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CHAPTER ONE

1. Introduction
The chapter covers the background of the study, the statement of the problem, the research questions and the study objectives. The chapter also extends to cover the assumptions on which the study is build and the study’s delimitation. It also highlights the limitations faced in carrying out the research and ways to minimize them. The importance of the research is also highlighted and a chapter summary wound up the chapter.

1.1 Background of the study
Traditionally the government of Zimbabwe had been charging duty on imported goods in local currency. Enterprising Zimbabweans have been taking advantage of the overvalued Zimbabwean dollar to import cars and other luxury goods for resale in Zimbabwe. According to the central bank figures, Zimbabweans have been spending an estimated US$400000 a day importing an average of 80vehicles from Britain, Dubai, Japan, Singapore and the United states. This resulted in a boom in the used car industry. The business had become so brisk; some foreign car dealers were advertising their latest brands of cars in the Zimbabwean press.

The government through Zimra moved from its traditional way of charging duty in local currency through the statutory instrument 80A of 2007 which stipulated that with effect from 5 April 2007, importers of cars and other luxury goods were now required to pay duty in foreign currency. “Payments of customs duty and value added tax on the importation of any items designated as luxury shall be payable in US dollars, Euros, or any other currency denominated under the exchange control”Mumbengegwi said.(The herald 9 April 2007).An official at the reserve bank said that the move to levy duty in foreign currency was a “hostile reaction” to the central bank’s refusal to devalue the local currency.(Newzimbabwe.com).He further went on to say the government has decided to levy duty in foreign currency out of frustration that the refusal by the governor of the central bank to devalue the dollar was costing the treasury billions of dollars in uncollected potential revenue with the Zimbabwean dollar pegged at $250 to the united states dollar.

Apart from denying the treasury the much needed revenue from lost duty fees given the value of the Zimbabwean dollar in the parallel market, wholesale importation of goods without paying much duty had also negatively affected the local auto industry especially regarding spare parts resulting in regular company closures and massive job loses.
The exercise was an attempt to cut back on the foreign currency the country was using in the importation of goods classified as luxury that foreign currency would be used for the greater benefit of the country.

This affected those who imported vehicles because it became more expensive to import.
Some car dealers claimed that the implementation of the act without prior notice caught them unaware as they had imported vehicles subject to regulations which operated three months earlier (www.fin24.com). This had resulted in a reduction in sales of imported vehicles as customers were opting for the locally ‘assembled vehicles.

According to www.new Zimbabwe.com an official at zimra said that the effect of the regulation had been a congestion of vehicles and other goods at zimra offices as people were failing to pay the duty in hard currency. The official said that “we have detained some goods at our offices; sometimes more than our capacity, particularly the Beitbridge border post has been strained.” The official went further and pointed out that many individuals and companies had approached Zimra complaining that they were not in a position to raise the foreign currency component needed as duty.

While the importers were crying foul a repot from the herald (13 June 2007) stipulated that Willowvale Mazda Motor Industries enjoyed a boom in the business with domestic car demand up by 100 percent since the implementation of the policy.Willowvale managing director Engineer Dawson Mareya said the policy implementation was a well come development for all domestic vehicle assembling companies and a boost for employment. He reiterated that the move was excellent news for local vehicle assemblers and for the country in terms of local employment and savings in foreign currency. He further went on to say that there was an increase of over 100 percent in orders for the Mazda vehicles and the trend was upwards.

The central bank figures showed that there has been a decline in the number of imported vehicles from an average of 80 vehicles to 20 vehicles per day.

Puzey and Payne as an organisation in the motor industry suffered a major decline in the sales of its imported vehicles .After the introduction of the policy the sales dropped from an average of 20 vehicles to 6 vehicles per month. In the month of May 2007 the company went to an extend of failing even to have a single vehicle in the showroom for display.

There was also a problem in the procuring of the spares from France. More foreign currency was needed so as to import the needed spares and this led to a reduction in the quantity of spares to be imported. The company had to import half of the quantity it used to import. Apart from that there was a decrease in the sales and an increase in dormant stock as people were opting for some cheaper non genuine parts neglecting the genuine parts imported from France.
According to the company’s sales report in the month of May 2007, there was a reduction in the sales of the spares by 200 units as compared to the previous month.
The company also suffered a decline in terms of the revenue collected from the servicing of vehicles. Many vehicles had to send back without being serviced as a result of the unavailability of the needed specified spares. For example in the month of June 2007, 30 vehicles were collected by their owners without being serviced due to unavailability of the spares.
In order to make a special order for the customers, the company required them to pay 80% of the total value of spares to be imported which is difficult as well as far beyond the reach of many. In the month of July 2007 15 customers ended up taking their vehicles without being serviced citing that the amount of money needed was far much beyond their reach.

It is against this background that the researcher wants to find out the extend to which the policy of charging duty in foreign currency has impacted on the business of Puzey and Payne.

