Industrial recovery critically needed

Eric-Bloch4.jpg

Before addressing this week’s subject, this columnist extends to readers his deep regrets and sincere apologies for failure to provide columns in the last three issues of Zimbabwe Independent.

Eric Bloch

That failure was the first since commencing writing a weekly column 30 years ago, and was wholly occasioned by sudden, unforeseen and severe ill-health that culminated in hospitalisation.

Fortunately, thanks to the outstanding medical services received, progressive recovery is now taking place (undoubtedly also aided and abetted by the fact that generally “only the good die young!”). My grateful thanks to all those who wished me well.

IT is indisputably recognised by almost the entirety of the Zimbabwean population (with the exception of a few politicians who intentionally and obliquely fail to recognise facts) that notwithstanding the marginal recovery attained in Zimbabwe since 2009, the economy remains exceptionally fragile and in critical need of comprehensive further expeditious recovery and growth. This is especially so if the immense poverty, suffering and hardships continuously endured by the majority of Zimbabweans is to be progressively eliminated.

Recovery is necessary for almost all economic sectors, the only possible exception being mining. Although mining operations in Zimbabwe have developed, the potential for considerable further growth is indisputable. Of the many other economic sectors with potential for growth, agriculture is a key one.

That sector has seen some considerable improvement since 2008, but nevertheless, gross output falls far short of the levels attained prior to 2000.

However, one of the most pronounced economic recovery imperatives, and opportunity, is the manufacturing sector in general, and that in Bulawayo (which was once Zimbabwe’s industrial hub) in particular.

There are many reasons for the abysmal diminution in industrial production and consequential closures or liquidations of many manufacturing firms as well as considerable down-sizing in almost all other sectors.

The major cause of industrial decline was the immense world-record- breaking hyperinflation sustained in Zimbabwe which peaked in 2008.

The hyperinflation almost wholly eroded the working capital resources of almost all enterprises, while rendering the goods that were still produced uncompetitive against imported products in general, and those from the Far East in particular. The hyperinflation impacted dramatically upon the Poverty Datum Line (PDL), resulting in those still fortunate enough to be employed vigorously demanding increased wages, which increases were unaffordable for the desperately struggling industries.

Other factors which afflicted the viability and survival of manufacturers were manifold, including progressively increasing erratic availability of essential utilities and public services in general, and energy supplies and rail services in particular.

Compounding the struggle for survival, industry was confronted with intense constraints in accessing working capital from the financial sector due to the disastrous decline in money supply.

Further, a deterrent to potential foreign investors was created by the ill-considered, excessively authoritarian, government legislation and policy on indigenisation. Government also steadfastly and dogmatically ignored the many representations for constructive modification of Zimbabwe’s direct and indirect taxation policies and measures.

Import duties on essential manufacturing inputs (including imported spares and consumables not available domestically) were and continue to be, grossly excessive. In contradistinction, many import duties on goods that compete with locally produced products were and are excessively low — especially so in respect of innumerable products emanating from the Far East.

The low prices of such imported goods are not only due to high volume production and state-of-the-art technologies, but are also enabled by the massive export incentives provided by those countries, far above the World Trade Organisation (WTO)stipulated levels.

As a result, government discontinued all export incentives (even within the WTO parameters), including the cessation several years ago of specially designated Export Processing Zones (EPZs).

During the last year of EPZs there were diverse intimations by government ministers then that Special Economic Zones, with diverse incentives and manufacturing enhancement facilities would be established, but as yet that has been naught but talk.

At the same time as these many negative actions and inactions by Government endlessly jeopardised the continuance of a viable manufacturing sector, it compounded the sector’s ills in numerous other ways.

Illustrative thereof has been the prescription that Value Added Tax (Vat) charged to customers must be forwarded to the Zimbabwe Revenue Authority (Zimra) not later than the 25th day of the month following the month in which it is charged, as against the previously prevailing obligation to effect such payment by the end of the second month after the VAT has been charged.

As the working capital constraints on industrialists were and continue to be intense, most could no longer afford to extend 60 to 90- day credit facilities to customers, as the VAT had to be paid within 25 days, and the result has been a further marked reduction in sales (and also diminished revenue inflows to the fiscus!).

These are but some of the many barriers created to the viable continuance of the manufacturing sector of the Zimbabwean economy.

Key national repercussions include a very marked diminution in employment, adding to the already vast numbers who have for years been unable to access formal employment.

As a result, many skilled Zimbabweans have departed the country in desperate endeavours to source income elsewhere. And the fortunate few in Zimbabwe who have incomes are having to help an ever-greater number of family, relatives and other dependants, thereby sharply diminishing their already inadequate incomes.

The considerable reduction in employment has reduced spending power to a large extent, with consequential negative repercussions on other economic sectors. Trade volumes of the distributive sector (wholesalers and retailers) have fallen severely, resulting in declining profits for some, losses for others, and concomitant further unemployment, and diminished revenue flows to the fiscus.

It is time for government to stop just talking about recovery of the industrial sector, and instead rapidly and effectively pursue the innumerable very necessary measures to achieve that recovery.

Top