for the country. While some import content in raw materials would make sense, this tendency has arisen in part because the existing export incentive structure rewards only final exporters, so textile and leather producers would rather export their products directly than strive to provide the range and quality of inputs required by clothing and footwear exporters.

The second factor is that competitive imports have penetrated domestic markets much earlier than had been envisaged in the original design of the trade liberalization process. Proponents of early across-the-board import liberalization argue that it gives rise to the sort of competitive pressures which lead to enhanced productivity,

the ability of domestic producers to compete in terms of quality and production costs in export markets, and hence to higher national income. Experience from other countries fails to bear this out, however. In Zimbabwe's case the immediate effect of early liberalization has been to cut the turnover of many firms, increasing the amount that has to be recovered per unit to cover overheads and thus putting upward pressure on the pricing of exports.

The use of ERS funds to import competing products has increased sharply in the period since the survey was carried out, in part because the retention proportion was raised to 50 per cent from April 1993. In view of the problems outlined above, there have been calls for the government to overhaul the export incentive structure so as to cater for indirect exports and encourage greater utilization of Zimbabwean raw materials (Robinson, 1993). While no action has yet been taken by government on this, the other issue, the liberalization of competitive imports, is now a fait accompli.

Companies with foresight had already begun to act on the realization that once the domestic market was no longer protected, survival would depend on their competitiveness both in the domestic and in the export markets. The question is whether the majority of companies will come to the same realization quickly enough to survive the onslaught of competitive imports. As foreign currency becomes more readily available, as indicated by the falling premium on ERS funds (down to 16 per cent by the end of July 1993), the ERS may lose its potency as an incentive to export. New policy measures may then have to be introduced to sustain export growth.

Providing companies are well managed, size was found to have numerous advantages when competing in export markets. Larger companies such as David Whitehead, Cotton Printers, Bata and Fashion Enterprises are more able to mobilize export finance than the less established firms. The larger firms can also meet the costs of foreign market development, including having to wait for payments for goods exported. This puts the smaller companies at a disadvantage.

The textile, leather and footwear and agricultural machinery sub-sectors are highly oligopolistic. The larger companies are vertically integrated, which places them in a better position to organize raw materials than that of the smaller concerns. For example, as they are in control of most of their inputs, the vertically integrated companies can put pressure on their sister companies to deliver the quality and colour of fabrics and leather needed by the export market.

In 1992 this has meant that only the larger companies have managed to avoid significant lay-offs or short-time operations, because of their rapidly increased exports, which have compensated for the sudden decline in the domestic market. The smaller companies found it less easy to respond to downturns in the domestic market by expanding exports, despite the growing array of export incentives. To overcome the problems of obtaining raw materials for the smaller exporters, the government would do well to allow the raw materials needed for exports, such as leather and fabrics, to come onto OGIL quickly. Even before OGIL applies to all steel products, the ZISCO. scheme to give rebates on steel used to produce high-value-added goods for export should be made more generous.

Zimbabwean companies were found to have a good deal of expertise available locally, although specialized skills remain a problem. At the same time, companies are in reasonable control of the technologies they need for export development. For the established companies, this has been added onto existing technologies over time. In these circumstances there may be no need either for state intervention in R&D (as has been argued by Mhone, 1992) or for direct foreign investment by multinationals (as argued by Hawkins, 1992) for established Zimbabwean firms to compete in export markets.

These markets are either regional' similar in many ways to the domestic market, or moving niche markets in the industrialized countries. Zimbabwe can muster the skills and technology to export into these markets. State money in R&D would probably best be used to support private companies' efforts in these areas and at the same time to assist new entrants in accessing and unpackaging the technologies needed to compete in domestic and export markets.

In the case of Zimbabwe, the policy environment remains important for sustained export development. Government should ensure that obstacles are removed, instead of exhorting companies to export and at the same time tripping them up at each stage. Policy should also be supportive to the small and medium-scale manufacturing enterprises, which cannot at present handle the raw material problems, the financial squeeze, especially as it affects the mobilization of export finance, and the spider's web of bureaucratic procedures.

In the case of sub-sectors supporting major productive sectors, such as agricultural machinery, government needs to ensure that policies made in other contexts, such as the ERS, do not undermine such support services. Resources for service industries need to be pooled. Government should also use its procurement policies to ensure that throughput is maximized, reducing overhead cost contributions per unit, thereby assisting companies to compete on export markets.

NOTES

1 The interviews on which this study is based were carried out during the last quarter of 1992. The paper has been revised in July 1993, incorporating comments from the workshop held in Arusha in May. With significant changes being made by government to the policy environment, the general lessons and conclusions noted in the final section have been updated and expanded from those presented in the original draft.

2 Mhone (1992) analyses the Zimbabwe case.

3 David Whitehead - UK set up textile mills in Zimbabwe (then Southern Rhodesia), South Africa, Kenya, Uganda, Nigeria and Mauritius. All these mills have continued to operate, albeit under different ownership structures, with the exception of the Mauritius company, which closed down in the 1960s mainly due to the absence of local raw materials (cotton) in that country.

4 The rest of the shares are held by the Industrial Development Corporation (10 per cent) and the public through the Zimbabwean Stock Exchange.

5 For similar conclusions, see Mead and Kunjeku (1992).

6 The textile mills' current raw material problem may actually get worse, given the current pre-planting producer price that the government has promised to the growers. Members of the Central African Textile Manufacturers' Association (CATMA), the trade association representing textile manufacturers, are arguing that if cotton is purchased at the projected price of Z$2.95 per kilo from the grower, the CMB will be compelled to sell it to the textile mills at between Z$9.00 and Z$9.50 per kilo in order to make profit, but this would be above the world parity price.

7 One textile firm said that in the year ending September, 1992 'indirect exports' were estimated at Z$65 million, which was over 40 per cent more than the company's direct exports and a quite significant contribution for one company.

8 The primary objectives of Zimtrade are to gain an effective central role in the development of exports from Zimbabwe through enhancing the implementation of ESAP, to promote self-reliance in export management through the development of human resources, to support new entrepreneurs and establish structures to support the development of appropriate industrial design in Zimbabwe and to assist in achieving export targets.

9 The competitiveness of Zimbabwe's clothing products in the South African market has been affected by the latter's so called anti-dumping tariffs, brought in on 1 May 1992, to protect that country's garment industry against countries which South Africa claims are dumping clothing products. This has seriously affected Zimbabwe, though it was not meant to do so. The current confusion and temporary exemptions for Zimbabwe's garments will only be finally resolved with the conclusion of the current renegotiation of the Zimbabwe-South Africa trade agreement.

10 A recent survey reported that the CMT system was responsible for the subsistence of about 50 per cent of the MSEs surveyed, at least during the first few years of their operations. See Imani Development, (1992). See Mead and Kunjeku, (1992), for a discussion of the four aspects of business linkages.

11 Since the fieldwork was carried out, tradable ERS funds have become available and are widely used, alleviating these problems.

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