1.2 Research question

• To what extend did the policy of charging duty in foreign currency on imported vehicles affected the motor industry with specific reference to Puzey and Payne?
1.3 Sub research questions

• What is the impact of charging duty in foreign currency on the sales of imported vehicles? • How did the policy of charging duty in foreign currency affect the sales of locally assembled vehicles? • How did the policy of charging duty in foreign currency affect the sale of some imported parts? • Did the policy of charging duty in foreign currency had an impact on vehicle service? • What are the strategies being used by the management in dealing with the effects caused by the policy of charging duty in foreign currency?
1.4 Assumptions

• Respondents are going to respond in good faith and provide correct information. • No other factors will affect the validity of the research in the course of the research.

1.5 Delimitation

• The research is limited to Puzey and Payne Gweru, a company being used as a case study. • The research covers the period from January 2006 to December 2007. • The research is based on how the policy of charging duty in foreign currency has affected vehicle sales, parts sales as well as servicing of vehicles.

1.6 Limitations

• Managers were not willing to disclose confidential information regarding the sales volumes. However the researcher assured them that the information was going to be kept confidential. • The policy is a recent development hence there is limited literature to review. The researcher had to use the Internet, newspapers, reports, and some government publications so as to gather more information

1.7 Importance of the study
The research is important to the following groups of people;

The researcher.
The researcher benefited from the research as he had the opportunity to have practical knowledge of what is happening in the industry. The research paper as partial fulfillment of the requirements of a Bachelor of commerce degree in business management, it is helpful to the researcher in completing the degree course.

The organisation

The study will help Puzey and Payne to increase its sales volumes through recommending the strategies that can be used to deal with the adverse effects of the policy. University
Students in the tertiary institutes undertaking similar researches are also going to benefit from this paper. The research adds knowledge to other students and also equips them with a new way of understanding as far as duty is concerned.

1.8 Chapter summery
The chapter discussed the statement of the problem, research questions and research objectives. It also highlighted the assumptions, delimitations of the study and limitations of the study. The importance of the research to the researcher, university and the firms was also discussed with the chapter.

CHAPTER TWO

LITERATURE REVIEW

.
2.0 Introduction

This chapter will highlight the definition of duty and different types of duty and how they are charged. . It further highlights the different theories pertaining to customs duty as well as the importance of duty to the government. It will also highlight the different arguments for duty and its advantages and disadvantages to the nation.

2.1 Definitions of customs duty
Beardshaw (1999:392) defined customs duty as an indirect tax levied on goods coming into the country and excise duty as tax levied on commodity no mater where it is produced.
Ethier (1998) defined duty as a tax on imports. He pointed out that the price a domestic purchaser pays for an imported good exceeds the amount the foreign exporter receives by the tariff payment.

Salvatore (2004) also defines a customs duty or tariff as a tax on goods upon importation.

2.2 Common themes in definitions.

The above definitions of duty have some commonalities in that all of them highlights that duty is paid on the goods that are entering into another country.

2.3 Types of tariffs.

Salvatore (2004) identifies the different types of tariffs as: • An ad valorem tariff-which is a set percentage of the value of the good that is being imported. Sometimes these are problematic as when the international price of a good falls, so does the tariff and domestic industries become more vulnerable to competition. Conversely when the price of a good rises on the international market so does the tariff, but a country is often less interested in protection when the price is higher. They also face the problem of inappropriate transfer pricing where a company declares a value for goods being traded which differs from the market price, aimed at reducing overall taxes due. • A specific tariff-which is a tariff of a specific amount of money that does not vary with the price of the good. These tariffs may be harder to decide the amount at which to set them, and they may need to be updated due to changes in the market or inflation. • A "revenue tariff"-it is a set of rates designed primarily to raise money for the government. A tariff on coffee imports, for example (imposed by countries where coffee cannot be grown) raises a steady flow of revenue. • A "protective tariff"-it is intended to artificially inflate prices of imports and "protect" domestic industries from foreign competition For example; a 50% tax on an imported machine raises the price from $100 to $150. Without a tariff, the local manufacturers could only charge $100 for the same machine; now they can charge $149 and make the sale. • A "prohibitive tariff"-it is one so high that no one imports any of that item.
As highlighted by Salvatore(2004), the distinction between protective and revenue tariffs is that protective tariffs in addition to protecting local producers also raise revenue; revenue tariffs produce revenue but they also offer some protection to local businesses.
Salvatore(2004) highlighted that tax tariff and trade rules in modern times are usually set together because of their common impact on industrial policy, investment policy, and agricultural policy. A trade bloc is a group of allied countries agreeing to minimize or eliminate tariffs against trade with each other, and possibly to impose protective tariffs on imports from outside the bloc. A customs union has a common external tariff, and, according to an agreed formula, the participating countries share the revenues from tariffs on goods entering the customs union.
Salvatore (2004) went further and postulated that if a country's major industries lose to foreign competition, the loss of jobs and tax revenue can severely impair parts of that country's economy, protective tariffs such as charging the imported goods in foreign currency or charging a high rate have to be used as a measure against this possibility.

