VICTORIA FALLS — Zimbabwe’s struggling manufacturing sector could soon rely on imports to remain afloat due to its uncompetitiveness, underfunding and political uncertainty, a top World Bank official said yesterday.
Presenting a paper titled “Zimbabwe Manufacturing Sector: Options and Constraints” at the High Level Economic Forum in Victoria Falls, Praveen Kumar, sector leader of the Poverty Reduction and Economic Management network of the World Bank, said failure by local firms to retool may lead to increased importation of cheap–product from emerging economies.
This development could result in massive retrenchments, as well as widen the import bill as exports remain subdued.
Already, the textile industry, once a major source of employment, is facing collapse due to predominantly cheap imported oriental apparels.
“Zimbabwe’s manufacturing sector is dominated by aged firms that are a shrunken version of their former self (loss of size, capital, ability to export etc),” Kumar said.
“These ‘survivors’ are under huge stress. They operate in an uncertain policy environment. They are finance-constrained. Their non-labour costs are high, and domestic input supply is yet to revive.
“They are moving fast into trading imported goods from China, India and Vietnam,” Kumar said.
Currently operating at an average capacity of nearly 60% driven by tobacco and beverage sectors at near optimal levels, most local manufacturing firms have struggled to establish a foothold on regional and global markets since the inception of the multiple currency regime.
Huge production overheads and low demand for locally manufactured products have resulted in some companies engaging in massive job cuts to survive.
Following a World Bank Enterprise Survey of 600 local companies which was carried in 2011, Kumar said, most Zimbabwean firms could soon rely on cheap imports from China, India and Vietnam.
Out of 600 companies that were sampled, 400 were in the manufacturing sector.
The survey, according to Kumar, also revealed that more than 75% of local firms blamed lack of finance for failing to operate at optimal levels.
Despite underfunding constraints, the World Bank official said Zimbabwe’s unit labour costs, a composite measure of labour and productivity, remained competitive although he warned that the scenario could change due to obsolete equipment that could push production costs up.
He said Zimbabwe’s unit labour costs were comparable to Kenya, Namibia and Zambia, but lower than South Africa, Mozambique and Botswana.
Records show that Zimbabwe’s manufacturing sector output rose through the 60s, 70s and 80s after the Unilateral Declaration of Independence.
At its peak in 1996, output, the then diversified manufacturing sector, which was driven by a robust agricultural sector, contributed nearly half of the economy.
“Diversification is important for overall growth of the manufacturing sector.
“Zimbabwe’s economy is no longer as diversified as it was in 1991 and the government should formulate policies that promote that diversification,” Kumar added.