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Oliver Kazunga
Senior Business Reporter
THE Government has started discussions with captains of industry on the possibility of setting up a bank that would cater for the funding needs of manufacturing companies in Zimbabwe.
The financial institution would be responsible for the provision of capital funding for retooling to boost capacity and improve efficiencies.
Over the years, the manufacturing sector has experienced deindustrialisation due to obsolete plants and equipment, rendering the producers uncompetitive. This has impacted on the viability of many industrial entities, which encounter constant breakdowns, production inefficiencies and frequent downtime.
Some of the companies continue to use antiquated machinery and equipment that have outlived their lifespan. Nearly two decades of Western sanctions have closed avenues for affordable external lines of credit.
Zimbabwean companies desperately need low-cost capital to upgrade their capacity and efficiencies in the face of growing competition under the expanded African Continental Free Trade Area (AfCFTA), to which the country is a signatory.
In an interview last week, Industry and Commerce Minister Mangaliso Ndlovu confirmed that discussions on setting up the manufacturing bank were still at the early stages, but the Government was keen to establish a financial institution to support the manufacturing sector.
“We are in discussions and it has been mooted as an option that there be a manufacturing sector bank. But more than likely, we are going to have the IDC (Industrial Development Corporation) strengthen its development finance institution role, which is really more of being a financing arm for industrial purposes.
“It’s too early really to discuss this. It needs a lot of engagement with international finance institutions to see how we are going to be raising the funds and things like that.
“But what I can confirm is that we acknowledge the need for more focused funding towards manufacturing,” he said.
Asked to comment on the current state of the industry, Minister Ndlovu said: “We have got a comprehensive report in which all the BMOs (business member organisations) have given their input that we have to present to Cabinet in the next few weeks.
“And I think it’s better to comment after it has been presented than to pre-empt and have my colleagues start reading about it in the papers before it’s presented to Cabinet.”
Confederation of Zimbabwe Industries (CZI) chief economist Dr Cornelius Dube said they had not yet established exactly how much the manufacturing sector required for retooling since such data was difficult to collect using a sample survey.
However, in its 2023 manufacturing sector survey report, CZI said capacity utilisation in the industry declined to 53,1 percent from 56,1 percent in 2022, with limitations to affordable funding cited as a key issue.
The manufacturing industry representative body indicated that about 46 percent of the firms sampled last year invested in plant and equipment, with US$128,7 million being spent on the projects.
In 2022, 40 percent of the companies covered by the survey invested in plant and equipment, with US$101 million spent on the capital equipment.
In the survey report, CZI said, despite the increased investments in capital equipment, there was no corresponding rise in output during the period under review, with the average capacity utilisation level taking a dip.
To drive the manufacturing industry growth, CZI concluded that it was imperative for the country, among other initiatives, to ensure exchange rate and inflation stability, as well as continue with a policy thrust anchored in structural transformation, as espoused in the National Development Strategy 1.
Economic commentator Ms Wendy Mpofu said the major issues affecting the local manufacturing sector included limited access to foreign currency needed to import capital equipment and critical raw materials.
She also cited inflation and currency instability, which, until recently, had been serious challenges, as well as high production costs.
“As a result of the issues to do with foreign currency challenges, the manufacturing sector has not been able to optimise efficiencies because the companies are limited by foreign currency shortages to import critical raw materials.
“The companies, on the back of production inefficiencies due to obsolete equipment, have not been able to fight stiff competition emanating from the influx of imported products; the firms are also incurring high production costs and long periods of downtime due to frequent breakdowns of plant equipment,” she said.
In its manufacturing survey report, CZI highlighted that in the face of AfCFTA, 46 percent of the respondents were not ready for external competition, 21 percent were not sure and 34 percent indicated readiness to stand against competitors from various regions on the continent.
AfCFTA is the world’s biggest free trade area with a population of about 1,4 billion and is expected to contribute an estimated US$2,3 trillion to the continent’s Gross Domestic Product.
The free-trade area agreement, which was operationalised in January 2021, seeks to eliminate tariffs on 90 percent of goods traded among member states over 10 years.
Among other goals, AfCFTA also seeks to streamline customs procedures, reduce bureaucracy and harmonise technical standards to ease the movement of goods across the continent’s borders.
This, CZI has said, would pose increased competition from imports entering the country, making the need for an industry-specific financing institution all the more important.
CZI president Mr Kurai Matsheza said they had engaged the Government over the setting up of a manufacturing sector bank, as the industry had for long been caught in unending cycles of working capital constraints, making it impossible to retool and boost operations.
“We have been talking about manufacturing banks and so on . . . and I think we need a long-term solution to these difficulties — manufacturing has got a long cycle; therefore, we need a bank that can support our operations with
the much-needed capital from time to time.
“These views we have highlighted to our parent ministry (Industry and Commerce) and we have also highlighted this to the Ministry of Finance, Economic Development and Investment Promotion, but it is still work in progress.
“The idea has received a buy-in from everybody we have engaged so far and it just needs people to put their heads together and follow it through,” he said.
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