Manufacturing sector capacity utilisation to decline in 2014

Capacity utilisation in the manufacturing sector is expected to decline further this year as firms continue to operate under difficult conditions. Capacity utilisation in the manufacturing sector recorded improvements after dollarisation between 2010 and 2012, but last year declined by 5,3 percent from the prior year average.

According to ZB Financial Holdings, the manufacturing sector will take a further knock from the double effects of illiquidity and cheap imports.

“Given the prevailing sub-optimal economic environment, we further forecast a further decline in capacity utilisation in 2014, as manufacturing companies remain under pressure from tight liquidity and competition from low-priced imports.

“The level of company closures is at an alarming rate and it has generally come against a backdrop of declining industrial capacity utilisation, which worsened to an average of 39,6 percent in 2013 from 44,9 percent in 2012,” said ZBFH in its monthly economic update.

The liquidity situation has emerged as the biggest challenge facing local productive sectors, which is a trend following on from last year.
The 2013 Confederation of Zimbabwe Industries (CZI) Manufacturing Sector Survey showed that the main challenge faced by companies was that local products were uncompetitive in regional and international markets while companies that have orders were failing to meet them due to shortage of working capital.

In view of the challenges there is need for the authorities to seek capital for the productive sectors, especially as local banks are showing to be risk-averse and preferring to fund households.

This will require huge sacrifices on the part of government because currently, a significant portion of national income is going towards consumption, particularly towards the civil service wage bill.

Critically also, Zimbabwe needs a debt agreement with its creditors, and the second Debt Resolution Forum on Zimbabwe set for September, which is being organised by the African Development Bank, is a key starting point. — Bh24.