Eric Bloch: Industrial reform urgently needed

AS Zimbabwe strives for economic recovery, a key focus area must be a transformation of the manufacturing sector. 

Innumerable and diverse measures and actions are a prerequisite for any substantive economic recovery, including rescission of negative political agenda and policies in respect of the agricultural, mining, commercial, tourism, financial and services sectors, as well as many other facets of Zimbabwean law. However, one of the key areas that require major positive actions and reforms is manufacturing.
Zimbabwe’s manufacturing sector was, and can once again be, a major contributor to economic wellbeing. At one time, Zimbabwe had the second largest and developed industrial infrastructure in all of Southern Africa. It was Zimbabwe’s  second largest employer of labour after agriculture, generated considerable foreign exchange through substantial exports to all countries in the region and further afield, had a major beneficial impact upon the downstream economy, and was a significant contributor to the fiscus. Tragically, that is no longer the case.  The sector has contracted markedly, with great reductions in numbers employed, and massive decreases in volumes of production. Many in the industry have wholly discontinued operations, and most of those still in operation have no alternative but to downsize to a major extent in a desperate struggle to survive.
Radical, dynamic and innovative actions are  necessary if the manufacturing sector is to be set on a path to recovery and growth. To some extent, those actions must be pursued by the sector itself, aided therein by other economic sectors, but the overriding need is for government to pursue, urgently and vigorously, measures that are facilitative of that recovery.  Although not exhaustively so, among the key issues that need to be addressed are:
Appalling low levels of productivity.  The intense decline in volumes in recent years is due to  numerous factors, but one of the main reasons is the exceptionally low morale of most workers.  With their incomes generally being far below the Poverty Datum Line, most workers are not focused upon achieving necessary volumes of production, but instead are continuously thinking about their financial stresses.  However, in so doing they exacerbate those stresses, for the lower the levels of production the lesser is the ability of employers to enhance wages, and the greater the risks of business closure and consequential loss of employment.  Employers and workers need to pursue productivity growth and, as an aid to that objective, there is a need for intensified recourse to performance-related worker remuneration.
Compounding the poor levels of productivity is the ongoing erratic supply of energy to industry.  On the one hand, the Zimbabwe Electricity Supply Authority (Zesa) needs to prioritise energy supplies to economic sectors, albeit to the prejudice of residential areas and, on the other hand, Zesa must ensure adherence to its published load-shedding schedules, save in unavoidable instances of infrastructural breakdowns, thereby enabling industry to coordinate production schedules with energy availability.
A key requirement for the revitalisation of the manufacturing sector is access to working  capital. Almost without exception, all industrial enterprises are grievously under-capitalised.  The extreme hyperinflation that prevailed in 2008 seriously stripped the majority of manufacturers of working capital resources.  Such diminished resources that remained were then almost wiped out by the demonetisation of the Zimbabwean currency in February 2009.  If industries thereafter had any residual working capital, that capital was decimated by the operational losses of 2009 and 2010.  Due to the lack of capital, most manufacturers are unable to fund a continuing, timeous availability of manufacturing inputs, thereby further hindering attainment of survival levels of productivity.
In normal economic environments, working capital inadequacies are addressed by recourse to money markets, or by accessing new capital investment.  This has hardly been possible in recent times in Zimbabwe.  The money market has an exceptionally limited availability of funds, in part due to the reluctance of many to utilise the banking system for fear of non-access to their funds when required, and to a large degree due to the paucity of international lines of credit.  The miniscule availability of credit is primarily due to a sense of lender insecurity because of Zimbabwe’s unstable political and economic environment, and due to recurrent confrontational statements by the political hierarchy.  For like reasons, there is a pronounced scarcity of investment funds, and such limited funds as are available are possessed by bargain-hunters seeking investment acquisitions against payments far below fair value.
Yet another constraint afflicting the manufacturing sector is the difficulty in being price competitive in export markets, further impinging upon attaining viable productivity levels.  High utility charges, at levels many times greater than prevailing elsewhere in the region, higher wages than apply in the countries competing with Zimbabwean exports, steep  finance charges on the limited  availability of funding, and low levels of productivity preclude most manufacturers from being able to price competitively in export markets.  Moreover, they have to compete against recipients of considerable export incentives and subsidies, such as those accorded by China to its manufacturers, whilst Zimbabwe fails to provide its manufacturers with any incentives or subsidies.
Not only does Zimbabwean industry face major constraints in achieving high volumes and fair value, but concurrently it faces great competition in its domestic market, that competition emanating from imported products. Those imported products are massively price competitive, partially due to the export incentives and subsidies accorded them by their countries, but also due to many of them escaping the import duty net.  Innumerable products manufactured in the Far East enter Zimbabwe with falsified documentation and packaging imputing that the origin is actually Sadc or Comesa, and therefore not subject to importation imposts.  Others enter through unlawful channels, thereby escaping the imposition of duties.  Whilst Zimbabwean industry must be prepared to confront import competition, this should be on a level playing field where the key criteria should be quality, price and delivery reliability.
A critical need for the recovery of the manufacturing sector is the refurbishment, modernisation and upgrading of plant, machinery and equipment, but capital inadequacy presently precludes this need being effectively addressed.  Concurrently, the sector desperately needs to obtain skills to replace the thousands lost through the “brain drain” of the last decade.
The manufacturing sector can be a key contributor to the wellbeing of the Zimbabwean economy, as it was in the past, but much reform is needed, driven by government creating an enabling environment.

 

By Eric Bloch

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