Salvatore (2004) pointed that protective tariffs also have disadvantages and the most notable is that they increase the price of the good subject to the tariff, disadvantaging consumers of that good or manufacturers who use that good to produce something else, for example a tariff on food can increase poverty, while a tariff on steel can make automobile manufacture less competitive. He also noted that they can also backfire if countries whose trade is disadvantaged by the tariff impose tariffs of their own, resulting in a trade war and, according to free trade theorists, disadvantaging both sides.

2.4.0. Arguments for customs Tariffs
Tausing (2004) highlighted the following as arguments for inter-household trade.

2.4.1. Economic argument

Tausig (2004) pointed out that economic theories hold that tariffs are a harmful interference with the individual freedom and the laws of the free market. They believe that it is unfair toward consumers and generally disadvantageous for a country to artificially maintain an inefficient industry, and that it is better to allow it to collapse and to allow a new one to develop in its place. The opposition to all tariffs is part of the free trade principle; the World Trade Organization aims to reduce tariffs and to avoid countries discriminating between other countries when applying tariffs.

2.4.2 Infant industry argument

Tausig (2004) argues that imposing tariffs that help protect newly founded infant industries like charging duty in foreign currency allows those domestic industries to grow and become self sufficient within the international economy once they reach a reasonable size.
He highlighted that in a free market economic system, the tariff establishes the borders or boundaries of the system, because as defined by free market economics, the absence of tariffs is a requirement of a free market economic system. The establishment of tariffs create a border of protection around the free market economy, and within that free market area, no tariffs can be established.

The four requirements of a free market economic system, as defined by Ludwig Von Mises (2004), are private property, a coercive government, the absence of institutional interferences within the system, and the division of labor.

2.4.3. Political argument

The tariff has been used as a political tool to establish an independent nation; for example, the United States Tariff Act of 1789, signed specifically on July 4th, was called the "Second Declaration of Independence" by newspapers because it was intended to be the economic means to achieve the political goal of a sovereign and independent United States.

Tausig (2004) revealed that in modern times, the political impact of tariffs has been seen in a positive and negative sense. The 2002 United States steel tariff imposed a 30% tariff on a variety of imported steel products for a period of three years. American steel producers supported the tariff but the move was criticized by the Cato Institute.

He went further and pointed that tariffs can occasionally emerge as a political issue prior to an election. In the lead up to the 2007 Australian Federal election, the Australian Labor Party announced it would undertake a review of Australian car tariffs if elected. The Liberal Party made a similar commitment, while independent candidate Nick Xenophon announced his intention to introduce tariff-based legislation as "a matter of urgency"

2.4.4 Revenue argument

Critics of free trade have argued that tariffs are especially important to developing countries as a source of revenue. Developing nations do not have the institutional capacity to effectively levy income and sales taxes. In comparison with other forms of taxation, tariffs are relatively easy to collect. The trend of lifting tariffs and promoting free trade has been argued to have had disproportionately negative effects on the governments of developing nations
2.5.0. The second best arguments for tariffs.
Begg et al (2000) introduces the principle of targeting which says that the most efficient way to attain a given objective is to use a policy that influences that activity directly. Policies that attain the objective but influence the other activities are regarded as second best because they distort other activities. The principle of targeting assures that there are ways to solve these problems at a lower net social cost. • Way of life-if the society wishes to help inefficient farmers or craft industries and it believes that the old way of life or sense of community should be preserved ,it should levy prohibitive tariffs like charging duty in foreign currency or setting very high rates to protect such groups from foreign competition. A tariff helps to helps domestic producers but huts domestic consumers. • Suppressing luxuries-some poor countries believe it is wrong to allow their few rich citizens to buy luxury yachts when society needs its resources to stop people starving. Tariff on imports of luxuries will reduce their consumption but by raising the domestic price. It may also provide an incentive for domestic producers to use scarce resources to produce them. Consumption tax tackles the problem directly and it is more efficient. • Infant industries.-one of the most arguments for tariffs is that it allows infant industries to get started. Only by being in business will firms learn how to reduce costs and become as efficient as foreign competitors. A tariff provides protection to new or infant industries until they master the business and can compete on equal terms with more experienced foreign suppliers.
2.6.0. The customs union theory by Viner
The theory can be said to date from the publication in 1950 of Viner’s pioneering work.Viner(1950) showed that a customs union can result in either trade creation or trade diversion. The former involves a shift from high cost domestic production to lower cost production in a partner country. The later involves a shift from the low cost external producer to a high cost partner.

Viner (1950) pointed out that trade creation raises the home country welfare and trade diversion lowers it. This distinction has formed the basis of most subsequent analysis of the welfare implications of customs union.
Viner’s analysis has been extended and modified by Lipsey et al(1957) to take account of intercommodity substitution on consumption effects.Lipsey (1957) argues that “when consumption effects are allowed for, the simple conclusions are that trade creation (good) and trade diversion (bad) are no longer valid”. Although he does not try to establish that trade creation can lower welfare, he does show that trade diversion can raise welfare. Lipsey (1957) pointed out that when a tariff is imposed it introduces a divergence between relative prices facing consumers and real opportunity costs of goods to the economy.

