Manufacturing sector: 2012 major casualty

BY AND LARGE, Zimbabwe’s manufacturing sector was the most bruised economic driver for the year 2012.

Report by Bernard Mpofu

Dogged by serious capital constraints which limited its capacity to retool, Zimbabwe’s industry — once regarded as one of the most diversified in the region after the Unilateral Declaration of Independence of 1965 — has become a catalyst for the country’s high unemployment levels.

Ironically, as the manufacturing sector remains in the doldrums, the informal sector continues to thrive. Big brands like Cairns Foods and Karina Textiles folded during the year under review, threatening thousands of jobs.

Captains of industry warn that more problems could befall the economy, should Zimbabweans go for an early poll.

Capacity utilisation in Zimbabwe’s manufacturing sector has plunged to 44,2% from 57,2% recorded last year amid warnings by industry that a fresh crisis triggered by capital constraints was looming. Official statistics show that nearly 75% of local manufacturing companies need new equipment and technology to operate efficiently.

Launching the manufacturing sector survey last month, CZI chief economist Loraine Chikanya said the manufacturing sector, expected to grow by 6% this year, needs immediate attention to survive.

“The manufacturing sector is in a crisis and to some extent this has resulted in company closures. The prevailing status quo cannot be maintained,” Chikanya said.

Faced with stiff competition, the share of manufacturing output exported has fallen dramatically, further widening the country’s trade deficit.

According to the World Bank, more than 25% of the firms were exporters during the 1990s compared to less than 10% now.

The Bretton Woods institution noted that businesses in Zimbabwe suffered the highest losses due to erratic power supply compared to other countries regionally.

Zesa which is generating just over 1 200 megawatts (MW) of electricity, is currently struggling to meet a daily peak demand of 2 500MW.

This has resulted in some companies relying on costly alternative sources of energy. Experts contend that reducing electricity costs would significantly increase competitiveness with imports, or ability to compete with lower prices in export markets.

“To increase export competiveness, government policy and interventions should be aimed at enabling domestic firms to improve their technology, go out there and participate in regional production networks and compete on price and quality in areas of their advantage,” reads the latest World Bank manufacturing sector research note on Zimbabwe.

With elections looming and business disruptions expected, many companies may record slow growth in the near future. The World Bank says more reforms are required to stimulate growth in the manufacturing sector.

“In Zimbabwe, almost three quarters of businesses report uncertainty to be a major or severe constraint—it is the single biggest problem impacting businesses across the board.

“Without a stable macroeconomic environment and a set of credible policies, no effort to improve the state of the manufacturing sector is likely to have any impact,” further reads the World Bank report.

The World Bank cited indigenisation policy compelling foreign-owned companies to dispose 51% to locals as one of the major deterrents for foreign direct investment since 1996.

The multilateral lender further noted that firms with some foreign ownership continued to be the largest employers within manufacturing.

Turning to the issue of capital, the World Bank said Zimbabwe, which has a huge debt overhang, required sovereign credit lines to finance capital projects, warning that forcing banks to set quotas for on lending to economic sub-sectors may not drive the economy.

“The attempt to direct credit to subsectors or geographic regions in the country many not turn out to be productive,” the World Bank said.

Latest figures from the Finance ministry show that total banking sector deposits increased to $3,81 billion as at October 2012 from $3,7 billion recorded during the previous month.

During October 2012, loans and advances to the private sector increased by 0,7% to $3,37 billion translating to a loan to deposit ratio of 88,4%.

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2 Comments

  1. Its sad news to read about but why are our politicians are putting all their efforts on elections when it is not clear that they will solve anything. i think we must try to help those companies to come back on their feet because that where survival is dependent on. look in Byo the industry is dead. And this Kasukuwere’s indigenisation should be scraped for us to attract capital. Zimbo who want companies they shoild start their own like va Strive Masiyiwa who started Econet

  2. hello, fantastic blog post. Please keep them coming..

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