‘Investment key to stimulate industrial growth, vibrancy’

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CUTTING-EDGE INTERVIEW

INDUSTRY is beset with many problems as the country’s economy continues on a marked decline that include foreign currency shortages, power outages and low productivity. Business reporter Kudzai Kuwaza (KK) caught up with Industry minister Mangaliso Ndlovu (MN, pictured) this week on the sidelines of the Employers’ Confederation of Zimbabwe 37th congress in Bulawayo to discuss the various challenges affecting industry, among other issues. Below are excerpts of the interview:

KK: You have been in this position for a year now. Can you take us through your experiences as minister of Industry?

NM: I think it’s been one of the longest years of my life, quite exciting, but also very challenging. I think to preside over industry during a year when as government you are embarking on major economic reforms — the whole economic structure, fiscal reforms and monetary reforms — there has been significant turmoil in the economy and industry has been one of the greatest casualties of these.

However, during the same period we have registered significant reforms. I also believe that industry is the biggest beneficiary of the reforms that are taking place, particularly on the currency. We do acknowledge that we are still to achieve the stability that we want but it’s very important that we have a local currency whose value reflects the economy itself.

I look back, under a dollarised economy what we achieved was a semblance of stability, particularly on the issue of price, but not growth in terms of industry. Economic players will agree with me. Capacity utilisation averaged just about 38%, only once in 2011 did it go above 50%, and it had begun to rise over the last three years because of the import receipts that we were putting in place, but generally when you have a very strong currency, particularly in a region when all your neighbours have a very weak currency, you become a supermarket for those so industry is anticipating positive developments with the reforms that have taken place.

We have made significant strides policy-wise, we have launched very key policies, also legislatively we have pushed the Consumer Protection Bill which had been on the cards for a very long time. We are almost done with the Zimbabwe Investment Development Agency Bill.

We have new exciting Bills that we wish to bring on board and these will change the climate around industry so we are quite excited about what we have achieved given the environment that we operated in.

KK: You have touched on reforms; probably one of the most contagious — if I may call it that — is Statutory Instrument (SI) 142. Players in industry have been complaining that they have been ambushed by this one because it has a huge adverse impact. What is your take on that?

NM: You know when we are in this economy the general truth is that we are never ready for anything but I want to just appeal to Zimbabweans in general that Zimbabwe will never — its government will never — introduce any law or promulgate any law which is meant to harm Zimbabweans. It is imperative that we interrogate closely what the reforms, legislative reforms, are aiming at and, in my view, that is very progressive, and we just have to find each other.

The problem we have in Zimbabwe generally has to do with confidence more than the policies themselves, while at the same time I also agree with the need for wide consultation.

You will agree with me that at some point in just one week the economy was fast dollarising and I have just highlighted to you the dangers and challenges we face under a dollarised economy. You lose out on so much autonomy to determine your future as a government and as a nation.

KK: But industrialists have complained that although you have brought SI 142, only yesterday some of the business guys were saying you brought SI 142 with other measures whereby others are allowed to trade in foreign currency yet others are not and they say that this is exclusionary and it is unfair for some of those who are not allowed to transact in foreign currency. What is your view on that?

NM: I think we are arguing from different positions because we suffered from the significant currency attack in 2007/2008. Generally, psychologically we are viewing foreign currency as superior to our own (local currency) such that somebody who is allowed to trade using foreign currency is said to be given an unfair advantage that will be problematic on its own. It tells us that as a nation first we are so obsessed with foreign currency, we are so obsessed with imports, which is why we need the foreign currency, but also we are not investing in our own.

Let me just address the issue of concessions, if I may put it that way, when you put out a policy as the government, that policy is for the people not for you and it is imperative that you look at how it is working. There are structural problems that had come, some which had not been adequately anticipated. I will give you an example. I met a tourist in Victoria Falls who had no cash, but had their Visa card ready to spend, but that has been stopped. As a government, when you look at this peculiar issue you will surely say okay, but tourists worldwide are able to use Visa cards even where there are domestic currencies and you begin to look into those.

We are a country that imports everything and anything but you want to have a policy that discourages imports particularly where you know you have capacity to produce locally, which is why you would say okay we know that it’s not easy to get foreign currency and perhaps if we put a condition that if you want something outside, pay duty in the currency you purchased that. It is more of a deterrent, but because we still attach so much value to foreign currency we then argue from a different point of view and our assumption is that people are given an advantage so this is where I differ with you.

KK: You have had funding facilities in the past for industries and one of them was the Distressed Industries and Marginalised Areas Fund (Dimaf), which didn’t work out quite well. What facilities are there now to help out the sector?

