BY TATIRA ZWINOIRA
The Confederation of Zimbabwe Industries (CZI) has projected that industry’s capacity utilisation will fall to 27% this year if the government does not change its policy direction.
According to the CZI’s 2019 CZI Manufacturing Sector Survey, industry’s capacity utilisation fell by 11.8 percentage points to 36.4% in 2019 from 48.2% recorded in 2018.
The situation is expected to get worse this year if the government continues on its policy trajectory, CZI warned.
“Projected capacity utilisation in 2020 is expected to decline to 27%, which is a 9.4 percentage points decrease from the actual obtained for 2019. If the policy direction does not change drastically, this is what industry expects in 2020,” said CZI chief economist Tafadzwa Bandama “At 27% capacity utilisation levels, some companies would have closed with follow-on effects.”
Bandama said the slowdown would result in higher unemployment, rising poverty levels, shortage of goods and services, inflation, reduced aggregate demand, low exports volumes, and increased shortages of foreign currency.
“At 27% capacity utilisation, do you still expect to go to your factory to open and still operate in order to earn and enjoy profit?
“And as labour, do you hope that your employer will still employ you in 2020 if capacity utilisation will be at 27%?” Bandama asked during the presentation of the survey results.
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“As a policymaker, Hon Minister (Industry and Commerce Sekai Nzenza), will you still prescribe the same policy measures that are currently prevailing in 2020 if capacity utilisation is at 27%?”
Bandama said the unstable local currency was largely to blame for industry’s poor performance.
“The iterations around the root cause for performance constraints in the manufacturing sector are hovering around foreign currency,” she said.
“All the other factors like inflation, power shortages, raw material shortages, those are all just branches and leaves, but the root cause is foreign currency.”
Bandama said shortages of foreign currency also resulted in water shortages in cities as there was no money to import water treatment chemicals, thus affecting consumable-producing firms.
The data collection for the survey was done by CZI, lecturers and local university students, based on questionnaires sent to 306 manufacturing companies, of which 146 firms sent back replies.
The CZI survey covers the period between September 2018 and August 2019. Nzenza said the survey would guide the government’s policy formulation to rescue industry from collapse.
“I want to acknowledge that we are at 27% capacity utilisation which, of course, is not encouraging, but what is important is that we now know,” she said at the launch.
“So I want to thank CZI for that survey. It helps have a guideline to map the way forward.”
According to the report, the shortage of foreign currency, power shortages, low demand for goods as a result of inflation, antiquated machinery and breakdowns, shortages of raw materials, and water shortages lowered capacity utilisation last year.
In a subsector breakdown, the capacity utilisation in the foodstuffs sector was at 37%, drinks, tobacco and beverages (38%), clothing and footwear (44%), textiles and ginning (25%), wood and furniture (47%), and paper, printing and publishing (34%).
Capacity utilisation in the chemicals and petroleum sector was 36%), nonmetallic mineral (49%), metal and metal products (41%), transport and equipment (13%) and other manufactured goods (24%).
As a result of the intensifying economic problems no manufacturing company had output of higher than 50%.
Power shortages and inflation significantly affected company operations during the period under review.
During the survey, companies indicated that they were only receiving 50% of their monthly energy supply.
The cost of power cuts resulted in 29% of the firms surveyed reporting wastages, 36% faced by reduced quality of products, 34% recording machine breakdowns and 1% facing delayed product testing.
The power shortages were caused by last year’s drought, which reduced the capacity of Zimbabwe’s largest source of hydropower – Kariba Dam.
To conserve power, Zesa implemented load-shedding that stretched for between 10 and 18 hours daily.
Meanwhile, the depreciating Zimbabwe dollar has led to hyperinflation as businesses are pricing their goods in line with parallel market foreign currency exchange rates in order preserve value.
This has resulted in reduced spending as consumers are now operating under tighter budgets leading to business recording reduced sales.