The year 2015 was a roller coaster for Zimbabwean businesses as they hurtled from one crisis to another, a reflection of the state of the economy.
BY MTHANDAZO NYONI
Power cuts, shortage of capital, a debilitating labour crisis and antiquated machinery all combined to stifle growth of business.
Capacity utilisation as measured by the Confederation of Zimbabwe Industries (CZI) declined to 34,3% from 36,5% recorded last year, painting a gloomy picture for the manufacturing sector.
The year witnessed the decline in global commodity prices for Zimbabwe’s main mineral exports; gold, platinum, and diamonds; which were already facing high production costs, thereby negatively impacting the fiscal and external accounts. The weakening of regional currencies, in particular the South African rand and the Zambian kwacha, made smuggling and local industry support more difficult as the incentives to break the rules were very high, said CZI president Busisa Moyo.
Moyo said the high cost environment remained “the elephant in the room” as Zimbabwe was 45% to 55% higher in terms of fuel costs, logistics costs, minimum wages, rentals, electricity charges and other business costs as compared to regional peers.
This, Moyo said, pointed to a need to adjust costs once off under an internal devaluation legal mechanism that gives companies the right to reduce costs by 40-50% and for the cost of living to be adjusted downwards simultaneously.
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Zimbabwe National Chamber of Commerce first vice-chairperson, Sisa Sibanda, said the year was characterised by closure and meltdown of industry in Matabeleland with liquidity challenges becoming a major obstacle for growth in industry.
Sibanda said business failed to meet its 2015 resolution, as a result of a low economic growth which this year stood at 1,5% and most companies were failing to meet operating expenses and salaries for employees.
She said labour disputes, deflation and depreciating currencies of regional countries affected companies’ export potential.
Public Policy Research Institute of Zimbabwe policy analyst, Butler Tambo said most companies in Bulawayo performed badly in 2015, with some of them taking advantage of the July 17 Supreme Court ruling that allowed companies to lay off workers on three months’ notice.
He said the constraints to capacity such as capital, antiquated machinery and machine breakdowns remained the same since dollarisation.
“This has made the cost of locally-produced goods more expensive than those imported from South Africa, Zambia and China, to name a few countries,” he said.
Tambo said competition from imports — the real exchange rate overvaluation relative to the South African rand — had caused a serious loss in external competitiveness, as it had made imports cheaper than locally produced goods, while making exports more expensive.
As a result of increasing demand for imports and dwindling exports, the external sector position continued in deficit, with an estimated current account deficit of $3,1 billion as shown at the CZI 2015 manufacturing Sector Survey.
He said power generation of slightly less than 1 000MW of electricity against a peak demand of 2 200MW also made it difficult for industry to operate as the power outages became a permanent feature.
Tambo said minimum wage levels indicated high labour costs in Zimbabwe when compared to Zambia, Botswana, Mozambique and South Africa. He said the trend observed in the past five years revealed large increases in labour costs that did not appear to be justified by the rate of economic growth or productivity. However, it was not all gloomy for the industry as the year witnessed companies such as Archer Clothing Manufacturers, Cairns Foods and Blue Ribbon Foods coming back to life, Moyo said.
“The country is also becoming self-reliant on cooking oils, laundry soaps, bath soaps, value added milk products, especially with the entry of new players like Dendairy,” he said.
Sibanda echoed Moyo’s sentiments, adding that the much-awaited Special Economic Zone Bill had been achieved as was gazetted and “this is expected to create a multiplier effect within the Matabeleland region”.
Moyo said CZI was concerned about the pace at which key policies were implemented. He mentioned the special economic zones, National Competitiveness Commission and anchor projects like National Railways of Zimbabwe, Zisco and Cold Storage Company.
He said the revival of the agriculture sector had also remained largely unsolved, yet it was the cornerstone of the economy. He said Land Title — the 99- year leases and a bankable ownership framework was critical for this sector.
In the outlook, Moyo said there was much work ahead of them in pushing for reforms and economic resurgence, a process that included removal binding constraints on business and enterprise.
“We also will continue to advocate for commencement of special economic zones implementation, which Bulawayo and Victoria Falls are part of. Internal devaluation is unavoidable if we are to continue using the United States dollar in an environment of weakening currencies,” he said.
