AT the height of Zimbabwe’s hyperinflation between 2007 and 2008, empty shelves were commonplace as industry struggled to produce.
By Taurai Mangudhla
At the time, manufacturing companies could not access foreign currency to acquire inputs from across the country’s borders.
After contracting by 45% between 1999 and 2008, the Zimbabwean economy required high growth rates to recover from the lost decade. This was to change with the introduction of the multi-currency system and the formation of an inclusive government in 2009 which ushered in a ray of new hope with new funding trickling down to companies, particularly those with foreign parenthood or partners.
The introduction of a multi-currency regime and the stability that came with it spurred industrial recovery between 2009 and 2011 before going on a slippery slope as challenges bedeviling the manufacturing sector such as infrastructure bottlenecks and high costs of production remained unresolved. Local businesses have also argued the country’s cost of funding, utility and labour costs are higher than regional averages, rendering the companies uncompetitive.
Industry capacity utilisation, according to figures obtained from the Confederation of Zimbabwe Industries (CZI), stood at 10% in 2009, leapt to 43,7% in 2010 before peaking to 57% in 2011, largely driven by confidence in the dollarisation of the economy and political stability.
In 2012, a general economic slowdown set the pace for a freefall in industry capacity utilisation to 44,2% before slipping further to 39,6% and 36,5% in 2013 and 2014 respectively.
Industrial capacity utilisation sank further to 34,3% in 2015 as challenges that had been highlighted since 2009, when the country went out of a decade of hyperinflation and economic stagnation, remained unaddressed.
Speaking at the launch of the 2015 CZI Manufacturing Sector Survey last year, CZI chief economist Dephine Mazambani-Mutaferi said factors constraining industry in 2015 had largely remained the same compared to the previous periods.
“The constraints to capacity utilisation have largely remained the same: low local demand, high cost of doing business, competition from imports, capital constraints and antiquated machinery,” Mazambani-Mutaferi said, adding only 5% of businesses in the country had, as a result, indicated viability while 63% indicated that they were facing stiff competition from both local and international products.
Mazambani-Mutaferi said 84% of respondents indicated that infrastructure in Zimbabwe was poor. They said the available infrastructure was unable to sustain economic growth with power and water shortages, and poor road and railway infrastructure.
She, however, said companies were not exporting due to lack of export incentives, high cost of doing business, limited capacity, corruption and delays at boarders as well as the costs associated with exporting.
Listed milk processor Dairibord Holdings Ltd recently concurred with the CZI findings, announcing industry was struggling to push sales locally due reduced consumer spending as a result of company closures and job cuts, softening commodity prices, delays in salary payments and salary cuts.
“Increased competition from imported products and weaker regional currencies culminated in further reduction in consumer prices,” Dairibord group CE Anthony Mandiwanza said last month during the company’s 2015 results presentation.
“Operating costs increased driven by erratic supply and increasing cost of utilities, mainly water and electricity,” he said.
Mandiwanza said although group sales went up by 19%, revenues had only grown by 4% due to a 12% decline in prices per litre realised.
Listed beverage manufacturer Delta Beverages also reported generally subdued volumes and weak revenue performance for the third quarter of 2015 ended December 2015 due to the depressed aggregate demand.
“Group revenue is down 5% for the quarter and is down 7% for the nine months, reflecting changes in the portfolio mix and price moderations during the year,” said Delta in its trading update.
In a trading review for the half year to September, Delta said consumers were stressed as fewer people were on regular income coupled with tightening liquidity which led to traders destocking due to cash flow constraints.
The company bemoaned increased imports from regional markets and underperformance of key sectors of the economy and escalation in power cuts.
Turnall Holdings reported in its 2015 full-year results to December results the economy remains characterised by weak aggregate demand, liquidity challenges and funding constraints, prompting management to focus on managing costs to over-compensate for revenue risk.
Masimba Holdings said the government has adopted a contractionary fiscal policy, which has led to very little capital available for infrastructural development and maintenance.
“The lack of foreign direct investment, poor fiscal space and real exchange rate over-valuation negatively impacted Masimba’s operation,” Masimba said in audited results statement for the year ended December 2015.
Zimbabwe National Chamber of Commerce (ZNCC) CE Chris Mugaga said the country has not addressed challenges in the manufacturing sector due to successive consumptive budgets that leave no room for government to maneuver.
“With a consumptive budget, you have no money to implement anything developmental,” said Mugaga in a telephone interview.
“When Zimbabwe’s relationship with the world went bad, we lost development assistance and this is what has normally been used for infrastructure projects. Right now our systems are too small to accommodate us so we are crowded.”
The ZNCC executive also said unemployment was a major threat to industry as expenditure went down dramatically.