Eric Bloch: Industry Faces Host of Challenges

ONLY cynics and sceptics can dispute that the long oppressed and distressed Zimbabwean economy has begun to recover.


But only naive optimists, succumbing to wishful thinking, can believe that that recovery will be completed rapidly. Thanks to gross economic mismanagement, fuelled by placing political objectives ahead of the nation’s needs, the economy had progressively contracted over the last 11 years, reduced to a shrivelled and shrunken shell of its former self.

Inflation soared endlessly upwards, employed numbers plunged continuously downwards, the poverty-stricken increased constantly to more than seven million, government became bankrupt — these were but a few characteristics of the decimated economy. But, despite the fact that there are many who scoff at suggestions of positive economic transformation, the reality is that upturn has begun.
That this is so is irrefutably proven by the transition from the world’s highest ever hyperinflation in 2008 to monthly deflation from January to May 2009 (June inflation data is currently awaited, but will undoubtedly either reflect further deflation, or very minimal inflation). The slow restoration of economic wellbeing is evidenced by the absence of the immense scarcities of basic commodities that prevailed in 2008, by the growing interest being demonstrated by potential investors in Zimbabwe’s vast investment opportunities, by the near total disappearance of unlawful money-changing traders, and by a slow but growing inflow of international funding, as well as positive assessments emanating from the International Monetary Fund.
Nevertheless, many positive measures and actions by government and the private sector alike is absolutely necessary if the economic recovery is to progress. One of the most critical keys (of many) is the revitalisation of Zimbabwe’s manufacturing sector. In the so-called “good old days”, that sector was the second greatest employer of labour, and generator of foreign exchange, its performance only exceeded by that of agriculture. Agricultural rehabilitation and recovery is possible, but only over an extended period of time, whilst restoration of wellbeing for the   manufacturing segment of the economy can be achieved far more rapidly. Regrettably, however, the industry is confronted by innumerable challenges which must be  (and can be!) overcome if its recovery is to be rapid and substantial, and it needs constructive actions by government, parastatals, labour and others, complementary to those of the industrialists. Foremost amongst the challenges are:
lRecurrent demands by labour for wage increase far beyond the means of the manufacturers. Admittedly, Zimbabwe’s workers have been grievously afflicted by the intense escalation of Cost of Living in 2008, and almost all earn a relative pittance as compared to the poverty datum line. Notwithstanding, employers can neither pay that which prices their products beyond market-related competitiveness, nor that which they do not have. The industrial labour force needs to recognise realities, including that it is better to earn too little, than to earn nothing, and that unrealistic wage demands can only lead to business downsizing or closure, with concomitant unemployment. Labour must also appreciate that enhanced efficiency and productivity fuels employer viability and progressively improved worker earnings.
lAlmost all industries are now highly under-capitalised, as a consequence of last year’s extreme hyperinflation and resultant operating losses, and as a result of the recent “dollarisation” of the economy. That currency-change policy was absolutely essential as an element of enabling economic recovery, but a negative consequence was that the working capital base of most enterprises was suddenly severely eroded. The tragedy was that not only commerce and industry were so affected, but the financial sector suffered similarly. The decimation of its capital base, concurrently with a near-total discontinuance of deposits of funds by customers, deprived the banking and allied institutions of the ability to advance to manufacturers the funds necessary to restore their working capital limitations.
lA major challenge impacting upon virtually all manufacturers is the extremely erratic services of many parastatals, concurrently with extraordinarily great charges for those services, being at levels very markedly greater than prevailing in neighbouring territories. Endless electricity load-shedding (often inconsistently with pre-published schedules), compounded by recurrent faults, massively reduces manufacturing sector productivity, whilst the excessively high charges impact adversely upon the manufacturers’ ability to be regionally price competitive. Similarly, in some Zimbabwean industrial areas, water supplies are extremely unreliable, and throughout the country telecommunications are horrendously unsatisfactory and especially so in respect of national, regional and international calls and telefax transmissions. And those appalling services are subject to unjustifiably high charges, emulating the exceedingly high charges of Zesa, other parastatals, and local authorities.
lMost of the manufacturing sector is also gravely affected by the magnitude of skills losses in recent years, as Zimbabweans’ “brain drain” to various countries in Southern Africa and further afield intensified. That loss of skills has been exacerbated by most of industry having been unable to upgrade, modernise and rehabilitate very ageing plant and machinery. Capital availability constraints, intensified by immense foreign currency scarcities, precluded manufacturers fully maintaining and developing their production infrastructures. This has curbed   volume production necessary for market competitiveness, and increased operating costs significantly.
lSome manufacturers have also been very adversely affected by very extensive importation, from the Far East in general, and China in particular, of vast quantities of factory “seconds” and reject goods, blatantly imported by techniques circumventing the payment of customs duties and other import imposts, and as a result marketed (usually in the flea markets) at prices which sharply reduce market demand for Zimbabwean products, irrespective of major disparities in product quality and durability. This applies to a very wide range of goods, but especially impacts severely upon clothing and footwear manufacturers, the country being flooded by imported substandard, second-hand and factory-reject goods.
lAnother great challenge impacting negatively upon the industrialists has been government’s demand of payment of value added tax by the fifth day of the month, and further provisional payments thereof mid-month. The effect of this is to further erode the decimated working capital base for, as a general rule, the industrialists are having to fund the payments to the Zimbabwe Revenue Authority before having received payment from customers, for most sales by the manufacturers can only be achieved by an extension of credit facilities to the customers, as they too are subject to inadequate working capital circumstances.
Concerted and dynamic interactions between government and the manufacturers, and upgrading of parastatal services concurrently with their applying rational pricing policies, and access to international lines of credit — directly or via local banks — are prerequisites to a rapid manufacturing sector recovery.

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