Company closures to worsen

GOVERNMENT has been warned of more company closures this year due to lack of budgetary support for industry amid accusations that there is no political will to solve the deepening industrial crisis, the Financial Gazette has learnt.
While industries have collapsed under the weight of a crippling liquidity crunch that has wreaked havoc on the markets since 2011, there has been little movement on the part of government to save troubled firms, with Finance Minister Patrick Chinamasa (pictured) failing to roll out any bailout packages in the 2014 National Budget announced in December.
In a report by the Parliamentary Committee on Budget and Finance, Members of Parliament said government must not mix business and politics to ensure that the country can attract investment.

This lack of political will to assist industry, the report said, was seen through Treasury’s failure to allocate US$100 million requested by the Ministry of Industry and Commerce to bolster the Industrial Development Corporation of Zimbabwe (IDC)’s capacity for on-lending to distressed companies.

The Industry Ministry’s major mandate is to provide a conducive environment for economic growth and development through its co-ordinating role in the implementation of the Industrial Development and National Trade Policies. Among the major targets of the two policies is the revival of the manufacturing sector and accelerated industrialisation through value-addition and beneficiation.

“By not allocating any money to the IDC for lending to ailing industries, Treasury is indirectly allowing industries to collapse,” said the report. “If industry falls, revenue base falls and there is loss of employment. It is also important to note that shut down companies are difficult  to resuscitate. The budget shows that there is little political will from government to resuscitate the local industry,” reads part of the report.

Only 10 out of the 74-companies listed on the Zimbabwe Stock Exchange are in good shape while over 100 firms have closed shop since 2011, signifying an industrial ‘Armageddon’ that requires swift remedial action if further de-industrialisation is to be averted, a report by the Confederation of Zimbabwe Industries noted in October.

Also quite telling is that capacity utilisation in the manufacturing sector had dropped by more than five percent from December 2012 to October 2013, the report added.
The manufacturing sector survey revealed that capacity utilisation in the manufacturing sector had slid by 5,3 percentage points to 39,6 percent in October 2012, compared to 44,2 percent in 2012, making it imperative for the 2014 budget to seriously look into ways of funding industries.

“The budget to the Ministry is only for operations of the Ministry and has no intention of contributing to economic growth as the ministry did not receive any budget for the IDC for lending to ailing industries. This will result in further distress among companies in need of funding for recapitalisation and working capital,” said the report by Parliament.
Besides the IDC, other ministries that fall under the Industry Ministry include New Zim Steel about which the lawmakers said government should not wait for the Essar deal to get back on track but should take some initiatives that will see the company resuming operations even at low capacity levels.     
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