How some Zimbabwean firms have lost ground in export markets - failure to cope with technology

Zimbabwean manufacturers used to be competing fairly in the international markets. Distortions in the Zimbabwean economy have resulted in many companies fast losing their competitiveness in the past 3 years. The basic reason for losing such competitiveness is the failure to keep pace with changes in production process technology, for whatever reason. Those firms who failed to make optimal investments in technology lost their markets because they could not meet the product quality demands of export markets.

Symptoms of Failure to Cope with Technology

The following are the symptoms among Zimbabwean companies who have since fallen behind in technology: -

• Uncompetitive costs of production relative to what foreign competitors
• Deficiencies in product quality

Why did the Zimbabwean Companies fail to upgrade their technology?

Some firms had made initial capital investments in labour-intensive production processes to take advantage of the relatively low labour costs which prevailed in the country. However, the change in the state of technology rendered such methods ineffective to meet the required quality and precision in finished products. In some cases, investment in more automated production methods has become necessary. There are several factors which inhibited investments by Zimbabweans in improved technologies. Some of the reasons are as follows: -

• Some firms do not have search mechanisms for information on changing technological and market conditions and do not keep abreast of the technological trends in their industries. Such companies see no reasons for attending international trade fairs or technology exhibitions.
• The information gap had not been filled by any institutional arrangements initiated by ZimTrade, Government or industry associations for various reasons.
• Some firms had not made any investments in improved technology for lack of foreign exchange needed for importation on vital cogs of driving technology.
• Other firms could not make any investments in improved technology for lack of accumulated profits which could be ploughed back into the enterprises. Such firms had either accumulated losses or had failed to generate profits for a long time.
• Some firms had suffered from the effects of rigid price controls which prevailed in the country.

Zimbabwean firms had been in financial problems for a long time which eroded their capacity to make any significant investments in capital equipment, training and innovations. Investment in general had been low or stagnant.

What Should Be Done by Zimbabwean Companies

The following are methods which are relatively easy to implement but do have amazing results: -

• Some firms must put considerable efforts into improving their competitiveness by way of making serious investments in technology. Why ‘effort’? For some companies it is a matter of efforts - some companies’ management think they can do with highly skilled labour only to beat competition but I feel it is short lived. In some cases, investments in more radical changes in technology are needed to include changing to the use of microelectronic controls. Management have to prioritise the modernisation production process technology in order to keep afloat in the export market
• Top management has to develop appreciation of the pace and trends of technology development elsewhere, as a guide to the kinds of investment that must be made to create and develop new technological capabilities.
• Attend international exhibitions to keep abreast with changes in technology.
• Enter into partnerships with foreign companies or attract foreign shareholders who bring in new technology.

Suspension of Duty and VAT through Mid Year Fiscal Policy Review July 2009

Reduced Customs Duty on Raw Materials, Intermediate and Gapital goods

The Ministry of Finance has reduced customs duty rates on raw materials, intermediate and capital goods, with effect from the 1st August 2009, as follows:

Reduced Customs Duty on Finished Input Goods

With effect from the 1st of August 2009, Customs Duty on finished goods has been as follows:

Reduced Customs Duty on Basic Consumer Goods

Duty-free importation og defined basic commodities has been further extended to the 31st of December 2009. The basic commodities to enjoy duty free importation are as follows: cooking oil, margarine, rice, flour, salt, mealie meal, bath and laundry soap, washing powder, toothpaste and petroleum jelly.

This development comes with opportunities to import the said items for SMEs.

‘Landmines’ in Exporting - The Don'ts of Exporting in Zimbabwe

International trade business has extra dimensions of legislations and controls over domestic trade business. Because of those extra dimensions, any new or existing exporter should tailor-make own operations to avoid committing the "don'ts" of exporting, as the effects of ‘stepping’ on those ‘landmines’ might be fatal. Therefore the purpose of this post is to advise on how to quality control own export operations by reviewing some of the "don'ts" which Zimbabwean exporters commit.

Don’t #One:

Exporters should not forget that they are responsible for maintaining full compliance with all Zimbabwean Exchange Control laws and Customs and Excise Laws (hereinafter collectively termed export laws) that are relevant to their products at the time of export. Such responsibility makes the exporter liable for the export control violations that one might knowingly or unknowingly commit while engaging in an export transaction and for the export control violations that one’s agents (such as freight forwarders) commit while carrying out export operations on the exporter’s behalf. These include carrying out illegal transshipment or illegal export of own products without permits etc.

Don't #Two:

Exporters should not neglect to investigate whether the foreign markets into which they are exporting their products have any Import Controls related to the sale of such product. Such foreign destination’s import controls may be in the form of import prohibitions, import restrictions (quotas) and import licensing requirements. Such controls may be based on country of origin, product type, or product characteristics, such as products produced by convicts and counterfeit products. Imported products, which contravene an importing country's import controls, are generally refused entry at the importing country's border, thereby resulting in unnecessary loses or costs.

