The progressive decline in consumer spending power, and consequential decline in demand for textile products, surging increases in operational costs as a result of intense hyperinflation, declining availability of essential utilities, pronounced insufficiencies of foreign exchange to fund imports of essential inputs, and marked contractions of export demand, together with diverse other factors, impacted very negatively upon the textile industry (as it did on many other industries).
All of the aforesaid factors very significantly affected the industry in 2008. In particular:
lConsumer demand for textile products became almost non-existent, as inflation surged from an annualised rate of approximately 50% to 231 million % in the first six months, and to trillions per cent in the second-half of the year.
Consumers were, with very rare exception, unable to fund basic commodities and other life-essentials, let alone to purchase textiles and clothing.
Thus, the textile sector sustained an immense contraction of production, concurrently with massively increased fixed costs (in consequence of the hyperinflation);
lThe aforegoing was negatively compounded by a national scarcity of foreign exchange which considerably hindered the textile industry’s access to essential operating inputs, including chemicals and dyestuffs, synthetic yarns, consumable spares, packing, and numerous other operational prerequisites;
lIn addition to these adverse circumstances, the textile industry’s operational efficiencies were substantially jeopardised by recurrent interruptions in essential utility supplies, and especially of electricity and water, erratic and inadequate availability of coal, diesel and petrol, and deteriorating rail and road services;
lCompounding these circumstances, the textile industry sustained a considerable decrease in export market demand.
The principal export market, being South Africa, was flooded with textile imports from China, India and elsewhere in the Far East.
Suppliers in those countries could provide the South African market’s needs at considerably lower prices than those required by Zimbabwean manufacturers, such suppliers benefiting from the “economies of scale” attained by very high production volumes, from the exceptionally low wages payable to their workers, and as a result of extensive governmental export incentives.
Zimbabwean prices were highly uncompetitive, compounded by the hyperinflation driven significant escalations in production and operational costs. The result was that, with very few exceptions, most operators in Zimbabwe’s textile industry sustained very considerable losses in 2008, and those losses in turn occasioned substantial erosion of operating capital.
Although 2009 witnessed positive upturns by way of slow restoration of domestic consumer demand, responsive to the containment of inflation, and by some increase in export demand as a result, primarily, of a diminution in sourcing of products from the Far East, these positive upturns were offset by four major negative factors, being:
lAlmost all Zimbabwean textile manufacturers were very considerably under-capitalised, in part as a result of losses sustained in prior years in general, and in 2008 in particular.
Under-capitalisation considerably intensified by the redenomination of the Zimbabwean currency (encompassing the slashing of 12 zeros), and by the subsequent “dollarisation” of the currency, followed by the demonetisation of the Zimbabwean dollar.
Almost all manufacturers had an insufficiency of capital to fund effective operations and, moreover, they had been unable to address the capital deficiencies by recourse to borrowings, due to the illiquidity of the banking sector, and to the prohibitively high costs of borrowings in such rare instances as loan funding was available;
lThe highly disruptive impact upon productivity, and therefore upon operational viability, of erratic utility supplies, intensified exponentially, with especial regard to electricity and water supplies, resulting in very considerable operational losses, but prospects of improvement in the foreseeable future are now significant, provided government, parastatals, and labour realistically, positively and rapidly address the key issues impacting upon industry;
lZimbabwe has been subjected to a flood of imported textiles and clothing (including secondhand clothing) and other goods, from the Far East and China in particular.
Much of it appears to have been imported without being subjected to custom duties and other import taxes, and which products are marketed at prices substantially lower than the cost to Zimbabwean industry of producing like products, resulting in severe containment of domestic market demand for the Zimbabwean industry’s products;
lDespite increases in consumer demand, most retailers having sustained capital erosion in like
circumstances to those which impacted upon the Zimbabwean textile industry, the retailers can only purchase from industry if accorded credit terms, but industry’s under-capitalisation minimises the extent that such terms can be extended, and therefore many potential sales do not materialise;
lThe many years of inadequacy of foreign exchange, and the operational losses sustained, precluded industry from adequately maintaining plant and machinery, and effecting requisite refurbishment, rehabilitation and replacement, and this has impinged adversely upon productivity and upon product quality, thereby intensifying operating costs, and minimising sales. Survival of industry is now contingent upon funding such refurbishment, rehabilitation and replacement, and any operational cost increases must inevitably impinge thereon, thereby jeopardising the future of industry, to the potential prejudice of all stakeholders, including shareholders, suppliers, customers and workers, and to the prejudice of the economy as a whole;
lOperational viability of industry has also been weakened by very considerable increases in charges by parastatals, and particularly so in respect of electricity and water supplies (albeit erratically and irregularly supplied), telecommunications, rail services, and charges by local authorities;
lIndustry, and its operations, has been severely affected by the “brain drain”, with a very considerable exodus from Zimbabwe of the technically skilled, with resultant decline in productivity and product quality, and concomitant decrease in operation viability.
The impact of the aforegoing, and other factors, has been the closure of a considerable number of textile and other enterprises, and almost all those which have not closed had to resort to “down-sizing” of their operations. Many had to reduce employment to “short time”, whilst others had to send workers on unpaid leave, and yet others sought (and generally were granted) NEC wage exemptions. From an aggregate of 8 694 workers in the textile industry, 4 270 were subjected to NEC wage exemptions, short-time working, or staggered back pay.
Re-penetration of export markets, and industrial survival, in contrast to extensive further closures, is materially contingent upon wage level constraints, and particularly so until industry is able to achieve adequate recapitalisation, and until there is significant further national economic recovery. It is also dependent upon government constructively addressing the magnitude of parastatal and local authority charges, and upon it creating a political environment which would be conducive to access to international lines of credit, and to foreign investment.
Also essential is that government levels the playing field between imported and domestically-produced products, by imposition of appropriate import tariffs, and containing unlawful importations.