The Sunday News
Butler Tambo Economic Focus
(Continued from last week )
The impact of the use of antiquated technology by Zimbabwean companies
FOR a large variety of reasons Zimbabwean companies have never been able to retool since the Unilateral Declaration of Independence days.
As a result, industry in Zimbabwe operates perpetually on a survival mode making do with obsolete technology and sometimes trying very hard to innovate around that technology.
To put the mid-1970s problem into perspective, consider the period 1957-1960, a time when the limits to spatial expansion in the Central African Federation were also drawing near.
Those years experienced much higher real levels of net capital formation than subsequent years save for 1973-1975.
“The rather high industrial investments of the 1950s include plant and equipment which is by all accounts still in use in a number of branches and rather old” (Weiss 1980:111).
Rhodesian manufacturing investment was subsequently extremely intensive, but never achieved the economies of scale required for export competitiveness.
A very good case in point is Sable Chemical Industries in Kwekwe. The manufacture of ammonium nitrate fertiliser in part or largely uses ammonia that is made via the process of water electrolysis.
This technology was selected during the UDI years in 1969 in preference to the coal gasification method which is used by SASOL in South Africa for two reasons.
The coal gasification method being used in South Africa beginning in 1955 to make hydrogen for use in the production of ammonia afterwards was a technology that was still at the stages of being proven by the South Africans, being assisted by Lurgi of Germany and Giovanola of Switzerland.
In the light of scarce resources because of the biting sanctions, the Rhodesian authorities wanted to invest in proven technology so they went for water electrolysis against coal gasification.
The water electrolysis method is clean and technically sound but it is high on electricity consumption.
It is therefore appropriate for countries that produce hydro power in considerable quantities. Hydro power (eg Kariba) costs roughly a quarter the cost of producing power from a thermal power station (eg Hwange).
At that point in time Rhodesia was producing very cheap power in excess of the country’s needs at Kariba.
In those years,1971-1978, Sable Chemicals was supplied with electric power from Kariba at 0,32US cents per unit (a unit being a kilo-watt hour).Today subject to government arm twisting, Zesa is supplying Sable Chemicals with electricity at 3,5 US cents per unit, which is more than 10 times the tariff enjoyed by the company in the 1970s.
At the time water electrolysis was adopted as technology for hydrogen production at Sable Chemicals, there were about a dozen other major plants around the world that were using the same method. The plants were located in Chile, Egypt, India, Norway and Canada and in all these countries; their plants were using hydro power. Today Sable Chemicals is the only water electrolysis plant left in the world and both Lurgi and Giovanola no longer have anything to do with water electrolysis on an industrial scale.
Therefore, there is no longer a supplier of spare parts. The water electrolysis engineers at Lurgi that used to act as backups for Sable went into retirement in the early 1990s; in fact they have since all died (Mtetwa, E.G.2010).
Lack of Access to International Capital
Sanctions severely limited Rhodesia’s access to foreign loans and direct investment. According to the Rhodesian Herald, “Unless access to external sources of capital is eased soon, the rate of development necessary to sustain the population cannot be achieved” (Rhodesian Herald, 5 April 1973).
An entrepreneur involved in under-the-counter tobacco sales maintained that “the long, drawn-out effects of sanctions did harm us. There was no more capital investment from overseas. Exploration for new minerals, irrigation schemes, and new industries need overseas capital. This was frozen by sanctions.” Rhodesia’s forgone growth potential was enormous. Eddie Cross estimated that, over the course of the sanctions period, the value of lost exports approximated R$3,6 billion, as compared with the actual value of R$5,8 billion.
Additional factors that led to weakening of Rhodesian Economy
In the mid-1970s a number of factors converged on Rhodesia to intensify the damage done by sanctions. First, petroleum prices shot up dramatically, trebling the cost of Rhodesian oil imports between 1973 and 1976.
Rhodesia was particularly affected in that it paid the sanctions premium on top of the OPEC price increase. The oil price rise sparked a world economic recession, which caused a rapid deterioration in Rhodesia’s terms of trade. The prices offered for Rhodesia’s primary commodity exports fell sharply, while import prices sky-rocketed.
By 1979 Rhodesia’s terms of trade were 40 percent worse than they were when sanctions were imposed.
In order to finance vital oil requirements; the Smith regime drastically cut non-petroleum import allocations from the mid-1970s onwards.
With its supply of capital goods, spare parts, and certain essential inputs practically severed, the Rhodesian manufacturing sector embarked upon a downward spiral. This exogenous factor battering the Rhodesian economy was clearly distinct from sanctions. Yet its effects were mediated through an economy under the strain of sanctions. Even if the separate factors had merely additive effects, both contributed to Rhodesia’s economic weakness in the late 1970s.
It was during this period of increased economic hardship that Zambia and Mozambique also began to intensify pressure on Rhodesia. In January 1973, in response to stepped up guerrilla activities from Zambian territory, Rhodesia closed the border with its northern neighbour. In retaliation Zambia declared that it would keep the border closed permanently, regardless of a Rhodesian decision to re-open it. Henceforth Zambia would re-route its copper exports through Tanzania, at tremendous loss to the Rhodesian railways (Renwick undated).
The Zambian border closure eliminated a major source of foreign exchange earnings for Rhodesia.
Before 1965, Zambia had been Rhodesia’s largest export market, accounting for about 65 percent of total foreign sales. In 1967 the value of Rhodesian manufactured goods consumed in Zambia was still one-third the pre-sanctions value. By 1973, although the market for Rhodesian consumer goods had shrunk considerably, revenues from transit freight to and from Zambia were still worth several million pounds sterling per year. The loss of these earnings caused a trebling of Rhodesia’s deficit in services. (Hall, R.1969).
In 1976 the new Mozambican government, in addition to allowing Zimbabwean liberation forces to use Mozambique as a rear base, closed its border with Rhodesia, forcing the Smith regime to re-route over one and a half million tonnes of export goods per year through South Africa, at much greater expense.
Rhodesia became almost totally reliant on South Africa for imports, exports and transport to the sea.
Until the Mozambique border closure, about half of Rhodesian exports were shipped through the Mozambican ports of Beira and Lourenco Marques (Maputo). While Beira was 360 miles from the Rhodesian capital, the South African port of Durban was 1 260 miles away. Thus, transport through Mozambique was faster and cheaper than transport through South Africa.
Moreover, according to John Graylin, “Beira was a tremendously well-run port at that time. It was handling more goods per person employed than almost any port in the world”. Ports in South Africa, by contrast, were extremely congested. Trade was hampered by serious delays and greatly increased shipping costs.
The actions by Mozambique and Zambia also closed potential markets to new Rhodesian manufacturers. This meant stagnant or even diminished foreign exchange earnings.
These measures are sometimes implicitly considered as factors “other than” sanctions. Yet, even if the Zambian and Mozambican actions are not included as international sanctions measures, they were clearly influenced by them.
Both governments would have been hostile to white minority rule in any case, but it is quite unlikely that they would have adopted such consistent measures without the cover of international legitimacy and the promise of international support, however, inadequately fulfilled. As a result of these multiple pressures, according to a businessman who at that time worked for the Association of Rhodesian Industries, by 1974 economic deterioration was evident “right the way across, through industry, agriculture, mining, and inadequate capital replacement”.
The country could not afford new machinery and equipment. Moreover, the businessman recalled, “We were fighting a war, so quite a lot of our import capacity had to be diverted to military hardware”.
To be continued next week.
The writer is a political and economic commentator based in Bulawayo. You can get in touch with him at [email protected]