Don't #Three:

Exporters should not neglect to evaluate country risk in addition to buyer risk in selecting the proper payment method for their export transactions. Countries frequently experience political and economic problems so severe that buyers in such countries are precluded from obtaining the necessary foreign currency to pay for their imports. Exporters that ship to such countries without having investigated the country's political and economic situation and without having selected a payment method appropriate in light of such political and economic situation run the risk of not receiving payment for their export sale, regardless of the good intentions evidenced and financial responsibility exercised by their foreign buyers. Such non payments by foreign buyers may end up degenerating into violations of repatriation laws of Zimbabwe.Exporters should not neglect to evaluate country risk in addition to buyer risk in selecting the proper payment method for their export transactions. Countries frequently experience political and economic problems so severe that buyers in such countries are precluded from obtaining the necessary foreign currency to pay for their imports. Exporters that ship to such countries without having investigated the country's political and economic situation and without having selected a payment method appropriate in light of such political and economic situation run the risk of not receiving payment for their export sale, regardless of the good intentions evidenced and financial responsibility exercised by their foreign buyers. Such non payments by foreign buyers may end up degenerating into violations of repatriation laws of Zimbabwe.

Don't #Four:

Exporter should not confuse INCOTERMS when submitting the customs documentation. It is important to ensure that the exporter does not misuse any INCOTERM for any purpose and that the exporter fully understands the costs, responsibilities, rights and obligations that accompany the use of a specific INCOTERM. The misuse of a selected INCOTERM can lead to over or underpayment of costs and to over or under assumption of responsibilities, rights and obligations. Zimbabwean transporter of exported goods under which INCOTERM has been misuses might end up being forced by Customs authorities to complete Forms CD3 at the Border Posts in foreign currency simply because the exporter quoted incorrect INCOTERM on the respective Form CD1.

Don't #Five:

Exporters should not ignore their responsibility to comply with the Zimbabwe Exchange Control Laws as they relate to required export documents. Exporters are required to prepare and submit a Form CD1 for each export, unless where an exemption applies. The Form CD1 must list the contents of each shipment, values of shipment, cite the appropriate export license, and identify the final destination, end recipient. Failure to provide a Form CD1 exposes an exporter to criminal penalties under the Zimbabwean laws.

Don't #Six:

Exporters should not make any misrepresentations on their Forms CD1. Exporters are responsible for accurate Forms CD1. The following specific areas require attention: Don't under-invoice or over-invoice your products on your Form to help an importing customer avoid tariffs or taxes.Don't misrepresent the place of origin on your Form CD1 in order to assist your foreign buyer to gain access to a preferential duty program to which your foreign buyer is not legitimately entitled.Don't incorrectly identify the contents of your shipment in an effort to evade the Zimbabwe export controls that apply to your product. These activities violate Zimbabwe export laws and expose a Zimbabwe exporter to civil and/or criminal penalties. In addition, they expose the Zimbabwe exporter to a potential violation of the importing country's tax law under the theory that the exporter aided and abetted the importer in committing tax fraud.

Don't #Seven:

Zimbabwean exporters should not be greedy - if an export opportunity looks too good to be true, it often isn't true! Just think of all the Zimbabwean exporters who have so far been trapped in export scams and don't get lured into participation by thoughts of the scarce foreign currency in Zimbabwe which may become available to you for little or nothing in return. Some have been duped after being convinced by foreign conmen that their product will fetch unbelievably high price, only to lose track of the ‘too-good-to-be-true’ foreign customer soon after shipment and before getting payment. Don't lose your good business sense in the face of an export opportunity and give export sales opportunities the same level of scrutiny that you would give any business deal.

Exporting from Zimbabwe - The Passports to Export

Any person ordinarily resident in Zimbabwe, whether individual or corporate, can export any of the uncontrolled goods from Zimbabwe without any need of a special authority. The potential exporter does not necessarily need to be a manufacturer of the product – all the entities throughout the chain of distribution can move the identified goods to international markets, provided the person has all the ‘passports to export’ from Zimbabwe. The following are the passports for exporting goods from Zimbabwe.

Registration of an Exporter
One has to register his/her name with one of the Zimbabwean registered Commercial Bank or Merchant Bank. The registration is a once off exercise which does not take hours to complete. It is a simple procedure which calls for submission of documents

• Copies of National Identification Card of an Individual Exporter
• Proof of Residence for Individual Exporter
• Copy of CR14 for corporate exporters
• Copy of Certification of Incorporation in Zimbabwe for corporates
• Duly completed Registration Form for both individual and corporate exporters

Relevant Export Licenses and Certificates of Origin
Export licences are only applicable to goods which are not of Zimbabwe origin but being exported form the country. The licences are obtainable from Ministry of Industry and International Trade. If goods are of Zimbabwean origin as defined by Rules of Origin under specific Bilateral agreements with target export market, it is wise for an exporter to complete a certificate of origin, to qualify for preferential treatment when goods enter the destination country.

Getting a Form CD1 for Specific Shipment
Once registered, the exporter can submit the Commercial Invoice to any registered Commercial Bank or Merchant Bank for creation of a Form CD1. This process should ideally not take an hour to complete per each Form CD1. 

