THE manufacturing sector still needs more lines of credit and a reliable supply of electricity, transport and telecommunications to boost capacity utilisation, economic analysts have said.
The analysts say despite the formation of the inclusive government in February, most manufacturing companies are still operating below capacity owing to unstable economic environment triggered by a decade-long political and economic recession that has seen firms shutting down or relocating to neighbouring countries.
A manufacturing survey by the Confederation of Zimbabwe Industries (CZI) last year revealed that industry was operating below 30%.
The sector was at its peak between 1990 and 1996. Then it was famous for its diversity of products and as an important contributor to the country’s Gross Domestic Product (GDP).
It accounted for 16% of GDP, 37% of exports and foreign exchange earnings and 15% of formal employment at the time.
Given that the Zimbabwean economy is dominated by agriculture and mining, the manufacturing sector is dominated by agro-processing accounting for 54%, and mineral processing 25%.
Presenting his mid-term monetary policy statement last week, Reserve Bank Governor Gideon Gono said: “There is need to swiftly re-orient the overall infrastructural grid of the country such as energy, NRZ, Hwange, telecoms, road transport and air transport system so as to unlock greater response from the manufacturing sector.”
Gono said capacity utilisation in the sector should be uplifted through toll-manufacturing programmes with regional and international partners.
The call came amid realisation that manufacturers were still performing below expectations.
Economist Eric Bloch said: “The manufacturing sector continues to face challenges related to unreliable delivery of essential public utilities such as power, coal, water, transport and telecommunications.”
He said other challenges related to working capital, ageing equipment, low effective domestic demand as well as pressure for higher wages.
“Central to challenges the sector is facing, is securing lines of credit to allow improved capacity utilisation,” Bloch added.
Immediate requirements for the manufacturing sector amount to US$1 billion. According to the Finance ministry, as of June 30 US$562 million has been identified as potential lines of credit.
Announcing the mid-term fiscal policy statement last month, Finance minister Tendai Biti said: “Major manufacturing potential exists in foodstuffs, beverages, textiles, timber, paper and packaging, steel and other metal products, fertilisers, agricultural equipment and chemicals.”
Since 2000, the manufacturing sector has significantly contracted as a result of major problems, which included a hyperinflationary environment, foreign exchange controls, depressed aggregate demand, shortage of foreign currency, working capital constraints and a regime of price controls, which compromised viability.
The sector also suffered from skills flight, power outages and erratic supply of fuel as the economy sank deeper into recession.
As a result, capacity utilisation gradually declined, reaching 35,8% in 2005, 33,8% in 2006, 18,9% in 2007, and dropping sharply to between 4% and 10% by the end of 2008.
Consequently, output contracted by 18% in 2006, 21,1% in 2007 and an estimated 29,6% in 2008.
“It is very critical that the planned foreign investment promotion programmes by government emphasise the need to increase domestic value-addition on the country’s primary production, within the context of a broad export-led strategy,” said Gono.
Economist Brains Muchemwa said capacity utilisation within the manufacturing sector was showing signs of recovery with indications that it was nearing about 50% from below 30% last year.
“This follows the liberalisation measures introduced at the beginning of the year that have resulted in improved operations in some industries,” Muchemwa said. “What is important is to ensure that local products are competitive on the foreign market and more lines of credit are secured for the industry.”
Addressing delegates at the launch of the Government Development Forum (GDF) on Monday, Biti said Zimbabwe needed at least US$45 billion dollars to rebuild its economy in the next 10 years and get it to levels it reached in 1996 before the economy started to shrink.
Â “An in depth study we have done at the Ministry of Finance shows that we actually require US$45 billion up to the year 2019 to get our economy to where it was in 1996,” Biti said, adding that this was the reason the government had decided to work with a conservative figure of US$8 billion for the next three years.
The Finance minister said the government wanted to move away from consumptive to transformative aid to help the country rebuild its manufacturing sector and shattered economy.
Commenting on what was contributing to the decline in the manufacturing sector,
John Robertson, an economic analyst, said the emergence of a more robust informal market for commodities as was happening with the informal trade in foreign currency was resulting in prices shooting up because the government lacked the capacity to monitor and control informal markets.
“Manufacturers stop producing because carrying on with business would not make any sense as they would be running at a loss,” Robertson explained. “Worse still, goods on the black market tend to be of inferior quality and are unhygienic.”
Robertson said with the introduction of multi-currencies and reviving of most sectors of the economy “the (manufacturing) sector operating capacity would improve”.
Going forward, following the liberalisation measures introduced at the beginning of 2009, confidence has started building up, critical for the normalisation of day to day operations.
As a result, capacity utilisation in some industries has increased rapidly to between 25-50% in the first half of 2009 and the business community is on record saying it was optimistic that this will significantly improve further by end of the year.
BY PAUL NYAKAZEYA