It is in this respect identical to an excise tax, and constraints consumers to non optical consumption equilibrium. When a customs union is formed some dutiable goods formerly imported from outside sources will be replaced by the same goods imported from a partner country, duty free but at a higher real cost. The shift to a higher cost source of supply tends to lower the country’s real income and consequently consumer welfare, but the removal of constraint on consumption may raise welfare. If the second effect is favourable and outweighs the first effect there is a net rise in welfare.

2.7. The effect of an import tariff to the economy

Supply
Price

A B
70

60 C D E- sw + tariff H I
50 G sw F demand L J y1 y3 y* y4 y2 Quantity demanded
Fig 1 .Effect of an import tariff to the economy Source (Free Markets and Tariffs 2002)
In the following graph we see the effect that an import tariff has on the economy. In a closed economy without trade we would see equilibrium at the intersection of the demand and supply curves (point B), yielding prices of $70 and an output of Y*. In this case the consumer surplus would be equal to the area inside points A, B and K, while producer surplus is given as the area A, B and L. When incorporating free international trade into the model we introduce a new supply curve denoted as SW. This curve makes the assumption that the international supply of the good or service is perfectly elastic and that the world can produce at a near infinite quantity at the given price. Obviously, in real world conditions this is somewhat unrealistic, but making such assumptions is unlikely to have a material impact on the outcome of the model. In this case the international price of the good is $50 ($20 less than the domestic equilibrium price).

Tausig (2004) pointed that the model above is only completely accurate in the extreme case where none of the consumers belong to the producers group and the cost of the product is a fraction of their wages. If instead, we take the opposite extreme, and assume all consumers come from the producers group, and also assume their only purchasing power comes from the wages earned in production and the product costs their whole wage, then the graph looks radically different. He went further and highlighted that without tariffs, only those producers/consumers able to produce the product at the world price will have the money to purchase it at that price.

The small FGL triangle will be matched by an equally small mirror image triangle of consumers still able to buy.
Note also, that with or without tariffs, there is no incentive to buy the imported goods over the domestic, as the price of each is the same. Only by altering available purchasing power through debt, selling off assets, or new wages from new forms of domestic production, will the imported goods be purchased. Or, of course, if its price were only a fraction of wages.

Taussig F.W. (2004) postulated that in the real world, as more imports replace domestic goods, they consume a larger fraction of available domestic wages, moving the graph towards this view of the model. If new forms of production are not found in time, the nation will go bankrupt, and internal political pressures will lead to debt default, extreme tariffs, or worse.

Moderate tariffs would slow down this process, allowing more time for new forms of production to be developed.

Beardshaw (1999) categorises tax into two main groups, direct and indirect. Direct taxes are those which are levied directly on people’s incomes. Indirect taxes are those which are levied on expenditure. The most important types of indirect tax in the United Kingdom are the value added tax and the excise duty. Value added tax is an advalorem (by value) tax that is it is levied as a percentage of the selling price of the commodity. Excise duty is a specific (or unit) tax which is levied per unit of the commodity irrespective of its price. Value added tax is levied after excise duty and consequently the purchaser may end up paying a tax on tax.

2.8. Effect of tax upon the demand and supply of goods and services
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Quantity
Fig 2. Showing the effects of a tax on goods and services Source (Beardshaw; 1999)

In the diagram 1 above specific tax has raised the supply curve from s to s1 .As shown above the new supply curve is 1US$ above the old curve at every point

2.9.0. Incidence of customs tax
Beardshaw (1999) regarded the incidence of tax as meaning who the tax falls upon. The formal (or legal) incidence of a tax is upon the person who is legally responsible for paying it. In the case of motor vehicles for example it s the importer or the producer. It is possible however that some or all of the tax may be passed to the customer in which case the incidence is said to be shifted so that the actual incidence (burden) of the tax is or partially upon the customer
Beardshaw (1999) highlighted that it is often thought by the customer that if the government places a tax upon a commodity, the price of that commodity will immediately rise by that amount of the tax. This is usually not so. Considering what might happen if a tax of Us$5 is placed per each imported vehicle .If the price were to be put by US$5 consumers would immediately begin to look for substitutes like the locally assembled vehicles.
The importers being worried by their sales might well reduce their prices. In other words they have absorbed part of the tax. Thus the burden has been distributed between the importer and the consumer.
2.10. The economics of tariffs
Begg et al (2000:562) regarded a tariff or import duty as the most common type of trade restriction. He points out that if t is the tariff rate, expressed as a decimal for example (0.2), the domestic price of imported goods will be (1+ t) times the world price of imported good. By raising the domestic price of imports, a tariff helps domestic producers but huts domestic consumers. Free trade equilibrium and equilibrium with a tariff.
[pic]
Qs Qs1 Qd Qd1
Fig 3 showing free trade equilibrium and equilibrium with a tariff
Source: Begg (2000)
As shown in fig 3 above, assuming that domestic and foreign cars are perfect substitutes, consumers will buy whichever is cheaper. The Dd and Ss shows the domestic demand and supply for cars. In the absence of a tariff, consumers can import cars at a price of $1000.In a free trade equilibrium, domestic producers produce at C and domestic consumers consume at G.
The quantity of imported cars is CG while the total quantity demanded is Qd.The domestic production Qs is supplemented by imports(Qd-Qs).A 20% tariff raises the domestic price of imports to $1200.Domestic output is now at E and consumers consume at F.
2.11. Empirical evidence. A Case study of South Africa The first South African car assembly plants were established in the 1920s and protected by high tariff. The country charged duty in foreign currency on imported vehicles so as to discourage imports.

