Eric Bloch: Reversing industry’s collapse

LAST week the Ministry of Industry and Commerce disclosed that it was vigorously pursuing formulation of a draft 2011-2015 Industrial Policy Framework targeted at revitalisation of the economy as a whole, and with special focus upon the recovery and growth of the manufacturing sector.

The ministry’s declared intent is that upon completion of the draft, it will consult substantively with the private sector, and will then dynamically pursue the policy implementation so as to restore industry to its former prominence, and major growth thereafter.
For 80 years Zimbabwe had a manufacturing sector of which it was justly proud, and which contributed significantly to the country’s economic wellbeing.  The sector was much diversified, including engineering, textiles and clothing, pharmaceuticals, furniture, food processing and much else. To a major extent it was dependent upon imported inputs, instead of a focus upon value addition to Zimbabwe’s quality primary products.  Until government dogmatically destroyed Zimbabwe’s agricultural sector, manufacturing was the second largest employer of labour, and contributor to total economic output   and, after the collapse of agriculture, was Zimbabwe’s economic front-runner.  However, over the last two years it ceased to be so, in part because of the growth in the mining sector, but primarily because abysmal, unnecessary circumstances forced a mammoth contraction in manufacturing.
Initially, the contraction of the sector was primarily attributable to the immense decline in consumer spending power, as ever more Zimbabweans were rendered unemployed, and soaring hyperinflation eroded the consumers’ resources.  Concurrently, that hyperinflation caused intense escalations in manufacturing production costs, rendering many of the products’ prices uncompetitive in export markets, enabling imported products to be highly competitive in the domestic market. 
Thereafter, the trying circumstances confronting the sector intensified exponentially, resulting in progressive and accelerated contraction of many operations, and recently fuelling the unavoidable closure of many companies.  In 2009 there was a brief period of upturn, following upon more ready access to imported inputs and the cessation of hyperinflation, with production rising from a niggardly 8% of productive capacity to almost 40%.  Sadly, the upturn was short-lived, and currently the sector is exceptionally fragile and decimated.
Major measures are critical and urgently necessary if the sector’s decline is to be halted and reversed, and hopefully will be constructively addressed in the forthcoming 2011-2015 Industrial Policy Framework, although even that will not yield the desired results unless government (including the Zanu PF elements who have consistently negated and undermined necessary policies) are absolutely and unreservedly supportive of necessary corrective, recovery measures.  Those measures are many and greatly varied, and include:
Most critical is that adequate working capital funding becomes available rapidly, for almost without exception the manufacturers are grossly undercapitalised. The intense hyperinflation of 2008 escalated the funding required to finance inputs, operational costs and overheads, and extension of credit to customers, multifold, resulting in previously adequately funded enterprises being almost devoid of resources.  Whatsoever limited funds they still had in early 2009 became valueless upon the demonetisation of the Zimbabwean currency.  Since then, the money market has been consistently highly illiquid and, therefore, unable to provide working capital to almost all in the economy in critical need.  What little monies  available were subject to immense charges, for the financial institutions had to resort to high levels of interest in order to fund ongoing overheads.  The inadequacy of money market funding was, and continues to be, partially attributable to most of the populace being reluctant to utilise banking services as they fear for the security of their funds, and to a major extent is a consequence of the high risk perceptions of the international money market of any lending to Zimbabwe.
If this critical circumstance is to be addressed effectively, minister Welshman Ncube’s first action is to prevail, undoubtedly with difficulty, upon the Minister of Finance Tendai Biti to draw down the substantial IMF Special Drawing Rights (available to Zimbabwe and unutilised for over a year) and make those funds available to industry.  Soon thereafter, and inevitably with even greater difficulty, he needs to motivate government, and especially the president and his hierarchy, to reconcile with the international community, and to pursue policy revisions which will restore harmonious relationships and accord Zimbabwe an acceptable international credit risk rating.  That would generate substantial developmental and recovery aid, loan funding and investment, which would restore substance to the money market and, therefore, to the economy.
Concurrently, a key focus must be to ensure that government finally, and belatedly, enables comprehensive, viable, affordable service delivery by parastatals.  Industry cannot survive when it is confronted with consistently erratic, extremely unreliable energy supplies from the Zimbabwe Electricity Supply Authority, only intermittent telephonic and telecommunication services by TelOne, uncertainty in rail and air services, and the like.  Most of the parastatals strive to provide requisite services, but are grievously lacking in necessary finances, technological skills and other resources.  Government’s insolvency is so intense that it cannot adequately address the needs of the parastatals, and it needs to recognise that only Public/Private Sector Partnerships, total or partial privatisations can effectively address their crisis circumstances with reasonable speed.
Yet another area which urgently requires action by government is to bring about a regime of sense and reason in the field of labour relations.  Currently most labour relations are horrendously constrained.  The wellbeing of labour has been exceptionally straitened by the magnitude of past inflation, grossly eroding spending power and thereby precluding ability to finance essential needs. Those still in employment have ever-increasing numbers of dependants as a result of escalating unemployment and of the impact of HIV-Aids and increasing community malnutrition and ill-health.  Consequently, labour feels oppressed, exploited and has ever-decreasing morale, and this has greatly impacted upon productivity, with consequential prejudice to the employer.    Employers and labour have to work together to bring about recovery for their mutual benefit, and that of Zimbabwe as a whole.  Government must play a lead role in bringing about employer/employee reconciliation, conciliation and harmony, and joint endeavours for mutual wellbeing.
Numerous other actions are essential for the survival and resurrection of industry, and some of them will be addressed in next week’s column, and hopefully all will be constructively addressed in the forthcoming policy framework.