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Conditions for industrial recovery

ZIMBABWE once had a thriving manufacturing sector engaged in textiles, clothing, furniture, pharmaceuticals, engineering, value-addition to primary foodstuffs, and many other products.

Eric Bloch

It was the second largest employer of labour in the country, provided extensive consumer needs, generated export revenues, and was a major contributor (by way of direct and indirect tax) to the Fiscus.

Industrial operations thrived in Harare, Gweru, Kwekwe, Mutare and Bulawayo which was indisputably the national industrial capital, having the greatest number of industries, and being the main base of manufacturing employment.

Tragically, since 1997 the industrial sector has progressively been destroyed, with many company ceasing operations, while even more have markedly downsized. Consequential unemployment has reached staggering levels, export performance has greatly diminished. Zimbabwe has become dependent upon imports while skilled labour has left Zimbabwe and taken up employment in neighbouring countries, and further afield.

Because of diminished volumes of production and sales, and responsive to the impact of hyperinflation during the period 1997-2008, industry has had no alternative but to increase their prices.

However despite the increases being necessary, the consequences were marked reduction in sales volumes, increased national dependancy upon imports, and a marked decrease in exports.

All these circumstances had pronounced negative effects upon the Zimbabwean economy, which progressively shrunk until 2009 when a miniscule economic recovery began, mainly attributable to a substantial increase in mining production.

The causes of the industrial decline are manifold, but almost wholly attributable to government, partially due to diverse negative policies and partially due to the absence of conducive policies and the facilitation of industrial survival and growth.

Amongst the hurdles government placed in industry’s path are:
An absence of any meaningful export incentives;

Economic decline in other economic sectors, again almost wholly attributable to negative governmental policies and actions.

This was especially so in respect of agriculture, with a marked decrease in employment and consequential decline in consumer spending;

Unreliable essential utilities, especially in respect of energy and water supplies, and rail services;

Excessive direct and indirect taxation;
lMonetary policies which were a major deterrent to the populace using the banks and financial institutions, the majority of Zimbabweans believing there was greater security in holding their resources in cash than to deposit funds with the institutions.

As a result, the banks and other institutions were constrained in their provision of lines of credit and loan funding, and yet such facilities were critical for the survival of industry as the capital resources of manufacturers had been considerably eroded by inflation and operational losses;

Recurrent failure to contain inflation which, by 2008, reached hyperinflation levels;

Endless creation of deterrents to potential foreign investors despite that it is essential for the survival and growth of industry, in the absence of domestic investment funding.

For economic recovery it is a vital that Zimbabwe be perceived as a secure investment destination, for in the absence of assured investment security virtually no foreign investment will be forthcoming, and Zimbabweans do not have the funds.

Among the measures essential to providing investment security, Zimbabwe needs pronounced political stability, instead of the fractious political environment which has prevailed for many years. Also absolutely key to Zimbabwe attracting significant foreign investment is modification of the Indigenisation laws and policies.

Most potential investors are willing to be associated with indigenous co-investors, but only if they can independently identify such investors who must be suitable.

The imposition of indigenous investors is not acceptable to potential foreign investors, especially when the imposed co-investors are government, usually through entities such as the National Youth Development Fund, or such investors have no funding or knowledge of the intended venture.

Linked with the provision of investment security government needs to modify its taxation policies. The policies and rates of taxation should be realistically aligned with those prevailing in neighbouring countries, and especially those in Sadc. New investors should be accorded a start-up exemption from income tax for at least three years, together with appropriate investment incentives.

Concurrently, government must have a comprehensive, credible, policy — publicly disclosed — for the progressive recovery of parastatals, and needs to recognise that the most rapid manner of achieving such recovery is privatization, wholly or partially.

All parastatals lack the capital required to restore their infrastructures’ ability to function and operate reliably. Moreover, the infrastructure is mostly aged and inefficient, raising production costs.

If government addresses the numerous constraints upon foreign investment into Zimbabwe there will be a major inflow of investment, the general enhancement of the economy, improved fiscal inflows and creation of numerous employment opportunities.

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