Black (1994) highlighted that the industry developed mainly as an assembly industry to service the needs of the local market. Demand grew rapidly over the course of several decades, and the industry developed many small-scale plants with high unit costs.

In addition, each plant was producing a number of different models and in some cases different makes as well, contributing further to the high costs of production (See Table 1).

Table 1: Number of assemblers, models produced and vehicle sales

|Phase of local content program |Number of assemblers |Number of models |Vehicle sales |
|Phase 1(1961) |8 |24 |119 000 |
|Phase 11(1970) |16 |43 |298 000 |
|Phase 111(1976) |13 |39 |300 000 |
|Phase V(1987) |7 |20 |309 000 |

Source: Black (1994).

Black (1994) described the market as monopolistically competitive, as evidenced by the large number of models produced and the small-scale plants with excess capacity.

While profits might have been earned over operating costs, these would have been dissipated by the costs of capital and developing new models. As demand grew, new models were introduced. Thus while effectively charging duty in foreign currency prevented competition by imported vehicles; there was nonetheless a high degree of competition among domestic assemblers in the form of the introduction of new models. The relatively small scale of the domestic market led to high price.

Black (1994) indicated that by 1960, the South African economy was increasingly constrained by a shortage of foreign exchange. Cars were for the most part assembled locally from imported components, with just 20 percent local content at this time.

Starting in 1961, a series of local content programmes were introduced. In 1971, which marked the end of the second phase of the programme, manufacturers were required to have 52 percent local content, as measured by the weight of the local components.

Assemblers not meeting the local content requirement were subject to a prohibitively high tariff in foreign currency on imported parts. This quickly led to the emergence of a domestic components industry. The small size of the market meant these firms ran small-scale plants operating at high average costs.

By 1977 local content was required to reach 66 percent for cars and this was extended to light commercial vehicles in 1982

Black (1994) postulated that protection clearly imposed important costs directly on consumers but in a scale intensive sector such as the automotive industry these costs can be greatly compounded by the emergence of a low volume, high cost industrial structure, which has frequently characterised the protected automotive industry in developing economies.

The requirement increased the cost of producing a motor vehicle in South Africa by forcing manufacturers to buy high-cost local components.

As a way of trying to minimize the effect of the new requirement, manufacturers of autos generally chose to source heavier components, such as the car’s frame, locally.

As an alternative to meeting the minimum local content requirement firms were given the option of paying a tariff on imported component.
The cost of producing a car under the tariff was being prohibitively high to reflect the fact that, in practice, all firms met the local content requirements.

Black(1994) revealed that in the decades following the implementation of the local content requirement, the industry saw a further increase in the number of models produced domestically. Rising incomes had led to such a strong increase in demand for vehicles that the industry was not forced to consolidate models. Instead, the number of models actually expanded through 1970. It was only later that the industry saw some rationalisation, perhaps due to slowing demand growth and the increased local content requirement from 52% to 66% in 1977

The next major change in direction of policy came in 1989 with Phase VI of the local content programme. In as much as import substitution policies had by this time fallen out of favour in development circles, one of the aims of the new policy was to move away from import substitution and toward export promotion policies.

Accompanying this was the recognition that in this industry foreign exchange difficulties might be eased as much through exporting as in limiting imports. The changes allowed for the local content target to be achieved not just by the value of domestically produced components fitted to locally assembled vehicles but on a net foreign exchange basis. In other words, exports of components or vehicles counted as local content enabled an assembler to reduce actual local content in domestically produced vehicles. In addition, the actual local content requirement was reduced from 66 percent to 50 percent.

It was hoped that an increased incentive to export would, in effect, expand the size of the relevant market for firms, leading to increased rationalization in both the built-up vehicle and components markets. Low scales of production and the accompanying high unit costs were still perceived to be a problem for both sectors. The result of the policy change was the rapid expansion of exports in the components sector, with little response initially in the completely built-up (CBU) sector.

Even though one of the goals of Phase VI was to rationalize production it resulted in exactly the opposite: a proliferation of new domestic models. This was because under Phase VI the effective rate of protection increased as high nominal tariffs rates on built up vehicles were maintained while protection on the component sector fell sharply as the local content requirement was relaxed and assemblers were increasingly able to rebate import duties on components.

Dissatisfaction with the results of Phase VI led to the introduction of the Motor Industry Development Programme (MIDP) in 1995.

The key features of the MIDP were:

(a) Reduced tariffs on light vehicles and components, with tariffs being phased down even faster than required by WTO obligations;

(b) Removal of local content requirements;

(c) Duty-free import of components up to 27 percent of the wholesale value of the vehicle;

(d) Duty rebate credits to be earned on exports of vehicles and components and used for duty-free import of vehicles and components.

