adminon the economy. At this juncture, only the intervention of Government could stop the haemorrhaging industry from going under.
While Government has pledged to address the life threatening challenges facing local industry through the Industrial Development Policy 2012-2016, it appears there is little panacea to urgently save the industry from collapsing. A fresh dose of low cost capital is, by and large, what firms are thirsting for.
CZI president Mr Kumbirai Katsande aptly summed the sorry state the manufacturing sector finds itself in when he said “we are behaving as if we do not know that we are in a crisis.”
His fears were echoed by Dairibord Holdings chief executive Mr Anthony Mandiwanza, who sought to know what Government had in store with regards to addressing industry challenges.
“Capacity utilisation has dropped to 44,5 percent. What can we do because, really, that direction is not good? There is a growing gap between imports and exports. Zimbabwe is becoming a corridor of consumption, those issues are of serious concern,” he said.
Failure to act now could come at a huge cost to the economy, and would have unfathomable socio-economic and political repercussions besides making Zimbabwe wholly dependent on imports.
The Confederation of Zimbabwe’s latest manufacturing sector survey released on Wednesday painted a grim picture of the sector. The sector is in dire straits and needs urgent salvation.
Zimbabwe’s manufacturing industry requires an estimated US$2 billion, according to industry and Commerce Minister Welshman Ncube, to recapitalise and enhance its competitiveness.
CZI’s survey established that manufacturing sector capacity utilisation has slumped from 57,2 percent in 2011 to 44,2 percent now.
The industrial lobby group said findings from the research pointed to a myriad of factors chief among them lack of access and availability of funding.
High cost of power, water, poor infrastructure, competition from imports, lack of access to finding and high cost of finance were also cited as factors to choking efforts at reviving industry.
But if action is going to be taken, it surely should first look at addressing the issue of access to affordable medium to long term capital.
Elusive funding and stifling liquidity crisis has seen banking institutions charging as much as 30 percent interest annually on mostly short-term loans while selected banks slapped defaulters with penalty of up to 58 percent on defaulting borrowers.
CZI’s survey of respondents says about 32,3 percent cited funding constraints to production, 13,3 percent poor local demand, 11,4 percent old machines and breakdowns, 9,9 percent power and water, 9,5 percent competition from imports, 8,4 percent the environment, 8 percent cost of doing business and 5,3 percent raw material shortage.
In 2011, the total number of companies which had new capital investment increased by 11 percent. Of these, 93 percent invested in machinery and equipment while 7 percent invested in land and buildings.
The major reason for investment was to replace antiquated machinery and equipment (46 percent), and to expand their operations (44 percent) and most were owned by multinational firms.
From the respondents only 46,5 percent recorded capacity utilisation of above 50 percent, with a total of four firms recording capacity of 100 percent. The average capacity utilisation of 44,2 percent would imply a decline of 12,3 percentage points from last year’s average capacity of 57,2 percent. It means these firms that can not recapitalise or replace old equipment remain trapped in a vicious circle of low capacity, lack of competitiveness and are likely to scale down, retrench or collapse.
The most affected sectors include leather and allied products with capacity at 27,5 percent, car assemblers 30,3 percent, grain millers 30 percent, paints and inks 30,5 percent, textiles and clothing 34,4 percent, bakers 40 percent and engineering, iron and steel, which is operating at an average of 41,6 percent.
Average to well performing industrial sub-sectors include timber processors at 53,8 percent, building construction 59,5 percent and battery manufacturers 76,5 percent, paper, printing, publishing at 58,2 percent and pharmaceuticals 58 percent.
But the backlash that stares Zimbabwe include even high levels of unemployment, worsening balance of payment situation, external inflationary pressures due to imports, dependents on imported products, drop in hard currency inflows against increasing consumption demands as the population grows.
CZI president Mr Katsande said manufacturing firms continue to reduce output and head count, warning that many more firms would close down if no action is taken soon.
“We do not realise that we are in a crisis. One of the issues for me is that let us just accept to say, guys, we do have a job to do.
“It is a kind of cry from industry, a cry to ourselves, to Government. They say in India a baby that does not cry won’t get milk, here not only will the baby not get the . . . milk, the baby will die. We’re seeing the babies dying in our industry,” he said.
But Mr Katsande said it was critical to ensure manufacturing and agriculture thrive, as their fate were interlinked. He said while people hyped on the contribution of mining to the economy, development was unlikely without manufacturing and agriculture.
CBZ Holdings chief executive Dr John Mangudya said while Government seemed to blame bank’s for industry’s capacity constraints due to limited access to affordable lines of credit, there were several other strong factors militating against production.
“Government is convinced that the industry in this country is collapsing because of high bank charges and interest rates. I do not believe that.
“I come from a school of thought that if you have something that you are producing you always make a margin out of the product you also put a margin in the price of that product, there is no price control in this country,” said the CBZ Holdings boss.
Presenting the findings of the report, CZI chief economist Ms Lorraine Chikanya, said manufacturing’s contribution to the country’s export sales remained unchanged at just about 15 percent.
She said the survey highlights sluggish sector performance, with average manufacturing sector output growing by less than 2 percent.
Ms Chikanya said the survey revealed policy inconsistencies and ambiguity as causing capital flight, resulting in reluctance by foreigners to commit significant investments across all sectors of the economy.
CZI immediate past President Mr Joseph Kanyekanye said Government should quickly move in and protect fragile industries and adopt an incubation strategy to help critically affected areas to recover.
He said the threatened, but potential growth areas, would then be supported by an array of incentives to make them very competitive.
Officially launching the manufacturing survey report, Industry and Commerce Minister Welshman Ncube said Government seeks to address industry’s challenges through the Industrial Development Policy 2012-2016.
He said the manufacturing sector was facing constraints ranging from lack access to long-term affordable funding, power shortage, poor road and rail infrastructure and competition from cheap imports.
He said against this background Government would seek to support growth areas in the SMEs sector covering manufacturing, agri-business, leather, footwear, wood, furniture, beverages and clothing.
This would be done through the establishment of industrial parks and cluster with a view to increase employment on an incremental basis until 2016, but using less funding mobilised from domestic sources.
Online Reporter