Manufacturing timebomb:CZI urges swift action

THE Confederation of Zimbabwe Industries (CZI) yesterday released results of a national survey which measures the state of the manufacturing sector.

REPORT BY BERNARD MPOFU  CHIEF BUSINESS REPORTER

Indications of a struggling economy were there to see.

Traditionally, big brands like Cairns Foods are hemorrhaging, companies that have survived for generations are applying for voluntary liquidation, while the few thriving ones are operating on flexi-time.

The number of job seekers at Workington heavy industrial site in Harare continues to decline as many now look up to the informal sector.

The same can be said in Belmont, Bulawayo, once regarded as the country’s industrial hub.

For the first time in three years, the inclusive government — formed in 2009 to stabilise the economy and usher political and legislative reforms — has faced its strongest test.

Few jobs have been created, capital remains elusive and the economic outlook looks gloomy.

Concerned by what could be a time bomb for the coalition, CZI has called upon government to act.

With less than a year before the compromise government calls for elections, Finance minister Tendai Biti has already taken the begging bowl to regional peers seeking budgetary support.

Could this be too little too late?

“Contrary to what happened in the last three years, the manufacturing sector is now at best in a state of stagnation with many companies in decline or closed,” CZI president Kumbirai Katsande said.

“This is confirmed by reports from NSSA.

“Capacity utilisation has gone down from 57,2% in 2011 to 44,9% in 2012. Export sales are static. And business confidence is very low.

“Manufacturers believe the economy will not improve in 2013. Our labour laws are inflexible and are now a hindrance to business performance.

“Labour law reform is unavoidable. It is time for Zimbabwe to directly resolve these fundamental problems.

“There is no way out. And no one will deliver the answers because of the nature and extent of the economic crisis. We just have to work together.”

The industrial lobby group, which has already expressed fears over the looming polls, contends that a stimulus package is required to save the local manufacturing sector, whose demise has been quickened by the poor state of agriculture. Industry and Commerce minister Welshman Ncube now looks up to small and medium enterprises to drive the economy.

“Given that SMEs have high labour to capital ratio, there will be need to use the sector as a strategy for quick turnaround of the economy at a relatively cheaper cost than that of conventional larger industries,” Ncube said.

“This can be further enhanced through the establishment of industrial parks and clusters in the food and beverage, textile and clothing, wood and furniture, plastics and packaging and pharmaceuticals.”

The government has struggled to source viable lines of credit due to a poor credit rating and a huge debt overhang which translates to over 100% of the country’s gross domestic product (GDP).

Experts say failure by the companies to retool has pushed up operating overheads, making the manufacturing sector generally uncompetitive on both the domestic and export markets.

Production capacity has grown from about 10% in 2008 to 30% in 2009 before inching further to 43,7% in 2010 and then to 57,2% in 2011.

Although capacity utilisation had up until this year improved in some sectors such as beverages and tobacco processing, some key sectors such as pharmaceutical, textile, paper and pulp industries, according to the CZI, are facing serious viability problems.

RESULTS of the 2012 CZI Manufacturing Sector Survey released yesterday show that the manufacturing sector is in dire straits, plagued by a myriad of challenges, among them capital, energy and infrastructure.

At least 200 companies took part in the survey. Below are some of the findings:

Retrenchments
In terms of retrenchments, 21% of the respondents indicated that they had retrenched permanent staff.

The reasons for this were mainly due to rationalisation following a downturn in business, and the introduction of new technologies (automation).

Some members indicated that they wanted to retrench, but were blocked by government.

Working hours
Only 16% of the respondents indicated having changed the number of working hours.

In the case of a decrease in working hours, this was mainly necessitated by a drop in product demand and power outages.

Only 1% indicated an increase in working hours as a direct result of an increase in workload due to increased product demand.

Power crisis
The suggested remedies for the perennial power crisis were as follows:

  •   In the short term, there is need to prioritise the rehabilitation and maintenance of existing infrastructure.
  •   Ensure that adequate resources are set aside for energy development.
  •   It was even suggested that government must link mineral resources to energy development.
  •   In addition to ensuring availability of resources, there is need for government to prioritise the completion of projects such as the Batoka hydropower station that would boost local electricity generation capacity.
  • There is need to focus on the development and encouragement of use of alternative sources of power, especially for domestic consumption.
  •   Government needs to facilitate foreign direct investment and private sector participation in power generation and/or importation.
  •   Disband Zesa Holdings whose monopoly is discouraging proper business management, fuelling corruption and lack of innovativeness and efficiency.
  •   Implement a new pricing model.
  •   New billing system to be put in place.

Problematic infrastructure factors

  • Power cuts and shortages
  •   Inefficient railway network within the country
  • Water shortages
  • Poor road infrastructure
  • Absence of a well-developed rail network which links the country to the ports

Internet
Survey results indicate that most companies do not to use the Internet as a tool for buying and selling their products.

This is indicated by a 50% response rate of those who do not use Internet at all in marketing their products.

Most respondents noted that internet service providers are moderately providing the right speeds and connectivity required for their business.

Business viability
On whether business viability has improved or not over the past year, 31% of the respondents indicated that business had not improved at all and had actually declined; 24% said they had recorded a slight increase in business; only 10% said they had recorded a significant improvement in business viability.

SA slips as Zim’s export destination

Chief Business Reporter

ZAMBIA has maintained its pole position as Zimbabwe’s top export destination accounting for 30% of exports produced by the manufacturing sector, while South Africa slipped to fourth position despite a growing import bill with the regional powerhouse, official figures have shown.