The incentive structure facing firms in the South African automotive industry has shifted dramatically as policy has moved from heavy protection to liberalisation combined with export support. Protection clearly imposed important costs directly on consumers but in a scale intensive sector such as the automotive industry these costs can be greatly compounded by the emergence of a low volume, high cost industrial structure, which has frequently characterised the protected automotive industry in developing economies.

2.12. Chapter summery
This explored the literature relating to the issue of charging duty on imported goods .An outline of the advantages and disadvantages of charging duty was given. . The chapter also highlights the impact of charging duty to the domestic consumers as well as the domestic producers

CHAPTER THREE

METHODOLOGY

3.0 Introduction
This chapter focuses on the research design used in the research paper. It precisely describes and explains the sources of data and the techniques used in collecting the data method used. The targeted population is also defined in this chapter.

3.1Reseach design
A research design is the detailed blueprint used to guide a research toward its objectives, Shao (1999).

The researcher used a descriptive research. The researcher used this method because it is less costly and easy to use in interpreting the actual findings and the relationship that exists between the variables. The descriptive research design was used because the design is aimed at providing answers to questions such as what is the impact of charging duty in foreign currency to the motor industry.

3.2 Sources of data
The researcher used primary sources of data.

3.2.1. Primary data

Cateora and Graham (2002) defined primary data as data collected specifically for the research project. The researcher collected data from Puzey and Payne employees by way of interviews and questionnaires.

The researcher used primary data because it provides up to date information since the data is collected for the purpose of the problem at hand.
It also provides much more reliable information since the data is original and direct from the employees who are involved in the day-to-day running of the business. In addition it is free from the biasness that arises from the initial researcher’s influence.

On the other hand it is expensive to extract primary data because a lot of travelling is needed. It is also time consuming as it takes long time to gather and analyse the data.

To overcome this, the researcher conducted interviews at Puzey and Payne in Gweru so as to minimise the costs. The researcher also had to use samples instead of the whole population so as to cut the costs. Telephone interviews were also used so as to minimise data collection costs.

3.3.0. Techniques of collecting data.

3.3.1. Interviews

According to Tuckman as cited by Cohen and Manion (1981:243) an interview provides access to what is inside a person’s head, makes it possible to measure what a person knows, what a person likes and dislikes and what a person thinks.

The management as well as general employees within the organisation were interviewed so as to collect data.
The researcher used interviews to obtain the desired data because they make it possible to probe for more specific answers .They make it possible for the interviewer to observe the non-verbal behaviour and to assess the validity of the respondent’s answer.

3.3.2. Questionnaires.
Bush et al (2003) defined a questionnaire as a framework consisting of a set of questions and scales designed to generate primary data. The researcher used both closed and open-ended questions.
3.3.2.1. Close-ended questions
This kind of question permits only certain responses. Quantification of data is carried out easily and effectively. Apart from that the answers obtained are standard and can be compared between some respondents. They are also much easier to code and analyse. In addition they also make it easier for the respondent to answer because he has to choose a category.

3.3.2.2. Open-ended questions
The respondent makes any response he wishes in his own words.
The researcher used this type of questions because it makes it possible for the respondent to answer adequately with the amount of detail he/she prefers and to qualify and clarify the given answer. In addition they allow more opportunity for creativity or self-expression by the respondent.

3.4. Population.
The researcher used Puzey and Payne Gweru as the population. The company has 25 employees.

3.4.1. Census
It is a research study that includes data about every member of the defined population. The researcher provided questions for all the 25 employees within Puzey and Payne. A census was used because the population is small. This ensured that information from every employee within the organisation is obtained there by yielding better conclusions.

3.5.0 Data presentation and analysis
Analysis of data was done through the intensive use of the analysis methods discussed below. However before analysing the data, the researcher had to first make the data ready for analysis through:

3.6. Editing

The data was checked and adjusted for omissions, legibility and consistency of responses.

3.7. Data presentation
The researcher used the following methods: • Tabulation-this involves arranging data in a tabular form .Simple tabulation will be done where the researcher will count the number of responses to a question and present them in the form of a table. • Percentage calculation-this makes it easier to interpret data, a given percentage out of total population sample. • Pie chart presentation. -These facilitate summarisation and communication of the meaning of data

3.8. Chapter summery

The chapter outlined the research design, sources of data, techniques for collecting the data as well as highlighting the advantages and disadvantages. The sampling procedures were also highlighted and the techniques to minimise the shortcomings were also cited.

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1. Introduction

This chapter encompasses the presentation of the findings obtained by the researcher through the use of questionnaires and interviews. The results are described and presented in the form of tables, pie charts, and graphs.

Table 2 Questionnaire response analysis

|Send questionnaires |Questionnaires responded to |Percentage response rate |
| | | |
|25 |20 |80% |

As shown by table 2 above 25 questionnaires were constructed and sent to potential respondents. Of the 25 questionnaires send, 20 were returned despite the intensive follow up made by the researcher.

4.2.0 The view of respondents on the impact of the policy of charging duty in foreign currency on imported vehicles,
When asked whether the policy affected the sales of imported vehicles, the following results were obtained.

