Insight: Behold — The gang of four comes to town!

Howdy folks! So it’s November —that month of the goat that brings a shutdown to mirth and festivities.

The results of the Confederation of Zimbabwe Industry’s 2015 Manufacturing Sector Survey which were presented last week did not disappoint in successfully matching what’s required of the season.
Yes, they brought absolutely nothing to celebrate.
Again, like I predicted in one of my instalments not so long ago, capacity utilisation fell — this time to land at 34,3 percent.
And there is a notorious gang of four factors that claims responsibility for knocking down capacity utilisation year in, year out. This gang is 70 percent responsible for this crime.
The gang is composed of low local demand, capital constraints, antiquated machinery and machinery breakdown and last but not less vicious — competition from imports.
Those four are complete to go on the prowl.
However, one thing I liked at this year’s breakfast meeting when the survey was launched was the critiques of some of the variables that are used.
On the spotlight was whether capacity utilisation — singly — is an adequate measure of industrial health, whether it deserves the attention it often gets.
The industrialists present seemed to be in consensus that capacity utilisation should be done away with.
CZI past president Mr Katsande, for instance, pointed out that the survey should actually be called “State of the Capacity Utilisation Survey”, given how this variable is given much emphasis.
But quite tellingly was industrialist Jimmy Psillos’ argument.
The Crystal Candy boss bluntly charged that the survey should move away from using capacity utilisation and use other variables such as volume of output and level of productivity.
To highlight how capacity utilisation may conceal more than it ought to reveal, he gave the example of a company that is operating with one machine.
I will have to add a bit of salt here to make the example tastier.
Now, let’s assume that that one machine is operating at 80 percent capacity.
Then let’s say the same company chooses to introduce a second machine similar to the first one, but operating at 60 percent of installed capacity.
The new average capacity utilisation of the company’s machines is now 70 percent.
So, we may say capacity utilisation has “fallen” from 80 percent to 70 percent, but the volume of production has actually increased significantly.
The above critique is quite critical, especially when the same survey tells us that 47 percent of manufacturing firms carried out new capital investments.
But we can’t throw away the baby with the bathwater.
It is not in every scenario that things happen in the exact pattern outlined above. Capacity utilisation, therefore, remains the key single variable that should judge the health of the manufacturing industry.
If it were a sick person visiting a doctor, we would equate capacity utilisation to the patient’s temperature reading on a thermometer.
Doctors often look at your temperature first before diagnosis.
In some cases, the doctor might choose to admit you on the single basis of your temperature reading.
That’s your capacity utilisation when it comes to the industrial economics of Zimbabwe. And the capacity utilisation reading we just got is self-evident that we need to admit our local industry in an intensive care ward.
Otherwise this patient will face imminent demise.
But what disappoints me much is how the gang of four continues to wreak havoc yearly but with nothing concrete being done about it.
Some have nicknamed these four constraints “the usual suspects”.
They proudly take responsibility for the terrible malady that has condemned industry to her deathbed and yet we just sit there and watch.
Is industry suffering from some incurable disease?
The answer we get is “no”.
It is high time we save the manufacturing sector. We should double, if not treble, our efforts. Apparently, it has proved beyond doubt that the current strategies are not as vigorous as they ought to be. Like Mr Kumbirai Katsande pointed out at the survey launch last week, “we will not walk out of this crisis with our suits on”.
But when you bring a few more variables of the survey, you will be convinced why we are in this mess.
Let’s look at the efficacy of research and development being done by our local research firms.
Seventy one percent of the manufacturers highlighted that such research and development is either poor or very poor — in other words ineffective.
We are living in times where only robust research and development can anchor industrial development, yet we are wasting our very limited resources on useless research.
Alas!
Then secondly, you also look at the competitiveness frenzy that is now apparently overlooking other important issues of the day — like export diversification, for instance.
Where do we think we can go if our exports are this concentrated to a few countries.
Looking at the three main export destinations of manufactured products, as established by the survey — we have Zambia topping the list, with South Africa and Malawi following.
But the currencies used by those export destinations — the rand and the kwacha — are deteriorating, thereby choking our potential to export.
If we do not diversify our exports, how do we expect this to end? The world is a huge place and full of opportunities.
*More on the CZI Report on Business Page 2