ZIMBABWE has been devastated by a deteriorating economic environment characterised by a debilitating liquidity crunch, foreign currency, fuel, power, water and bread shortages, as well as social service delivery problems. Zimbabwe Independent reporter Lisa Tazviinga (LT) this week interviewed Confederation of Zimbabwe Industries (CZI) president Henry Ruzvidzo (HR) to discuss the performance of companies amid the economic crisis engulfing the nation. Below are the excerpts:
LT: What is the state of industry in light of the current economic turmoil?
HR: The environment has been characterised by the huge changes in currency trading environment which were ushered in in September and October last year, which have seen us now introducing the Zimbabwean dollar and it has heightened the impact on inflation. This has affected industry.
Customers have not been able to keep pace with prices of goods and services so demand has fallen. This has affected capacity utilisation. We have also had challenges of electricity and load shedding which started with the residential areas but eventually migrating to industry as well. Sometimes power was only available for six hours during the night which saw production going down and the results were an increase in unit cost of production, again worsening the already low demand for products.
Companies really suffered during the two months or so, due to reduced production levels. Some exporting companies seriously faced the risk of losing export markets completely, or export contracts completely because they failed to perform.
We are glad, though, that the situation in the last few days has started to improve and we hope it is going to be sustainable. I think the issue of electricity was a lesson learnt; more could have been done to urgently respond to the issue of power. The lesson that has been learnt is that it shouldn’t have to be the way it was the solutions could have been found a lot sooner than they were.
Yes, industry has been facing a number of challenges, I think the impact will be very apparent in the manufacturing survey due in September.
LT: How many companies have shut down due to electricity constraints, among other challenges, this year?
HR: We would need to get proper statistics on that, but I have to say I wouldn’t be surprised if a number of companies have shut down.
LT: So far do you have any estimates of how much industry is most likely to suffer by the end of the year?
HR: Without doing the survey, it will be just throwing numbers. Nonetheless, positives out of what has happened include the rebasing of the currency. With the United States dollar base, our cost structures were uncompetitive, now with the rebasing that has happened as a result of local currency, hopefully we will begin to see competitiveness and increase in production volumes with time. What we need, obviously, is more stability so that we can plan longer term.
LT: You have spoken a lot about how companies are struggling due to economic constraints as well as electricity crisis. How are they managing to keep afloat?
HR: I think generally it’s innovation at company level. Addressing issues as they arise, management has to constantly be coming up with a plan to deal with the issues as they arise. Sourcing more efficiently and negotiating harder for inputs, adjusting prices to suit the demand, these are some of the ways that companies over the years have learnt to adopt to deal with difficult environments
LT: What is your production outlook for 2019?
HR: I think it (outlook) will certainly be worse than 2018. In fact, in 2017 and 2018 our manufacturing output started to go up quite significantly and it’s a pity that we have taken a step backwards. Hopefully, as things stabilise, as has been indicated by the government, we can begin to turn around again, but definitely in 2019 the figures will be poor
LT: How long do you think an economic turn around will take and what are some of the requirements to boost local Industry?
HR: We need to address fiscal issues, monetary issues first and I think we have seen indications that we now begin to address the productive issues. What production needs is some kind of stability in terms of policies, access to financing and markets both domestic and export markets.
Another issue to be addressed is the ease of dong business. Zimbabwe is still a very difficult environment to do business in, both from a policy perspective and from a regulatory perspective. I think once those things begin to be addressed then industry can begin to look up again.
LT: Some companies have been having difficulty in getting lines of credit mostly because of the negative perception in the country. What are some of the measures the CZI has put in place to assist such companies?
HR: Basically, it has been to encourage government put in place confidence building mechanisms. We know there is a Staff-Monitored Programme that has been placed in the IMF recently, as part of the rebuilding of confidence in our financial sector which when it happens will be able to be accessed by businesses including the private sector.
There have also been internal issues such as repatriation of profits. I think people who invest in the country would want to repatriate whatever profits and if it is loans they would want to repatriate the payments for those loans. There is need to guarantee investors that they will get their money back. The country lacks confidence, not only from our people here but even from other countries
LT: The industry is lagging behind with a US$185 million legacy debt. Has there been any progress in the repayment?
HR: I think the progress which is important was the taking over of that portfolio by the Reserve Bank of Zimbabwe (RBZ) the intention obviously is to make plans to repay those debts on 1:1 bases. It was a good move that we welcomed as industry. What is needed now is a clear time-bound plan on how repayments will be made.
LT: So far there are no repayments that have been made as yet?
HR: I think some repayments have been made, a lot have not been made but I think the fact that companies can still go and sit with RBZ and maybe present their own special circumstances is an important development and hopefully that is part of the confidence-building measures the country needs.
LT: Recently you participated in the 4th edition of the Sadc Industrialisation Week held in Tanzania. How do you think Zimbabwe is performing compared to other countries within the region?
HR: First of all, what we saw in Dar as Salam is vibrancy, something that we do not see here anymore and a clear signal that the country is on its way up. Starting at the airport, airport terminals and their aircraft.
The same with Nairobi Airport; in fact, Kenya Airways is now very big. That gave me the sense that we are left behind so much.
Taking into account other people from the region, there are a lot of development opportunities in their countries and we feel left behind particularly on industry where we are performing poorer than we used to before. Even now, the diversity of our industry is still way ahead as compared to what we were seeing, they have mineral endowment like we have here but their minerals are not adding value to them at all, so somewhat we are more diverse than they are but they are doing things better than we are.
LT: What do you think could be the major reason for local industry to be lagging behind as you have explained?
HR: I think our economy has not had the stability to allow companies to develop and, as a result, we have moved backwards whereas other countries are now much more stable and are developing and it is visible.
LT: What were the major take-aways from that summit?
HR: I think the summit basically was trying to encourage regional integration of businesses, particularly value chains. So the takeaway is that there are opportunities for local companies to work together with other companies in the region to engage in manufacturing activities. So because the Sadc market is now a market of 350 million people and soon there is also the African continental free trade which will be one market of over two billion people.
Sometimes it may make sense to manufacture certain components or parts of products in one country and other parts in a different country and then bring together everything in one so that we take advantage of the logistics and also the existence of particular resources in another country. This is better than doing everything at one centre. The impression that we got was that financial institutions such as the African Development Bank (AfDB) are actually encouraging regional integration to happen and they indicated that there are facilities available for the private sector who have big projects.
Also, what we understood was that Sadc has prioritised particular value chains—the agro processing value chain, pharmaceuticals value chain, mineral beneficiation. Those will be supported at Sadc level. Historically we had a strong pharmaceutical sector here which could benefit from actually embarking on projects at a regional level to develop that sector. Same applies for our agro processing sector as well as minerals. We have a lot of minerals here in Zimbabwe, adding value to those minerals.
An interesting one that was highlighted as a big problem in Africa is the project appraisals. Coming up with banking project papers that can be supported financially seems to be an issue and it’s something that we as CZI certainly will explore and figure out how to assist companies to be able to draw up bankable projects that can be presented to Afreximbank or the AfDB.