Statistics released by the Confederation of Zimbabwe Industries (CZI) show that South Africa accounted for 12% of exports manufactured by local companies, two positions above Malawi (17%) and Mozambique (13%).

Latest data shows that local firms continue to struggle regionally due to high operating overheads resulting from unsustainable labour costs, limited access to cheap capital and high utilities.

Zimbabwe’s major sources of imports whose trade deficit continues to grow, according to the latest CZI survey, are South Africa, China, India and Brazil.

The industrial lobby group also attributed failure by local firms to compete with regional peers on the domestic market to the country’s rundown infrastructure that has also pushed the cost of utilities.

“The state of infrastructure in an economy has a significant bearing on the operating environment of business and ultimately affects the level of competitiveness,” CZI noted in a statement.

“The absence of adequate provision of infrastructure is usually an added cost to doing business as firms have to seek alternatives.

“Local authorities were singled out for providing unsatisfactory service and respondents indicated that they were not doing a satisfactory job in addressing the current challenges being faced in terms of service delivery.”

In 2011, according to the CZI survey, the total number of companies which had new capital investment increased by 11% as they sought to replace antiquated machinery and equipment, as well as expanding operations.

Of these, 93% invested in machinery and equipment, while 7% invested in land and buildings.

Local companies, according to the CZI, also blamed the country’s cumbersome process of exporting products and that of sourcing critical raw materials for discouraging exports. Corruption at the country’s ports of entry was also blamed for affecting exports.

Zimbabwe’s is one of the lowly ranked countries based on the ease of doing business index despite ongoing reforms.

6 Comments

  1. All the problems we’re curently facing are as a direct result of zanu pf dimwits who continue to meddle in economic affiars they little understand, only for their selfish reasons. we are worse off with their continued stay in power. however they should know that they are not immune to the domino effects of the social problems that follow poor economic performance. crime is so rife and it’s getting worse. we are no longer safe in our homes in the high density surburbs and neither I they safe in their posh low density surburbs from armed robbers, murderers, thieves and all sorts of vices. mugabe’s inner circle should be bold enough to tell him to stand down and leave young turks (not the saviour kasukuwere type) to revive the party and the ecnomy. the securocrats should be kept in the barracks as professional solders and those who excel can freely move into the private sector and contribute towards the growth of the country. the young generation of zimbos (including their children) see a better future outside zimbabwe

  2. george bachinche

    @Lazy Boiy

    Why don’t you respond with reason to issues raised in the survey. The simplest thing to say is to blame ZANU PF.

    Manufacturing is treicky business. Even in industrialised countries, manufacturing can suffer. The reasons often have tio do with how each individual comopany strategies for its share of the market.
    Zimbabwe companies are profucts of Rhodesiana -where they were protected by the state,. This is why the manufacturing sector was against opening up the domestic market to foreign competitors.
    The viability of Zimbabwean companies depened on price increases as opposed to cutting production costs, they were happy with price control. Zim companies never learnt the art of being competitive. That will be their grave.

    1. @George Banchinche- You are suggesting that the government of Zimbabwe does not form part of the equation then? The government should be there to create an enabling envoroment to put hurdles at every turn for local industry.

      Of course the industrialists also have to shoulder part of the blame with their warped priorities..the cost of the company fleet is usually 100 times the cost of current stock and work in progress.. and coupled with this they pay these mad salaries to themselves which bear no relationship whatsoever to their productivity. Like our government ministers they have this huge affinity for everything gandiosque. You could have a point that the protection they got from government bred inefficiencies, now that the market is openned they are being exposed for what they really are, politicians hiding in industry pretending to be managers! The sooner they get out of there (or are kicked out!) and join their colleagues in government the better for all, themselves included.

  3. Mugabe is the source and root of the problem. When did Mugabe ever open his mouth to encourage investment or job creation. All he thinks about is how to buy votes for subsistence farmers. The other day , he was blaming Biti for not funding agricultural inputs, yet as President, he approves of every budget by Biti.

    Mugabe has an economics degree, yet he was saying a country cannot fail to borrow money. Now anyone with a an elementary understanding of economices will surely understand, Mugabe was saying nonsense.

    In any case I fail to understand, why the government should prioritise donating fertiliser and seeds to subsistence farmers. Commercial farmers should not be in business if they cannot save funds for seeds and fertiliser. Which country can afford to bail out business ventures year and year out. In the odd year of drought, yes the government should assist farmers, but not every year !

    The reason out industry capacity will not be resuscitated is because, Mugabe does not care.

  4. First off I would like to say fantastic blog! I had a quick question that I’d like to ask if you don’t mind. I was interested to find out how you center yourself and clear your thoughts before writing. I have had trouble clearing my thoughts in getting my ideas out there. I truly do take pleasure in writing but it just seems like the first 10 to 15 minutes are lost simply just trying to figure out how to begin. Any recommendations or hints? Thanks!|

  5. The issues at hand are far more complex than just saying VaMugabe just go, even if another government where to take seat you could find not much change however that is not to say that there are issue that need to be addressed in government such that may need ineffective people to step out of office,no one should at anyone point under estimate the effects of the economic sanctions and subsequent loss of Zimbabwe’s intellectual capital people who had links for instance mostly very productive white farmers chucked off their farms for not so productive to zero current setting the initial plan to share was far more effective but that’s the past my point is the situation isn’t just His Excellency Mugabe unaware to most people the man occupies a position in which if he where to leave none as of present could fully occupy the power vacuum left now that could plunge the country straight into the stone age look to north Africa for further explanations

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