ZIMBABWE’S harsh economic environment led to the closure last year of 40 manufacturing companies and the loss of close to 4 000 jobs, a report on the state of the manufacturing sector by
the Confederation of Zimbabwe Industries (CZI) has revealed.
The firms closed down largely because of the macroeconomic instability, which affected viability, depressed domestic sales; the influx of Chinese merchandise and foreign currency blues.
The annual study, which should be released today, indicates that hardest hit by the economic meltdown was the furniture industry, which saw 12 companies shutting down.
The report said 11 companies closed down in the leather, shoe and allied industries while six closed shop in the textiles, food and allied industries.
The clothing and electronics sectors lost four firms and one firm respectively.
The report said the deteriorating operating environment was a major threat to business viability. It said during the past four years the crisis had deepened into a recession.
“The rate of company closures that slowed down from a peak of 400 in 2000, to 150 in 2001, had started increasing again in 2002, to a level of 250,” the report said.
“The economy’s resilience came under test in 2003, which saw the asset price bubble bursting in Q4 (fourth quarter of) 2003, signaling a major involuntary reshuffling of business models late into 2003.
“Even then (fourth quarter of 2003), economic conditions were already limiting for business continuity, with inflation running at 600% and foreign currency costs at $6 500-$7 000 to the US dollar for financing imports.”
Macroeconomic instability has largely compromised manufacturing sector performance over the years, with the sector’s contribution towards gross domestic product retreating from 24,1% in 1991 to 14,5% in 1999. Analysts say the sector contracted by a further two-thirds last year.
The situation was worsened by the fixed exchange rate of $824 against the greenback. This fuelled the parallel market where the local unit slipped to an all-time low of $7 000-$7 500 to the US dollar.
“The foreign exchange rate regime itself became a tax on exports which were financed by the inflated parallel market exchange rate and yet remittances were effected at the blended 50:50 ratio with the official pegged at $824 and government rate of $55,” the CZI report said.
“Key utility costs such as electricity and fuel owing to the liberalisation of the fuel sector in August 2003, added a huge cost burden on to the manufacturing sector, hence posing a potential threat to business viability in the short- to medium-term,” it said.
The survey said figures obtained from National Employment Councils showed that a total of 3 858 employees were retrenched last year, up from 1 187 in 2002, indicating worsening economic conditions for 2003.
The report said 25 firms could this year “probably retrench if their viability remains threatened, and the situation will result in at least 2 575 employees being laid off”.
*See also businessdigest.