Wednesday, January 15, 2014

Let's Eat What We Grow, Wear What We Spin

EDITORIAL COMMENT: Let’s eat what we grow, wear what we spin

January 16, 2014 Opinion & Analysis
Zimbabwe Herald

The compulsory blending of ethanol in Zimbabwe’s petrol has generated a surprising amount of criticism, much of it ill-informed and most of it based on arguments that put selfish tastes ahead of the common good, without any good reason to do so.With 15 percent of Zimbabwe’s petrol now home-grown, and this figure soon to rise to 20 percent, there are a large number of environmental and economic benefits.

Since the ethanol comes from sugarcane, there is a significant drop in the net greenhouse gases released into the atmosphere although this is not the case with some ethanol products, such as the corn ethanol beloved by mid-western American states. But ethanol blending in those states is also legally compulsory, for another set of good reasons.

These concern job-creation. That sugarcane has to be grown by someone, and there are thousands of Zimbabwean families now earning a reasonable income growing cane. Land reform means that the full value of the cane goes to those who grow and cut it.

In addition, a large labour force is required at Chisumbanje to process this cane.

The third set of advantages come from reducing Zimbabwe’s large trade deficit.

We import a lot more than we export.

This means that we are not creating savings, but rather sending out of the country a significant fraction of the wealth that our people create.

Cutting one of our biggest imports has an immediate and beneficial advantage.

Any one of these three reasons would be a good reason to blend petrol.

Having all three means that there is not much in any counter-argument, especially if we take certain precautions.

The Government has, in return for making ethanol blending compulsory, also, in effect, imposed a cap on ethanol pricing.

While not putting in an actual price control, it has made it clear that ethanol should be sold to the oil companies at or below a set price.

Since there is only one ethanol plant that makes sense. Compulsory blending without a price cap could be a serious mistake. We assume that the oil companies will keep their own eye on quality.

We note that the companies are not involved in the criticism. Presumably they do not mind selling any sort of fuel, so long as their profit margins are roughly the same, regardless of whether it is diesel, petrol, paraffin, ethanol or some sort of blend.

An industrial policy based on pure import substitution can lead, as Zimbabweans know, to high prices and lower quality.

These can sometimes be so severe that they nullify the advantages of lowering the deficit in the balance of trade and creating jobs.

With ethanol it has been fairly easy to get all the advantages and nullify the disadvantages, even in a fairly small economy.

This means that the banks can start accumulating the savings we need to invest and develop somewhat faster than they were.

There are other areas where Zimbabwean industry needs to get organised, using its home market as a base and exporting manufactured goods, largely goods created from Zimbabwean raw materials.

Few industries offer rewards without danger, ethanol being one of those few, in a regime of pure import substitution.

But a light hand with import taxes, and a growing investment pool that allows loans at more reasonable interest rates, plus a willingness by Zimbabweans to eat what we grow and wear what we spin, could accelerate growth.

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