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Zim industrialisation gone wrong

FOR the last few months there has been recurrent media reference to the collapse of the manufacturing sector, notwithstanding that surveys by the Confederation of Zimbabwe Industry in 2009 and 2010 showed growth in the usage of productive capacity.

 

Tragically, the media reports are substantially correct.  Progressively in the later months of 2010, and even more so in early 2011, innumerable manufacturers have been confronted with the need to downsize their operations, whilst others have had to resort to consolidating their Bulawayo and Harare enterprises, and some have had to discontinue wholly the entirety of their manufacturing activities.

 

When Zimbabwe’s economic recovery commenced in early 2009, the manufacturing sector was not only a major beneficiary of, but also a contributor to, that recovery.  Expectations were high that industry was set for a return to its heyday and further growth.  At the least, it would be restored to the level of being Southern Africa’s second largest and technologically advanced industrial sector.  But, as the months went by in 2010, it became more and more evident that this was not to be.  The causes of the reversal of industrial recovery were many, including:

Inability to access much-needed, essential working capital.  The catastrophic hyperinflation of 2008, greater than ever previously experienced anywhere in the world, almost totally eroded the working capital resources of almost all businesses.

 

Funding of the same levels of stock-in-trade, manufacturing costs and overheads, and extension of lines of credit to customers, required funding trillions per cent greater than previously.  In 2009, following dollarisation, belated containment of governmental profligacy, and other measures, hyperinflation ended, but not to an extent of deflation compensatory for the preceding hyperinflation.  In addition, such liquidity as businesses did possess was rendered valueless by that very necessary dollarisation and the concomitant demonetisation of Zimbabwe’s currency.

Desperately, industry sought to access new capital, but the financial sector was almost devoid of funding resources.  That sector’s capital base was also eroded by the preceding hyperinflation, demonetisation and associated dollarisation.

 

In addition, nationwide illiquidity grievously minimised deposits into banks, compounded by a prolonged reluctance of many to place funds in the banks. Many feared a possible reversion to the Zimbabwean currency and a concurrent expropriation by the state of foreign currency deposits.

 

Concurrently, the financial sector’s access to international lines of credit was minimal, bearing in mind Zimbabwe’s recurrent default in servicing debt, and concerns as to the country’s political stability.  More recently, that very limited access to offshore funding and investment was exponentially intensified by promulgation of the indigenisation and economic empowerment legislation.

 

The intent of that legislation was a pronounced deterrent to lenders and investors, their fears of security of loan repayments and investment retention being intensified many-fold.

 

The viability of industry has also been grossly impaired by recent sharp decreases in productivity, due to several major causes.  These included an ongoing and intensifying deterioration in the provision of essential services.  Foremost of the decline in service provision has been that of energy supplies.  Not only has the Zesa been unable to meet the energy needs of the economy, and the populace as a whole, but that inability has been compounded by its incapability to adhere to its load-shedding schedules.

 

In consequence, industry has recurrently lost many hours of production. In addition unscheduled interruptions in energy supplies have caused immense losses of manufacturing inputs in the course of production.

Erratic energy supplies have been, and are only one of many parastatal and local authority service delivery deficiencies which have impacted negatively upon the manufacturing sector.  Many have similarly been prejudiced by recurrent interruptions in water supplies, by service inadequacies of National Railways of Zimbabwe (NRZ), by telecommunication deficiencies, and many others.

Productivity has also suffered as a consequence of a sharp decline in employer and labour  relations, and of labour demoralisation.  The majority of workers receive wages considerably below the poverty datum line.  This is not because of employer intents to exploit labour, but because of inability of employers to fund higher levels of remuneration.  The workers struggle to support themselves, their families, and numerous other dependants, and are repeatedly oblivious to the fact that most employers cannot pay more than they do, and that it is better to earn little than not to earn at all.

 

As a result, motivation to be productive is almost non-existent, and the reduced levels of production minimise contribution to the manufacturer’s fixed costs, thereby inflating the unit costs of such production as is achieved.  That cost inflation necessitates selling prices which are often uncompetitive against imported products benefitting from economies of scale and, in some instances, from considerable export subsidies from the countries of origin.

 

Yet another constraint on the manufacturing sector’s restoration of viability is the magnitude  of competition that it faces from imported products.  Whilst industry must be willing to compete with imports, that competition should be on level playing fields, founded upon quality and fair pricing.  But not only do many imported goods benefit from export subsidies given by their home countries markedly greater than limits prescribed by the General Agreement on Tariffs and Trade, but in addition either benefit from excessively low import duties, or circumvent such duties.  That circumvention is generally by falsified declarations that the goods are of Sadc origin, or by extensive duty evasion through diverse smuggling methods.

In common with other economic sectors, industry is also adversely affected by low levels of consumer purchasing power, by working capital illiquidity of the distributive trades, and by abysmal loss of business confidence in consequence of ongoing political instability and uncertainty along with excessive State economic regulation in general.

Most of the ills of the manufacturing sector would be constructively addressed if political stability was restored, destructive legislation substantially modified, harmonious international relations restored, and parastatals effectively privatised.  Until then, industry is fated to have an ongoing decline.

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