For the exporters who wish to raise their Forms CD1 from own premises can register their staff members for access to the system called CEPECS. Raising Forms CD1 from own premises has many conveniences including ability to create a Form CD1 outside business hours, reports which track maturities of Forms CD1 and use of own corporate stamps on Form CD1 instead of visiting Bank branch for stamping.

A Form CD1 is a declaration form on which an exporter attests to the Exchange Control authority, Reserve Bank of Zimbabwe, the value and quantity of goods to be exported. This form should be completed with acquittal in mind. A standard acquittal period (the period within which the payment for the exported has to be received in Zimbabwe is 90 days).

Completion of Customs Procedure
Once the exporter has obtained the Form CD1 from the aforementioned sources, s/he should proceed to any Inland ZIMRA export processing office for a Bill of Entry, as pre-clearance exercise. The exporter simply gives his Form CD1 to a registered Customs Clearing agent for this formality, who completes the Bill of Entry in the ASYCUDA World system. Bearing in mind that the Bill of Entry needs assessment (which normally takes at most 6 hours, registering a Bill of Entry while at the ZIMRA Port of Exit is not ideal. 

Consignment Notes
For every export, there is a consignment note submitted to Customs office, which is filled in a standard format. These notes act a proof of export to Customs; they are very important for making claims under drawback of duty and cancellation of exports. The type of consignments notes are as follows:

• Rail Advice Notes – issued by National Railways of Zimbabwe after being handed over the goods export. It should be accompanied by a notify party of instruction
• Airway Bills – issued by the airline after being handed over the goods export. They should be accompanied by shippers instructions
• Road Consignment Notes – issued by the road carrier after being handed over the goods export.

Documentation for Controlled Exports
In Zimbabwe, the exporter should look for speciliased permits/ authority for the controlled exports. The controlled exports are:

1. Wildlife and Wildlife Products
2. Agricultural Products
   - Grain
   - Dairy products
   - Seed
   - Fresh farm products
3. Livestock (pedigree, for shows or competition etc)
4. Live Horses
5. Used agricultural equipment
6. Second hand industrial equipment including scrap metal.

How To Start Exporting from Zimbabwe

If any Zimbabwean company or individual is looking to turn a quick profit, then exporting is probably not a good idea. It takes time to build up a successful exporting business, so potential or new exporter should make sure they are prepared for a long-term commitment exporting. There are some important stepping stones which need to be carefully laid.

Choose Target Countries for Export

One has to evaluate which country to export from Zimbabwe and whether there is adequate demand for intended goods. This evaluation has to take into consideration the distances involved for movement of goods, cultures involved and the language differences. It is relatively easy to export to those countries where there is a direct connection in terms of road, rail or air transport, such as South Africa, Zambia, Botswana or generally SADC region.

Make Contacts and Set up Sales and Distribution Networks
The best choice for a company intending to export is to partner with parties who are already active in the country in which one hopes to sell own products. This can also be accomplished through appointing selling agents or distributors in the target country. In order to establish such a selling network, one should use avenues like trade fairs or shows or foreign missions to meet such potential partners. Dealing directly with a final customer in a foreign country is often risky, when it comes to payment and collections for the delivered goods.

Understand the Fundamentals of Zimbabwean Export Laws
To be successful in exporting from Zimbabwe, one has to be avoid making unnecessary rough patches by avoiding breaking the laws of Zimbabwe especially:

• Declarations forms and accompanying documentation
• Repatriation and use of the foreign currency earned from exporting
• Rules of Origin and the related Regional Bilateral Trade Agreements

Whilst these first posts are somewhat theoretical, subsequent posts will provide more details on the raised points, like the export laws, participation of trade fairs, export marketing, existing trading agreements between Zimbabwe and its trading partners, special arrangements for export of specific controlled products etc.

Look for Export Orders
The best choice for a new company to exporting is to partner with someone who is already active in the country in which you hope to sell your products. This can be accomplished through appointing selling agents or distributors. In order to establish such partners, one should go to trade fairs or shows to meet such potential partners, who are aggressive enough and offer reasonable selling commissions. Dealing directly with a final customer in a foreign country is often risky, that’s why it is recommended to find a locally based of foreign partner to break into the market. Finding orders needs a lot of effort, as the exporter can be ignored several times and in some cases, the potential foreign buyers demanding unreasonable trade or cash discounts. More than often samples are needed for testing before orders can be placed. Such samples can be distributed through the agents, during trade fairs or partners.

Fulfil the Export Orders
Once such hard-won orders have been secured, elements of quality management become important. The exporter should consistently and persistently produce goods which meet the specifications of the selected samples. This is where most exporters lose it; they compromise on known quality levels to cut on costs. Such moves cannot go unpunished by competition. Later posts will highlight more of the element of QUALITY. Besides the production of a product in accordance with specifications, there are other factors which are of paramount importance and these are:

• Time taken to deliver the product – it should be within the agreed time
• Packaging – should protect and enable safe handling throughout the trip to the destination country
• Complete the customs or clearance procedures