Fertiliser imports: What happened to production localisation?

This week the Minister of Finance, Economic Development and Investment Promotion announced that they were allowing for duty free imports of fertiliser in order to make it available for the summer cropping season.

However, the country has been doing this for years and promised that import substitution would be the solution soon.

Questions have been flying on when will the country make sure that there is adequate supply of fertiliser as agriculture is an essential sector of the economy.

The announcement came through a special Government Gazette released recently that the ministry has allowed suspension of duty on fertilisers for recognised importers.

Under the revised regulations, importers endorsed by the Ministry of Agriculture, Fisheries and Water Development will be permitted to import fertilisers without incurring duty, thus ensuring a steady influx of this vital agricultural commodity. Based on Section 235 and Section 120 of the Customs and Excise Act, this duty exemption is scheduled to last for one year.

A pivotal feature of these modified rules is the stipulation that sanctioned importers not only procure the essential permits from the Agriculture Ministry but also comply with government-sanctioned pricing models.

This is designed to guarantee that farmers receive fertilisers at fair prices, warding off unwarranted profit margins.

Minister Mthuli further delineated; “In these rules, an ‘approved fertiliser importer’ signifies any importer green-lighted and licensed by the Ministry overseeing Agriculture, in tandem with the Ministry supervising Industry and Commerce as well as the fertiliser production sector, to bring in fertilisers up to the tonnage designated in the schedule.”

The Ministry handling Agriculture will be in charge of assessing and licensing credible fertiliser importers in accordance with these directives. Once approved, importers can liaise with the Zimbabwe Revenue Authority (ZIMRA) to expedite their duty-free imports.

This move to waive fertiliser duty is viewed as instrumental in buttressing Zimbabwe’s agricultural framework, a sector integral to the country’s food sufficiency and fiscal equilibrium. The initiative is anticipated to stimulate a regular and cost-effective fertiliser supply to agriculturists, thereby elevating the nation’s agricultural output and food security.

What they said in 2022

Former Minister of Industry and Commerce, Dr Sekai Nzenza in May 2022 presented an update on the localisation of the Fertiliser Value Chain to cabinet.

“Cabinet wishes to inform the nation that the local fertiliser industry is accelerating the implementation of the Five-Year Fertiliser Import Substitution Roadmap (2020-2024).

“The objective is to increase local production of phosphates and ammonium nitrate in order to reduce fertiliser imports. To this end, the Industrial Development Corporation of Zimbabwe (IDC) has invested into the local fertiliser value chain, from extraction of phosphates to the granulation of basal fertilisers.

“The company is modernising operations at its subsidiaries at Dorowa Minerals and Zimphos in order to increase production. Meanwhile, Sable Chemical has secured a loan from Afreximbank for the refurbishment of its plant and equipment as well as purchasing rail tank cars. Sable Chemicals’ target is to produce 120 000 metric tonnes of Ammonium Nitrate for the 2022/23 farming season.

“Cabinet notes that the fertiliser production sector plays a critical role in ensuring successful agricultural production, which is the bedrock of our economy. Gove0rnment is thus looking at ways of recapitalising the sector, including through listing on the stock exchange in order to attract suitable investors,” the statement said.

Walk the talk on Import Substitution

Import substitution generally refers to a policy that eliminates the importation of the commodity and allows for its production in the domestic market. The objective of this policy is to bring about structural changes within the economy and make sure that jobs are created locally as well as products on the cheap.

The logic is simple: Why import foreign-made cars or clothing or chemicals when one could produce those goods at home and employ workers in doing so?

This idea goes back centuries in economic thought but is commonly associated with the Argentine economist Raúl Prebisch, who publicised his ideas in Latin America and around the world in the 1950s.

Many developing countries adopted import substitution trade strategies after World War II, when economic development was equated with industrialisation and capital investment. By the 1980s, however, the idea had fallen out of favour with the rise of the “Washington Consensus” that supported freer trade.

Presently, annual national demand for fertilisers stands at 350 000 metric tonnes of phosphates and 250 000 metric tonnes of ammonium nitrate.

Although the local fertiliser industry is currently operating at 30 percent of its capacity utilisation, indications are that local production is increasing leading to the reduction of imports.

Reports show that the localised production of basal fertilisers would save over US$250 million per annum on the fertiliser import bill.

In this regard, it is urgent that we develop stronger value chains in the fertiliser industry, leveraging on our rich resource endowments.

Despite import substitution being less popular now, today, import substitution may be coming back in vogue. Several African countries have recently indicated they may be embracing it once again and other countries such as China, India, and even the United States seek to promote domestic manufacturing and exclude imports from the market.

For example, in China, the administration has been taking steps to “reshore” production of automobiles, semiconductors, and other manufactured goods to boost output and create manufacturing jobs.

So, as Zimbabwe we need to move with policies that make us more competitive and protect our hard earned foreign currency.

Tapiwanashe Mangwiro

Tapiwanashe Mangwiro is a resident economist with the Business Weekly and writes this in his own capacity. @willoe_tee on twitter and Tapiwanashe Willoe Mangwiro on LinkedIn

-ebusinessweekly