HomeOpinionEconomic woes continue unabated

Economic woes continue unabated

Shakeman Mugari

DESPITE government and Reserve Bank of Zimbabwe (RBZ) claims that the economy is recovering, the manufacturing sector continues to decline.

Analysts say the government’s poor

economic policies led to the collapse of manufacturing and other sectors of the economy.

The manufacturing sector — a key engine of economic growth — has slumped by more than 60% in the past three years, leaving thousands jobless.

A Confederation of Zimbabwe Industries report released last week shows that more than 290 companies have closed shop in the past two years.

About 700 companies have so far closed down over the past five years.

The annual report, titled The State of the Manufacturing Sector, reveals that this year alone, 25 companies are expected to downsize while eight are likely to shut down.

The continued spiral in the manufacturing sector, says the report, is likely to see about 2 575 employees losing jobs. Last year close to 3 858 employees were thrown onto the streets after their companies either downsized or closed down.

The report also says that “virtually all manufacturing sub-sectors recorded negative growth last year”. It says significant declines were recorded in transport and equipment (-35,9%), clothing and footwear (-35,2%) and non-metallic metals minerals 29,8% in the same year. The wood and furniture sub-sectors declined by 20,8% while chemicals and petroleum slumped 14%.

While it is routine for government to blame such a downturn on sanctions, the report points out that the crisis in the agricultural sector has contributed to the 60% decline in the manufacturing sector in the past three years.

“The persistent slump in manufacturing output over the last three years can be explained by the limited throughput from agriculture which has a direct bearing on the food stuff sub-sector,” says the report.

The foreign currency shortages, which have been caused by the decline in exports, have also impacted negatively on the manufacturing sub-sector. Foreign currency-induced input supply bottlenecks continued to strain availability of strategic raw material imports, and hence continuity in production profiles in the period,” the report says.

The fragile Zimbabwe dollar has worsened the plight of the clothing, footwear, chemicals and petroleum sectors.

Government’s “Look East” policy has also been blamed for the disaster in the manufacturing sector. The report says the textile, clothing and footwear industry have been affected by the unregulated influx of substandard products from China and other Asian countries.

Analysts say recent government efforts to pour money into the productive sector will not revive the manufacturing sector. Over the past three months the government has gone on a spending spree, splashing more than $2 trillion into the productive sector. So far it has doled out more than $744,2 billion to the manufacturing sector.

Despite this generous spending, the manufacturing sector has remained in the doldrums. According to an economic update report by the Finhold group, manufacturing production has declined by 13% in the first six months of this year.

Economic commentator John Robertson said government was wrong to believe pouring billions of dollars into manufacturing would suddenly solve all the country’s problems.

“This business of throwing money everywhere will not help. Companies need foreign currency not Zimbabwean dollars,” Robertson said.

“Throwing Zimbabwean dollars at a problem that needs United States dollars will not help. Where will they (manufacturing companies) get foreign currency?”

The auction market launched earlier this year has failed to stabilise the foreign currency market. About 87% of foreign currency bids on the RBZ’s auction system have been rejected to date.

He said due to foreign currency shortages many investors were likely to shun the manufacturing sector.

“Because the agriculture sector which used to earn foreign currency has been destroyed, production will continue to decline,” Robertson said.

Other analysts say the government has destroyed manufacturing under the guise land reform. They say the government has failed to realise that in as much as the agriculture sector might be the mainstay of the economy, it needs support from other sectors.

Zimbabwe’s exports have crashed from a peak of US$3,4 billion four years ago to a paltry US$1,3 billion expected to be achieved this year. The shortfall, economists say, is likely to impact on the other sectors of the economy.

Tobacco production, which used to earn the bulk of the foreign currency, has been systematically destroyed by the government’s chaotic land reform. Production has decreased from 200 million kg in 2000 to about 65 million kg in the just ended season.

A bleak outlook continues to hover over the sector with recent reports showing that land prepared for the current tobacco season will not yield more than 60 million kg. All this spells doom for companies that depends on the agricultural sector.

Robertson said the government had also contributed to the collapse of most manufacturing companies by maintaining an unrealistic exchange rate. Companies that rely on imports have been battling to get foreign currency from state-controlled auctions.

The government has over the past two years opened up the market to Chinese products that have forced local companies out of business. The manufacturing report says due to the influx of Chinese footwear and clothing into the market, a number of local companies have closed shop.

Brian Kagoro, a political commentator and human rights activist, says Mugabe is turning the country into a cash-cash economy without any real growth.

“Mugabe says ‘Look East’ and to make that point, he allows substandard products to be dumped in the country, thus destroying the ailing manufacturing sector,” said Kagoro.

“You cannot build an economy based on imports and retail. There is no production and growth to talk about in Zimbabwe. For there to be meaningful growth there is need for rationalisation of the fiscal and monetary policy, but at the moment there is a wide gap between the two.”

Statistics show that the ‘Look East’ approach has not brought a single manufacturing company to Zimbabwe. They also show that over the past three years Zimbabwe has not had a single investment in manufacturing. This decline is also apparent in sectors like tourism.

The mining industry had not been spared either. Political analysts say that there will be no real investment unless the political impasse has ended. They say there is need for a political settlement if foreign investors are to return to Zimbabwe. International economic groups have ranked Zimbabwe as one of the worst investment destinations in the world because of the current political turmoil. Zimbabwe is ranked along with war-torn countries like Iraq and Haiti.

The Economist Intelligence Unit points out that foreign investors have shunned the country because of political violence and lack of property rights.

MDC MP Priscilla Misihairabwi-Mushonga said the manufacturing sector would only recover if there were political stability.

“For the economy to grow, the current government must show that it is now committed to stopping violence against the opposition, restore rule of law and respect private property,” Misihairabwi-Mushonga said.

Misihairabwi-Mushonga, who is also the chairperson of the public accounts committee, added that parastatals were also contributing to the downturn in the manufacturing sector because of inefficiency.

Zimbabwe has more than 30 parastatals that offer essential services to the economy. However, most of them are debt-ridden and inefficient.

The National Railways of Zimbabwe has failed to provide coal to some companies due to lack of wagons.

“How can the manufacturing industry grow when there is no energy? Even when it’s available the charges are increased arbitrarily,” Misihairabwi-Mushonga said in reference to the power utility, Zesa.

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