The new normal: What does it mean to Zim industries?

Clemence Machadu : Economist

THE outbreak of the Covid-19 pandemic has shifted our way of life in so many facets — and as each day continues to bring new infections, deaths and recoveries, with no vaccine in sight yet — the desire to find a new equilibrium continues to compel us to vary variables and interrogate new possibilities and fresh perspectives. If this is the new normal, then we should start mastering how to optimise our survival and that of our enterprises, until thy kingdom come.

About a century ago, humanity was faced with the same tragedy when there was an outbreak of the Spanish influenza, which swept across the globe and infected 500 million people — about a third of the world population that time — and killed 50 million people. There was no vaccine and, worse still, scientists had not yet discovered flu viruses. Some businesses went bust, but others survived. Those that survived chose to swallow the bitter pill of doing things differently.

In the present scenario, although we now have laboratory tests to detect and characterise these viruses, it is still unclear how this contagious virus will play out and when it is likely to be contained. This leaves our local industries at crossroads and it is not business as usual as they endeavour to figure out which direction to take.

When Covid-19 arrived earlier this year, it struck an already-agonising local industry. Capacity utilisation, which had declined from 48% in 2018 to 36% last year, further dropped down to 33% this year. And while the 2020 national budget initially projected real growth of the manufacturing sector at 1,9%, this has since been revised down to a decline of -10,8% in the budget review.

All manufacturing subsectors (with the exception of chemical and petroleum products as well as textiles and ginning) are projected to decline this year, with the foodstuffs, beverages, paper, printing and publishing, non-metallic mineral products sectors bearing the brunt. Production of alcoholic beverages, for instance, declined by 27% during the first quarter of the year, with non-alcoholic beverages also declining 24%. This is just a tip of the iceberg.

One of the biggest challenges of this pandemic to the manufacturing sector is how it has significantly crippled domestic demand. Zimbabwe has the second largest informal economy in the whole world, according to the International Monetary Fund. The indefinite lockdown, which has been in place since March 2020, disrupted the economic activities of many informal players who employ 94,5% of Zimbabwe’s labour force.

That significantly eroded disposable incomes of the majority of the populace, resulting in domestic demand going down. Demand plays a signaling function for production and low demand means low production.

And looking at how Zimbabwe is significantly integrated to the global economy, the disruption of global supply chains caused by this pandemic also posed another huge threat, and potential opportunity too, to the local industry. Most of the local manufacturing enterprises import their raw materials and the disruption of the transport sector also disrupted their production capabilities. Take sanitary wear manufacturers, for example, who import more than 70% of their raw materials from countries such as China.

This has not only affected source markets, but export markets as well. Take nickel production, for instance, which was also affected by the Covid-19 pandemic induced shutdown of the manufacturing sector establishments in parts of China that reduced consumption of base metals, resulting in declining nickel prices as well.

What makes the industry more vulnerable in this pandemic is the fact that the majority of its workforce is employed in on-site jobs that cannot be done remotely. And with the curfew measures being employed as part of the lockdown regulations, it becomes difficult for workers to be always on site. Most manufacturing establishments need to operate for 18 uninterrupted hours every single day, yet the curfew only allows them to operate for at most eight hours only per day. This automatically limits their operating capacity and productivity; not mentioning the plight of those subsectors that are classified as non-essential goods providers.

Further, issues of employee safety are also of particular concern, given the nature of the factories, whereby it is sometimes difficult to create social distancing in workplaces that are typically worker-dense. Employee morale is also very low, amid low to no incentives, as workers live with the fear of contracting the virus, which also lead to absenteeism and staff turnover. The pandemic has also affected their mental health and productivity. Stigma and discrimination is also still a reality for employees that have recovered from the virus and return to work; which calls for more education about this virus.

Salvos are firing at the local industry, left, right and centre and what we can realise from this moment of socio-economic distress is how it has resulted in capacity utilisation declining, production and productivity also falling down, rising cost of doing business, firms’ revenues going down, with employment levels also falling, resulting in poor overall performance of the manufacturing sector and its contribution to the national economy. Other sectors, which have strong linkages with the manufacturing sector, such as agriculture, mining and transport, have also been affected and the ripple effects of such also cascade to the wider economy.

While the situation might seem to be hectic for the local industry, this is actually the time for Zimbabwe to be looking at how best to minimise the risks and maximise the opportunities presented by the Covid-19 pandemic. Firms that learn to quickly adapt and dynamically redefine their business models stand a chance at turning the corner. The first opportunity lies in government fully implementing all the policies that have a bearing on the manufacturing sector. Four policies quickly come to mind, two administered by the Ministry of Industry, Commerce and Enterprise Development and the other two administered by the Ministry of Foreign Affairs and International Trade.

Last year, the Industry ministry launched two long-term policies, which have the potential to jumpstart the local industry during these difficult times, if measures and instruments therein are fully implemented. The Zimbabwe National Industrialisation Development Policy is one of the crucial policies seeking to grow the manufacturing sector’s growth rate by at least 2% per annum.

The policy also targets to increase the sector’s capacity utilisation to above 70% by 2023, anchored on value-addition and beneficiation, upgrading and modernisation of industrial equipment and machinery, rural industrialisation, effective co-operation between government and the private sector, amongst other strategies.

Also, given how global supply chains for both raw materials and finished goods have been affected, it is also time to gear up implementation of the Local Content Strategy, which was devised to encourage local value-addition through utilisation of domestic resources and localisation of supply chains. This is the time to aggressively pursue import substitution for both raw materials and finished goods, to ensure that we reduce our import bill, improve our balance of payment position, create employment and domestic demand, amongst other fundamental socio-economic desirables. We can make a big difference if the hundreds of millions we use to import goods and services start circulating within the local arteries of our economy.

It is also time to strategise on increasing exports and the Foreign Affairs ministry should start to upscale implementation of measures contained in the Zimbabwe National Trade Policy as well as the National Export Strategy, targeting US$7 billion in export value by 2023 and US$14 billion by 2030. In retrospect, these policies are usually not implemented and just exist as a reminder of what we want to achieve, but this is not the time to be docile.

This is also the time for firms to think about the future of their businesses and, where possible, divest non-core or underperforming assets to structure their portfolios in a manner that reflects efficiency and value creation. This is a defining moment, which calls for firms to innovate and break new ground. The safety of employees should also be put on high priority to help them cope with the already difficult times. Activities that can be carried out remotely should be identified, with workers supported to do them while at home. It is also important to provide incentives for employees to pull through these difficult times and to boost their morale.

While some firms are still holding onto old ways and still struck by inertia to move out of their comfort zones and think outside the box, taking the business as usual approach and failing to quickly adapt might result in their demise, like what happened to those that failed to adapt during the Spanish influenza era.

It is time to tame this new normal and find a new equilibrium where business is optimised. Covid-19 is upon us; and in the midst of triumph over recoveries, grief over deaths being experienced and hope for the situation to be contained sooner rather than later, captains of industries should carefully navigate their ships to avoid wreckage.

Machadu is an economist, researcher and consultant. The article appears in the Zimbabwe Independent 2020 Quoted Companies Survey released today, whose theme is “Soaring Above Turmoil: Business Post-Covid-19”. This is the first of a series of articles published in the prestigious magazine that will appear in the Independent in the coming weeks.