Table 3 showing the views of respondents on the impact of the policy on imported vehicles.

|Response |Number of respondents |Respondents as a percentage |
| | | |
|Yes |18 |90% |
| | | |
|No |- |- |
| | | |
|Indifferent |2 |10% |
| | | |
|Total |20 |100% |

As shown by table 3 above 90% of the respondents acknowledged that the policy of charging duty in foreign currency had an .impact on the sales of imported vehicles while 10% of the respondents were not sure whether the policy affected the sales or not.

4.3. The impact of charging duty in foreign currency on sales of imported vehicles.

When asked how the policy had affected the sales of imported vehicles in their organisation, the following results were obtained.

Table 4. Effects of the policy of charging duty in foreign currency on sales of imported vehicles.

|Effect |Number of respondents |Respondents as a percentage |
|Increase | | |
| |- |- |
| | | |
|Decrease |17 |85% |
| | | |
|No effect |3 |15% |
| | | |
|Total |20 |100% |

As shown by table 4 above 85% of the respondents showed that there was a decrease in the sales of imported vehicles as a result of the implementation of the policy while 15% of the respondents showed that there was no any effect noted and no one showed that there was an increase.

4.4. The impact of the policy on sales of the locally assembled vehicles.
A question was asked to find out how the policy affected the sales of locally assembled vehicles and the following results were obtained.

[pic]

Figure 4. The Impact of the policy on sales of locally assembled vehicles

As depicted by fig 4 above 75% of the respondents showed that there was an increase in the sales of the locally assembled vehicles while 10% showed that there was a decrease in the sales and15% showed that there was no effect on the sales of the locally assembled vehicles as a result of the implementation of the policy.
The results showed that majority of the respondents saw an increase in the sales of the locally assembled vehicles.

4.5. The effect of the policy on the sales of imported parts.

Respondents were asked how the parts sales were affected by the policy of charging duty in foreign currency and they gave different views. The following results were obtained.
Table 5. The effect of the policy on the sales of imported parts.

|Effect |Number of respondents |Respondents as a percentage |
|Increase |4 |20% |
|Decrease |15 |75% |
|No effect |1 |5% |
|Total |20 |100% |

As depicted by Table 5 above 75 % of the respondents revealed that there was a decrease in parts sales while 20% showed that there was an increase in the sales and 5% showed that the policy did not have any effect to the parts sales.

4.6. The effect of the policy on the way the vehicles were serviced. [pic]

Figure 5 .The effect of the policy on vehicle service

As shown in figure 5 above 80% of the respondents indicated that there was a decrease in the number of vehicles to be serviced.15% of the respondents indicated that they had no idea on how the policy had affected the servicing of vehicles while 5% indicated that there was an increase.

4.7. Chapter summery.

The chapter looked at the major findings of the research and went on to analyse and discuss the findings in relation to the research questions. The main findings discussed above have been on how the policy of charging duty in foreign currency have affected the sales of imported vehicles, imported parts, locally assembled vehicles and the way the vehicles are serviced. It is from the findings in this chapter that conclusions and recommendations were drawn.

CHAPTER FIVE

SUMMARY OF FINDINGS CONCLUSIONS AND RECOMMENDATIONS
5.0. Introduction

This chapter is mainly composed of a discussion of the main findings, conclusions and recommendations suggested by the researcher.

5.1 Summary of findings.
The findings obtained in the survey carried out can be summarized as following:

The impact of charging duty in foreign currency on sales of imported vehicles.(table 4)
85% of the respondents showed that there was a decrease in the sales of imported vehicles as a result of the implementation of the policy while 15% of the respondents showed that there was no any effect noted

The impact of the policy on sales of the locally assembled vehicles. (Figure 4)
75% of the respondents showed that there was an increase in the sales of the locally assembled vehicles while 10% showed that there was a decrease in the sales and15% showed that there was no any effect on the sales of the locally assembled vehicles as a result of the implementation of the policy

The effect of the policy on the sales of imported parts. (Table5)
75 % of the respondents revealed that there was a decrease in parts sales while 20% showed that there was an increase in the sales and 5% showed that the policy did not have any effect to the parts sales
The effect of the policy on vehicle service (Figure5)
80% of the respondents indicated that there was a decrease in the number of vehicles to service.15% of the respondents indicated that they had no idea on how the policy had affected the servicing of vehicles while 5% indicated that there was an increase.

5.2. Conclusions

• The policy of charging duty in foreign currency had a negative impact to the sales of imported vehicles as it led to the reduction in sales.

• The policy had a positive effect to the sales of the locally assembled vehicles in that it resulted in an increase in the sales of the locally assembled vehicles.

• The policy impacted negatively on the sales of imported parts as there was a reduction in the sales of the parts after the introduction of the policy.

• The servicing of vehicles was negatively affected by the policy of charging duty in foreign currency since there was a decline in the number of vehicles to be serviced.

5.3. Recommendations.

• The company should do target selling by focusing on customers who may have access to their own foreign currency for example NGOs and exporters. This may lead to an increase in the sales of imported vehicles.