NM: The good thing is that you started with what people regard as not having worked quite well. The tragedy we have as a country is that we don’t research, we don’t do adequate research and those who do research are not appreciated much by policymakers. I’m yet to have an appreciation of comprehensive studies on the success or failure of Dimaf.

I have interacted with one of the companies which was helped by Dimaf in Bulawayo which told me that had it not been for Dimaf they would have closed shop, but the general perception I had before l came here was that Dimaf was a failure. l urge academics to research on the successes and failures of the policies that government makes because it helps us preserve the institutional memory that is there, to learn from previous mistakes.

But to address the question: we have been given a total of $60 million by Treasury and this is going to be administered by the Industrial Development Corporation of Zimbabwe (IDCZ). We have already begun the process, we are trying to fine-tune on the aspect of impact; I believe in impact investment, you have to put money where you have declared the impact that you want it to make.

Treasury has also put aside an allocation of $40 million as a venture capital fund targeting particularly start-ups so that we support innovation which comes from young people. They are putting in place the modalities and it should be accessible very soon.KK: What is the state of industry in Zimbabwe?

NM: Industry has come a long way. If you look at the history of Zimbabwe, we had an industrialised economy pre-colonial and post-colonial times. Along the way, we did not appreciate the competitive advantage we had, the way other nations appreciated. Because they then put measures to catch-up and, as they tried to catch-up, we did not invest enough to improve our capacity.

When you look at our industrial performance between 1995-1997, it’s pretty much the apex that you can think of but thereafter we then had sanctions and we had serious capital flight and that severely affected our industry, leading to the demise of major institutions like Ziscosteel, National Railways of Zimbabwe and the IDCZ itself. So we had a prolonged period of decline.

When you want to build an industry and you have your currency weakening like it did around 2007, companies were operating at around 10% capacity and to recover it took a lot. There has been some semblance of stability from 2009 up to now. We are now faced with some challenges.

All in all, it’s reflective of the fact that we have the potential as Zimbabwe to have a vibrant economy, but a strong and reliable industry has to rely on three critical issues: first, it’s investment. We have to be able to attract investment from both local and international investors. This enables the transfer of technology, retooling and competitiveness.

Secondly, we have to focus on exports, we are a nation that uses a lot of foreign currency, we don’t have a problem with foreign currency generation, but if you contrast it with our usage, we have these deficits so we have to focus on exports because that is our biggest source of foreign currency. Foreign direct investment (FDI) has not been performing well and l think at some point official development assistance hasn’t surpassed FDI, but remittances are a good second in terms of ranking. We need to isolate exports and see how best we can grow them because these speak to what we can control.

Thirdly, and most importantly, industry has to be benchmarked on our ability to innovate, we have the youth dividend to tap into, a young educated population arguably the most educated in Africa. These are people who will drive the economy from today to the future.

KK: In the press you have made your concerns known about the skyrocketing prices of goods. What are you doing about this?
NM: The hallmark of my approach is derived from the President’s approach to dialogue. Just yesterday, we had a meeting with the captains of industry to discuss this and the major driver of inflation was the exchange rate.

There is also the problem of the power situation where people are using the fuel more, these factors are also put in the pricing system. My worry has always been that while we effect adjustments upwards in our pricing, we are not seeing the same efficiency when the exchange rate comes down.

When people see how the system has been working they are worried about replacing their stock so they tend to be a bit hesitant in adjusting prices but they also agree that the level at which they are operating is threatening their survival. Some of them have dropped 30-40% in sales volumes and that is a serious cause for concern.

KK: There has been a lot of excitement about Ziscosteel. What progress has been made in bringing in new investors?NM: Ziscosteel is a giant that fell in 2008 and that was largely caused by sanctions and also because the economy was strained. We have had investors come and show keen interest, but right at the end they walk away. In every discussion we hold we want to make sure that we are together with the investor so that we avoid what has happened before.

We realised that there were serious legacy issues with Ziscosteel that had to be tied up first which included government taking over the debt with a more structured financial approach to it where we then find more ways of getting that debt repaid and we have realised that Zisco — with its size — will not easily get a willing investor and we have broken it down. We have a company which will be taking over the coke batteries where coke will be manufactured for export, they are called Zimcoke and they are already onsite and by February next year they will be on full production.
KK: What is your outlook for the manufacturing sector for the next two to three years?

NM: I am a positivist and l believe that we will have a good agricultural season and that translates to a better-performing industry but beyond that we have launched the Zimbabwe national industrial development policy and this, with the local content strategy, this will change the manufacturing sector.

We are trying to diversify, we are currently looking at the critical sectors in our economy, we have a committee looking at that including the private sector; we already have a draft report that is being prioritised. We are also cognisant of the need to create value addition in the rural areas, we will be launching the rural industrial strategy maybe at the end of the year or early next year.

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