Zim industrial decline continues

Industry and Commerce Minister Mike Bimha giving a keynote address at the CZI Manufacturing Survey breakfast meeting at a local hotel. Picture: TMushakavanhu

IDLE capacity in manufacturing firms declined to 64 percent this year, from about 60 percent in 2013, as the economic crisis in the country deepened, an authoritative survey revealed yesterday. The CBZ Bank-sponsored Confederation of Zimbabwe Industries (CZI)’s Manufacturing Sector Survey 2014, which was unveiled at a breakfast meeting in the capital, appeared to indicate a gloomy outlook for the now-ailing economy, currently ravaged by corruption, bad governance, government profligacy and mismanagement.

Forty-seven percent of about 250 chief executive officers (CEOs) and financial managers surveyed warned of sustained recession in the next 12 months. Four percent of the respondents were confident of a rebound. A liquidity crisis that has been worsened by an ailing banking sector, extensive company closures, rising formal unemployment estimated at about 85 percent, a slide in production levels, non-performing loans, power shortages and a rapidly slackening consumer purchasing power are now endemic negative factors on the Zimbabwean landscape.

So dire has been the steep economic decline that 54 percent of the respondents said manufacturing operations are in distress, compared to 48 percent last year, and 31 percent in 2012. Only seven percent said they had registered improved viability during the period. “Industries in Zimbabwe are under serious threat,” said the CZI.

“Deindustrialisation has reached catastrophic levels, with dire consequences to the state of the economy. Arresting deindustrialisation will not be an easy task.”

“The average capacity utilisation of 36,3 percent would imply a decline of 3,3 percentage points from last year’s average of 39,6 percent. Of the respondents, 37 percent said they were operating at levels above 49 percent while the remainder said they were operating at levels below 49 percent. The factors affecting industry and limiting capacity in the manufacturing sector remain unchanged with similar factors being recorded over the last three years,” said the survey.

The shocking state of affairs in Zimbabwe’s manufacturing sector confirmed earlier reports that a number of firms have collapsed this year, with latest reports indicating that 600 companies had closed down between August last year and September this year. A significant of them have also been severely undermined by an influx of cheap imports, while 28,8 percent said they had been troubled by eroding disposable incomes, sparked by increasing job losses. About 2 065 workers had lost their jobs by June.

The survey said pressure from South African imports had increased, with 40 percent of respondents saying imports from that country could inflict further knocks on troubled local producers, while others said imports from Zambia were increasing. Zimbabwe’s import bill for the half-year to June stood at about US$3 billion, just about the same figure as the 2014 National Budget.

The CZI survey said the negative economic factors were the factors behind government’s decision to review Gross Domestic Product (GDP) growth rates for this year down to 3,1 percent, from an earlier projection of 6,1 percent. Across all sectors of the country’s tottering economy, the trading environment has deteriorated, with nearly all companies struggling to stay afloat due to depressed demand and the inability by cash-strapped customers to pay for goods and services on time.

The result has been an unhealthy working capital situation that has seen most companies lagging behind with payments for their raw materials and other inputs, salaries, medical aid and pension contributions as well as statutory payments such as taxes. Regardless, the taxman has been demanding his dues, thereby driving most companies to the brink of closure.  About 15 percent of respondents said they had retrenched staff. But even those that had not retrenched said they could not afford the cost of laying off staff.

The issue of labour costs and their negative impact on business viability remained a challenge for industry, according to this year’s survey. About 55 percent of the respondents indicated that their wage bills had increased in 2014 compared to 77 percent in 2013. Also clear in the crisis that has ruthlessly hit industries has been government’s outright failure to implement growth stimulating measures to arrest extensive suffering and muted public discontent.

The widening trade deficit and a slide in foreign direct investment (FDI) have also become an albatross around the economy, although government is trying to rescue the situation through its medium-term blueprint, the Zimbabwe Agenda for Sustainable Socio Economic Transformation (Zim-Asset), which was hastily put together in September last year. With the local economy only generating US$3,6 billion in annual revenues, Zim-Asset is anchored on the mobilisation of US$27 billion; this was expected to come mostly from the economies of Brazil, Russia, China, India and South Africa, the so-called BRICS nations.

Evidently, the economic blueprint was adopted without taking due consideration of the realities of running an economy in a US dollar regime. With the BRICS having no history of lending, the best that government can salvage from the group would be buyer’s credit.  But under these arrangements, the cash remains in the country offering the credit, making it difficult to immediately channel it to address the prevailing liquidity crisis.

“The current challenges facing the economy are so intertwined that sometimes it is not easy to separate the causes from the effects. It is, however, important to make sure that the challenges are properly contextualised and diagnosed in order to come up with appropriate and relevant solutions to underpin economic recovery. An analysis of these challenges shows that the economy has failed to sustain the strong growth trajectory stimulated by the liberalisation of the foreign exchange system in 2009 after failing to attract critical offshore financial inflows (both foreign direct investment (FDI) and long-term lines of credit). These would be critical for replacing the short-term expensive loans that have been granted by local financial institutions since the commencement of the multiple currency system,” said CZI.

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