daniel chigunwe
Martin Kadzere and Tapiwanashe Mangwiro
Zimbabwe has seen a growth in investment in manufacturing sector in 2023 although this has not yet translated into a significant rise in overall output, a new study has shown.
According to the recently released 2023 Annual Manufacturing Sector Survey, 46 percent of companies surveyed invested nearly US$130 million, up from US$101 million in 2022, suggesting that it is not all doom and gloom for Zimbabwe’s manufacturing sector.
However, new investment does not necessarily translate to immediate output for various reasons. Some plants might be undergoing upgrades that have not been completed, others still in the commissioning phase while some investments may still be in the process of being deployed.
In some instances, it may also take time for companies to ramp up production to reach the full capacity created by the investment.
Analyst Tafara Mtutu said there is a huge lead time from the time capital expenditure (CapEx) is talked about to the time it starts bearing results.
“So, when a company says they have invested CapEx of, say, US$20 million in their manufacturing capacity, they are not saying, the following day, those operations are already running. It can take as much as a year or even more, because there is a process that goes on before any new investments are actually online.
Furthermore, Zimbabwe’s recent economic turbulence might have dampened consumer demand, potentially leading to underutilisation of the new factory capacity. According to Mtutu it also goes down to how much a company produces, as it is also a function of what the market demands.
“So, you can have all this manufacturing capacity now, but if the demand is not matching up to the capacity, it does not make sense for you to run a plant for 24 hours, seven days a week to meet demand, when all you need is just maybe half of that time. It saves you on costs,” Mtutu added.
Assuming no major disruptions like electricity shortages, foreign currency limitations, or raw material scarcity, these investments should translate into increased output in the near future.
“The recent surge in investment in Zimbabwe’s manufacturing sector is encouraging,” industry analyst Kudakwashe Chiroro said.
“While there will undoubtedly be a period of adjustment as companies ramp up production, the long-term outlook appears positive. Increased domestic production can not only boost the economy but also create jobs and reduce reliance on imports,” he said.
The CZI report revealed a slight decline of 0,1 percent in overall manufacturing output.
While larger and medium-sized companies saw a small increase in output of 0,1 percent and 0,2 percent respectively, small firm experienced a slightly larger decline of 0,5 percent.
As a result, the average capacity utilization across the sector fell from 56,1 percent to 53,2 percent.
However, the report identified a key challenge — the manufacturing sector largely relies on imported raw materials for over half of its needs (about 52 percent).
Some analysts said the dependence underscores the importance of boosting domestic primary production, particularly agricultural products that can be grown locally.
Last week, Buy Zimbabwe chairman, Munyaradzi Hwengwere, said while supermarket shelf space dedicated to locally-made products has increased significantly, reaching up to 80 percent, the local content within those products remains around 50 percent.
Maximising benefits from the recent investments in the sector could be achieved by prioritising the development of a strong domestic supply chain for raw materials.
As far as solutions are concerned, Mtutu said the stability of ZiG will be key.
“If ZIG managed to get international recognition or there is healthy demand for ZIG that allows it to be stable even on the parallel market, then you can start to see an increase in business sentiment by manufacturers, which could boost capacity utilisation in the long term.”
According to economist Dr Prosper Chitambara, the issue of stability is critical.
“We need to walk the talk in terms of sustaining the macroeconomic reform agenda around fiscal and monetary prudence and discipline as well as even other institutional reforms that help to restore confidence.
With electricity being a major issue, Dr Chitambara said there is need for more investments in terms of green energy.
“We should look into finding ways to become competitive, especially in the region, such that local manufacturers, their market is broadened to more than just beyond the local market and include the region. If those things are put in place, then we can start to see an increase in capacity utilisation because there will be a case for it,” he said.
Bongani Ndlovu