Manufacturing volumes up

Business Reporter
THE Confederation of Zimbabwe Industries (CZI) says the country’s manufacturing sector has recorded a 5.5 percent growth in volume output this year compared to 2016.

This is despite the slight drop in average capacity utilisation from 47.4 percent to 45.1 percent during the same period. In a sectorial performance update, which dovetails with last week’s State of the Manufacturing Sector Survey, the industry body said the clothing and textile sector performed exceptionally well with higher employment levels when compared to other sectors.

According to CZI, the level of capital investment in the entire manufacturing sector grew, explaining the growth in capacity, which is however, not being fully utilised.

“It could therefore be argued that while this capital investment helped increase production output, it grew to such an extent that the capacity created was more than the aggregate demand for the local market resulting in underutilisation of the capacity,” said CZI.

Given the tight liquidity situation in the country, the survey shows that there is an increase in demand for foreign currency attributable to increased production output as more firms import raw materials. The manufacturing sector benefited immensely from the Government’s import control policy measures such as Statutory Instrument 64 of 2016 and others, which has since been consolidated under S.I. 122 of 2017. The industry body said a majority of the raw materials have to be imported as they are not locally available, which indicates the need for the revival of agro-based value chains to supply raw materials that the country can produce locally.

The survey also highlighted the importance of South Africa/Zimbabwe strategic trade relations as most raw materials, capital goods and even some finished products are imported from the neighbouring country. South Africa also exports most of its products to Zimbabwe. However, export performance of the sector remains a concern with the manufacturing industry contributing less than 10 percent of total exports. The sector remains uncompetitive to be able to export hence experts have stressed the need for urgent strategies to stimulate exports of locally produced finished products.

According to the CZI report, major constraints to performance of the sector are shortage of raw materials, low local demand, foreign currency shortages and competition from imports. Electricity, which over the years has always featured in the top five most problematic areas, is no longer a major issue.

Apart from clothing and textile, the plastic and packaging and the food stuffs sectors also recorded positive capacity utilisation growth.

Engineering, iron and steel sector
CZI believes the proposed $1 billion investment in ZiscoSteel will be a major boost for the sector and the country at large. The industry body believes the investment will create employment as well as improving the local steel supply, which presently relies on imports. “Reviving Zisco will also assist in saving forex since steel will be locally manufactured for both local companies and for exports thereby resolving the raw material challenges and securing foreign currency,” the Engineering Iron and Steel Association (EISAZ) reported. Together with other industrial associations including CZI and the Chamber of Mines, the EISAZ has assigned a taskforce of engineers to assess the needs and specific requirements for mining companies to ensure improvement of local procurement, initially starting with Harare, Kwekwe, Gweru and Bulawayo. The sector is presently affected by the prevailing delays on foreign currency payments, which is affecting wages for employees.

Textile manufacturing
The Zimbabwe Textile Manufacturers Association (ZITMA) boasts of a success story as there were quite a number of noticeable positive developments in its operations. According to the report, the Polypropylene packaging manufacturers had a major boost from the rapid increase of the agricultural yield through the ongoing Command Agriculture programme, supplying about 1.5 million packaging bags to GMB this year.

The sector had employment increase in the sector with the Zimbabwe Grain Bag alone recording a 35 percent increase, rising from 221 to about 300 employees. ZGB has since recapitalised thereby improving their capacity to supply both local and international markets. However, the sector still faces the challenge of funding and shortage of foreign currency for raw materials. Recently, the sector failed to send representatives to the Origin Africa, which is one of the largest international trade shows for the cotton value chain due to lack of funds.

Furniture manufacturing sector
The sector is also facing the common challenge of forex shortages, outdated machinery as well as border delays and requires about $3 million for raw materials and $5 million for working capital support for the industry to properly function. However, the unavailability of foreign currency has impacted the expected performance in almost every sector in the country, according to the Furniture Manufacturers Association (FMA).

There is also a need to upgrade the outdated machinery to ensure improved performance and production of quality goods that can be competitive on the world market and be able to earn the much needed forex. The retooling process needs about $10 million to be successfully carried out, said the industry body. Players in the sector have also cried foul over continued smuggling and importation of substandard furniture. The FMA is in support of the one stop border post on the country’s entry points as an effective way of addressing unnecessary border delays especially with regards to raw materials importation.

Tea growers
The sector is faced with several challenges such as outdated machinery, cash shortages and lack of funds to diversify. The prevailing cash shortages have impeded on employees’ production time as they are opting to patiently queue for cash at banks than to report for duty. The high premiums charged on electronic and mobile payments when purchasing inputs is reportedly leaving farmers purchasing inputs at very high prices. Due to lack of funds, CZI says the sector is not able to upgrade their machinery to improve performance.

On the same note, available local funding alternatives are said to be too expensive and not comprehensive for the respective agricultural projects. There is, however, greater potential for the sector given funding to substitute imports and improve forex earnings through diversification and capitalising on the rising demand for avocadoes and other types of nuts on the world market.