THE findings of the manufacturing sector survey released last week illustrate that far from turning around, the economy continues to sink.
The manufacturing industry is likely to continue plummeting unless there is a policy shift by both governm
ent and the central bank to address fundamental issues militating against recovery in the sector.
Analysts say the report compiled by the Confederation of Zimbabwe Industries (CZI) mirrors the decline of other key sectors like agriculture, tourism and exports.
The report said the manufacturing sector was continuing to collapse because of government’s policy flip-flops, foreign currency shortages, power outages and raw material shortages.
Capacity utilisation in industry, the report said, had hit rock bottom as the crisis continues to push hundreds of companies out of business, leaving millions jobless.
It said only 13% of the companies in the sector were operating at above 75% capacity due to foreign currency shortages.
The bulk of the companies are operating below capacity while others could close down any time soon.
“Overall, the fact that only 13% of the responding companies are operating at over 75% capacity means that most companies are unable to meaningfully cover their costs and utilise their standing capacity,” it said.
Apart from the foreign currency and raw materials shortages, most companies are reeling from the slump in demand caused by inflation which has eroded consumers’ disposable income, it said.
At least “42,3% of responding firms indicated that low effective demand was a significant negative factor on capacity utilisation”.
The report noted that the plunge in capacity utilisation had forced 42% of the workforce out of their jobs.
It also revealed a dip in business confidence with most business people indicating that they are disillusioned by the current state of affairs.
It said business people did not believe that government’s turnaround would achieve any meaningful results in the near future. Although the report is based on a sample of companies, the survey offers an independent insight into the state of this key sector of the economy.
It is a reflection of the market sentiments of the economic situation, economists say. The report said the majority of business managers in Zimbabwe did not believe that their economic fortunes would improve any time soon.
It said 49% thought the economy would not recover “in the time-scale that we had provided. The main reason was that they did not think there was anything currently taking place or likely to take place in the foreseeable future that would significantly change the economic fortunes of Zimbabwe by 2010.”
Only 16% of the business managers thought the turnaround would be achieved in the next two years, the report said.
Business confidence, it said, was at its lowest with most managers more pessimistic about their future than they were in 2000.
Only 9% of the business executives remain optimistic about the future of their businesses in Zimbabwe.
In 2000, when the cracks were beginning to widen in the economic edifice, about 50% of business managers were optimistic that the situation would change for the better.
The report further warns that the downward spiral will persist unless there is a policy shift in government.
“It is therefore clear that we are beginning to lose the momentum of the turnaround process and we need to formulate and implement policies that will inspire our industry players to start looking forward.”
Business people also blamed the government’s command policies for their demise saying this made the business environment unpredictable.
“There seems to be a lack of congruency and intentions between government policies and the industry’s perceptions. In addition, industry is concerned as they cannot keep pace with the rate of change of policies on fundamental issues.
“They will either ‘sink or swim’ together. The government policies are currently viewed with scepticism and disbelief,” it said.
Like other reports on Zimbabwe’s economy, the state of manufacturing report warned that there would be no turnaround in the sector or the economy as a whole unless the agricultural sector is revived.
Analysts say the crumbling manufacturing sector — one of the key pillars of the economy — is emblematic of the broader economic collapse.
Economist Blessing Sakupwanya said the decline in the manufacturing sector was closely linked to the collapse of agriculture which used to supply 40% of raw materials.
“Unless and until agriculture is revived, there won’t be any improvement in the manufacturing sector,” Sakupwanya said.
The unfortunate reality is that agriculture itself remains in the doldrums due to government’s botched policies on land.
Government has allowed fresh farm invasions and corruption to continue to scuttle production in the sector. Agricultural production is likely to slump further due to input shortages.
Independent estimates are already showing that this year is likely to be no better than last year. Analysts say agricultural production will be subdued despite the good rains due to late delivery of inputs such as fertiliser, chemicals and seed.
“The collapse of agriculture means less foreign currency, which in turn affects its ability to supply manufacturing with raw materials resulting in low production,” said Sakupwanya.
He said low production would result in reduced foreign currency earnings which would impact on the whole economy.
For its part the government regards doling out money as the solution to problems in the manufacturing and agricultural sectors. Faced with rampant company closures, the government and the central bank launched the Productive Sector Fund which has however failed to halt the collapse.
The $5 trillion splashed on the manufacturing sector has not stopped companies from closing shop.
Sakupwanya said the problems companies faced had nothing to do with lack of the Zimbabwean dollar but foreign currency which government cannot provide at the
“What companies need is foreign currency and Zimbabwe does not have that at the moment. In terms of foreign currency, the government is broke. Giving money to distressed companies will not help them.”
But other analysts say the problem is even bigger than foreign currency shortages. At the core of the crisis, analyst say, is the inherent lack of political will and government’s obsession with command economic policies which are hurting all sectors.
The price controls which government promised to abolish during last year’s budget are still in place. It is currently involved in bitter fight with bakers over bread prices.