Causes of the decline in manufacturing

Zimbabwe’s hierarchy in government, aided and abetted by the state-controlled media, continuously attributes the appalling decline of the manufacturing sector to the so-called “illegal international sanctions”. 

Column by Eric Bloch

Undoubtedly they do so in order to divert the attention of the people away from the actual causes of the abysmal contraction of industry, notwithstanding that most Zimbabweans are not so gullible as to be so easily misled.

Despite the protestations of deceptive politicians, most Zimbabweans are very conscious and aware of many of the real causes of that progressive decline  of manufacturing operations over the last 14 years.

The reality is that almost all of the causes of the near demise of Zimbabwe’s once substantive manufacturing sector were occasioned by ill-considered government policies.

Of the many reasons for industrial collapse was hyperinflation which progressively intensified until it peaked at levels never experienced anywhere in the world, in 2008.

That inflation soared upwards to innumerable trillions per cent and could not even be authoritatively measured.

Prices were not rising monthly, weekly or daily, but hourly. In consequence, the capital resources of all enterprises, including those of industry, were eroded until they virtually became non-existent, gravely retarding the ability to fund viable operations.

At the same time, the wholly-decimated spending power of consumers resulted in the corrosion of demand for manufactured products while the operating costs of the manufacturing enterprises soared upwards.

Although Government continuously sought to attribute the hyperinflation to actions of others, and to circumstances beyond its control, the harsh facts were that to an overwhelming extent government was the catalyst for the uncontrollable escalation in prices.

It endlessly resorted to increasing money in circulation through printing, notwithstanding the absence of any real reserves to support the currency.

It incurred expenditures far beyond its means and resources, intensified by extensive corrupt and self-serving spending.

In addition, there was pronounced mismanagement of numerous parastatals, which supposedly supplied the economy and the population with essential services and needs.

These parastatals endlessly increased their charges, impairing the viability of industry and prejudicing the economy and populace in general.

Compounding these ills that government and its underlying public sector created, it put endless hurdles to industry’s ability to source the much-needed replacement capital.

Having destroyed the value of Zimbabwe’s currency, government then rightly demonetised Zimbabwe’s currency and adopted the present multi-currency system.

However, the impression was that this was only a short-term, transitional, measure, and that Zimbabwe would revert to its own currency.

In consequence, almost all the population, and most businesses, feared depositing funds into Zimbabwe’s banks, being convinced that, as had previously occurred, government would expropriate the foreign currencies without due compensation.

Thus, the financial sector was hit by a liquidity crisis, and hence was unable to provide financing facilities to business for its working capital requirements.

Having lost most of the capital base needed for viability, the only recourse that industry could have was sourcing new investment. But government created unpenetrable hurdles to procuring that new investment.

As there were very few within Zimbabwe who had the wherewithal to fund investment, the only substantive sources of that investment were foreign.

But now, over and above foreign investors’ concerns as to the probable consequences of a premature reinstatement of the Zimbabwean dollar, government has also created diverse deterrents to such investment.

The most substantive of those deterrents is the Indigenisation and Economic Empowerment policy.

Although with only very rare exception, potential investors were very willing to have indigenous Zimbabwean co-investors, they were not prepared to provide almost the entirety of the capital required,  effect technology-transfer and provide access to their markets, if they were to be reduced to the levels of minority investors, without any assurance of repayment of capital provided by them to fund the majority shareholders.

At the same time, the potential investors were discouraged by the excessive bureaucracy prevailing and intensifying indications of growing political instability in Zimbabwe as well as  the increasing absence of respect for property and human rights, as well as law and order.

As if all this mismanagement did not suffice to preclude recovery and viability, the situation was worsened by running down  of parastatals whose services were essential for survival of industry.

The power utility Zesa, (which presumably denotes “Zero Electricity and Substantive Accounts”), was not provided with the essential funding to maintain and enhance its electricity generation and supply infrastructure. This caused industry to be subjected to recurrent losses of essential energy supplies, precluding production and often resulting in massive losses when power outages disrupted manufacturing processes.

In like manner, the inadequacy of services from many other parastatals, including the National Railways of Zimbabwe, are immense retardants to effective operations.  In addition, Zimbabwe’s taxation laws are extremely counter-productive to industry.

These include excessive import duties on essential inputs of manufacturers, and in all material respects, no substantive export incentives.

The reality is that the only impact of the international sanctions are upon those few enterprises owned by or associated with government or by certain specified, politically-connected individuals, and on parastatals.

The key constraint on these organisations and individudals is their inability to access international loans and lines of credit.  All the other alleged consequences of the sanctions are specious and unfounded.