Daunting hurdles for manufacturing sector

Owing to high costs of production and general lack of competitiveness, Matsaira made the bold decision to stop manufacturing at Chemco’s Agricura division, a once established agrochemicals manufacturer and distributor.

A month later, TA Holdings CEO Gavin Sainsbury came to the market with more worrying news; Sable Chemicals would mothball its electrolysis plant and import ammonia. Although Sable Chemicals had generally been struggling over the years largely due to outdated technology at the plant — a development that meant the company incurred huge electricity bills — many had not seen Agricura going that route.

And with false hope emanating from last year’s CZI manufacturing survey that envisaged capacity utilisation rising to 80% by 2015 and  restoration of manufactured exports to 50% of total exports by 2015 in line with the Industrial Development Policy of 2012-2016, it seemed the manufacturing sector was on a recovery path.

Among its findings, CZI noted that the cost of production remained high with continued rises in costs of labour and utilities. The high cost of production coupled with low levels of capacity and inferior product quality largely rendered Zimbabwe’s manufactured products uncompetitive on international markets, the CZI said.

 

At the second Buy Zimbabwe conference, CZI president Joseph Kanyekanye also said that labour costs are not consistent with productive capacity.

“Why are we required to pay 100% wages when companies are operating at 60% capacity?” Kanyekanye asked.  “Why can we not benchmark the wage at 60% and then the 40% becomes performance related?” he suggested, arguing that labour costs were a hindrance to competitiveness of Zimbabwean goods.

Consequently export levels remained depressed, with export destinations limited to the Southern Africa region.

Apart from lack of competitiveness, working capital remains a major stumbling block and is one of the key factors negatively impacting on business performance given the need to retool.

The survey reads in part. “This (working capital) has hampered the retooling of the manufacturing sector. Even though the survey results show an improvement in the number of firms that have undertaken capital investments, the level of investment still falls far short of what is required. The MTP document clearly states two policy targets for the manufacturing sector, these are: increase capacity utilisation to 80% by 2015; and restoring manufactured exports to 50% of total exports by 2015 in line with the Industrial Development Policy of 2011-2015,”

At its peak, the manufacturing sector contributed a total of 22% to GDP and accounted for 37% export earnings. Currently it is estimated that the sector contributes 13% to GDP and 27% of total exports.

Analysts now fear more manufacturing companies might go the Agricura and Chemco route. Capital is still a long way to come and with the indigenisation drive gathering momentum is not going to help the situation, they say.

With unemployment rates as high as 80-90%, analysts say this could present bigger problems for the economy, pointing to even higher unemployment levels and a worsening balance of payments position.

Currently Zimbabwe imports more than it exports.

UZ economics professor Tony Hawkins alluded to the same scenario; issues of balance of payments, foreign and domestic debt, the imbalance between consumption spending and savings and investment and attempts to restructure capitalism without capital.

Hawkins said government needed to address lot of unanswered policy questions which include rationalising land redistribution, indigenisation, debt-relief, currency regime, privatisation, public sector reform and the rule of law.

He said it would be difficult to expect sufficient investment to sustain an economic growth rate of 8% without convincing rational answers to these policy questions.

Hawkins sees economic growth slowing down this year owing to anticipated low agricultural output and an uncertain global economy.

“More likely in 2012 is below trend growth of around 4% – 5% at best because of the reportedly-low level of agricultural plantings, the uncertain global economy, tight market liquidity conditions and domestic political tensions,” said Hawkins.

In his monetary policy statement, Reserve Bank of Zimbabwe chief Gideon Gono said while exports grew 30,2% to US$4,3 billion last year, imports had grown by 23,3%  to US$6,365 billion  in the same period.

“This development culminated in the recurrence of an unsustainable current account deficit estimated at US$1 887 million in 2011, representing 23,4% of GDP. The financing of the current account balance has, however, remained a challenge in the backdrop of subdued capital account inflows,” he said.

Gono said although the capital account is estimated to have improved from a surplus of US$617,5 million in 2010 to a surplus US$1 219,6 million in 2011, the inflows remain inadequate to finance the current account deficit projected for 2011.

Accordingly, he said, the overall balance of payments (BOP) position would remain “precariously difficult”, particularly in view of “reserve inadequacy and sluggish growth in manufactured exports.”

As such, Zimbabwe continues to finance the balance-of-payments deficits through the accumulation of external payment arrears.

This exceptional mode of financing the balance-of-payments militates against initiatives geared at securing longa-term offshore financing to support sustained economic recovery, he said.

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