• It must increase the number of locally assembled vehicles in stock so as to boost their sales there by generating more revenue.

• It must keep both genuine and non genuine parts so that customers who can not afford the genuine parts will buy the non genuine ones. In doing so the company will be catering for both groups of customers there by increasing the sales.

• The company should look for cheaper spare parts from local suppliers so that servicing of the vehicles may be cheaper and in doing so the number of vehicles to be serviced may increase which in turn increases the company’s sales revenue.

5.4. Chapter summery
This chapter focused on the main findings, the conclusions obtained from the findings as well as the solutions, which the researcher recommends for the organisation to be able to deal with the effects imposed by the policy of charging duty in foreign currency and continue to make profit.

REFERENCES

Beardshaw, J., Brewster, D., Ross, P.A. (1999).Economics. A student guide, 4th edition, Pearson education, New York.

Begg,D.,Fischer,S.,Donbosch,R.(2000).Economics,6th edition., McGraw Hill,Uk

.
BLACK, A. (1994). An Industrial Strategy for the Motor Vehicle and Component Sector.

Cape Town: University of Cape Town Press.

Bush, P.R., Hair, J.F, Ortinau, D.J. (2003).Marketing research within a changing information environment, 2nd edition, Tata McGraw Hill.

BW Online, (March 8, 2002) Behind the Steel-Tariff Curtain

Cooper, D, R., Pamela, S. (2005).Business Research methods, 8th edition, Tata McGraw Hill, New Delphi.

Ethier, J.W. (2000).Modern international economics, 2nd edition.

Graham, C (2002).International marketing, 3rd edition.

Herald 23 April 2007, 13 June 2007, 10 April 2007

Lipsey, R.G. (1957). The theory of customs union: Trade diversion and welfare.

Mason, E.J., Bramble, W.J. (1997).Research in Education and the behavioral sciences, Brown and benchmark publishers, USA.

Salvatore, D. (2004). Introduction to International Economics.

Shao, T.A.(1999),Marketing Research: An aid to Decision Making, South Western College, Johannesburg.

Statutory instrument 80A of 5 April 2007

Tausig, F.W. (2004) "Tariff," Encyclopedia Britannica, 11th edition, vol 26 pp. 422-27.

Trade Briefing Paper no. 14. Steel Trap: How Subsidies and Protectionism Weaken the U.S. Steel Industry Cato’s Center for Trade Policy Studies.

Tuckman, B.W. (1994).Conducting Educational Reseach.New Jersey, Harcourt Brace College.

Viner, J. (1950).The customs union issue. Carnegie Endowment for international peace. New York.

www.zimra .co.zw

www.newziana.co.zw

www.fin24.com/articles
APPENDICES
APPENDIX 1: INTRODUCTION LETTER.
Midlands state university
Faculty of commerce
Department of Business Management
Private Bag 9055
Gweru

03 June 2008

To Whom It May Concern:

Ref: Request For Research Project Assistance

I am a final year student at the above mentioned institution studying towards the completion of a Bachelor of Commerce (Honours) Degree in Business Management. In partial fulfillment of the program, it is the university’s requirement for me to carry out a research on a relevant area of study. My research topic is an evaluation of the impact of the policy of charging duty in foreign currency on imported vehicles to the motor industry.

Attached to this letter is a questionnaire that will help me in data gathering. May you please read the questions clearly before answering .The information obtained will be treated with confidentiality and will be solely used for academic purposes.

I will be grateful if you can assist me.

Yours faithfully

Chakwakwama knowledge
Section A

Company profile and personal details.

1. Industry……………………………………………………………………………

2. Location…………………………………………………………………………….

3. Department………………………………………………………………………….

4. Position……………………………………………………………………………

5. Period of employment in the company……………………………………………… Section B

Please complete by putting a tick in the appropriate box and writing in the provided spaces for structured questions.

1. Most car dealers have experienced a decline in the sales of imported vehicles as a result of the policy of charging duty in foreign currency.

Did the policy affect the sales of your imported vehicles?

Yes

No

Indifferent

If your answer is yes in question 1 above .How did the policy affect the sales of the imported vehicles?
Increase

Decrease

2. How did the policy affect the sales of locally assembled vehicles?

Increase

Decrease

No effect

3. In your opinion what do you think could have caused the decrease or increase in the sales of the vehicles?
………………………………………………………………………………………………………………………………………………………………………………………………

4. In what way has the parts sales been affected by the policy of charging duty in foreign currency on imported vehicles?

Increase

Decrease
No effect

5. In your opinion what do you think could be the reason for the effects cited in question 4 above?
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

6. What do you think should be done to deal with the effects?
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

7. What changes have taken place in the way the vehicles are serviced after the implementation of the policy of charging duty in foreign currency?
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

8. What could have been the cause for the changes cited in question 7 above?

9. What strategies are being employed by the company to cope with the effects?
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

10. Which one do you think is the most effective among the strategies? Give reasons.
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

-----------------------
Quantity

Dd

1000

1200

E

F

GG

C

Import
After tax

Imports
Before tax

Ss

World price
Plus tariff

World price

price…...

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