The survey results gave a picture of the local industry in dire crisis and requiring immediate interventions to salvage it. CZI launched the survey results under the theme: Decisive action needed, and I suspect that they were talking about decisive action required on the policy resolutions that have been taken to revamp manufacturing but are gathering dusts.
The survey showed that average capacity utilisation in manufacturing has declined from 57.2 percent last year to 44.2 percent. This represents a marginal downfall 13 percent. One can only wonder how many plants have either scaled or closed down and how many jobs have been shed.
So much for a country targeting to restore the manufacturing sector’s contribution to GDP from the current 15percent to 30percent and its contribution to exports from 26percent to 50percent by 2015. The main capacity constraints were cited to be lack of working capital, low local demand, antiquated machinery and breakdowns, power and water shortages, competition from imports, drawbacks from current economic environment, high cost of doing business and shortage of raw materials.
If we look at capacity utilisation by subsector we will also see a remarkable phenomenon. The battery manufacturing subsector has the highest capacity utilisation at 76.5percent, followed by paper, printing and publishing with 58.3percent, food, dairy and beverages with 58.2percent, pharmaceuticals with 58percent, and timber processing with 53.8percent. Subsectors that are not doing well include leather and allied with average capacity utilisation of 27.5percent, milling with 30percent, car assemblers with 30.3percent, paints and inks with 30.5percent and textiles and clothing with 34.4percent. As can be seen, the subsectors with low capacity utilisation are the ones in direct confrontation with cheap imports.
For the first time since its inception, in 1994, the industrial survey this time investigated the percentage ownership structure of manufacturing sector enterprises. I am sure the indigenisation and economic empowerment law compelled CZI to get an understanding of what percentage of enterprises would have to cede 51percent of their shares to locals. General notice 459 of 2011 of the Extraordinary Government Gazette announced that foreign owned companies with a net asset value of $100 000 should cede 26 percent for the first year, whilst progressing towards attaining 51percent within four years.
The survey found out that 74 percent of manufacturing enterprises are owned by private domestic citizens, whilst 13 percent is owned by private foreign individuals, with 7percent owned by the government and the remaining 6percent owned through other structures. This means that between 13percent and 19percent of manufacturing enterprises are required to comply with the Indigenisation and Economic Empowerment Act.
The survey also show that issue of gender has not been perfectly addressed in the manufacturing sector as only 5percent of companies are headed by females, whilst 95percent are headed by men. Some of the few names we can think of when we are talking about manufacturing firms headed by females are Nancy Guzha (Unilever), Tracy Mutaviri (Lyons), Marah Hativagone (Codchem) and Dr. Ruth Labode.
Zimbabwe is a signatory to various gender equality instruments such as SADC Gender and Development Declaration, Convention on Elimination of All Forms of Declaration against Women (CEDAW), Solemn Declaration on Gender Equality in Africa, Beijing Declaration and Platform for Action, to name a few. Women represent 52percent of the national population but are still deprived of equal opportunities.
The pricing policy employed by manufacturing firms was also investigated by the survey. Mark up pricing was found to be the most preferred pricing policy, as 73 percent of firms are using it. Only 22 percent are market price takers, with the remaining 5 percent using other pricing models. The mark up pricing model is not sustainable in this economic environment because it does not pay much attention on whether the price is going to make the product be bought by the end user. Local manufacturers should therefore use the market based pricing method, which entails first evaluating the prices of similar products that are on the market and the price of imports as well.
The manufacturer will then work backwards to determine if his costs can allow him to make the product and leave him with a profit. If his costs allow him, he can then produce the product. Using this method gives the manufacturer the guarantee that his product is going to be competitive and that he is going to make a profit. This can somehow means that the price has been set by an agreement between the buyer and seller, without meeting.
In terms of competition with imports, the main competitors were noted to be South Africa, China, India, Brazil, and other countries. Many sectors are struggling to survive this unfair competition. CZI President, Kumbirai Katsande, frustrated (I suppose) by the situation had this to say, “The question still has to be asked again why policymakers seem to be too reluctant or unconcerned about this unfolding de-industrialisation of Zimbabwe. Once companies collapse and local products are substituted by imports, it will be very difficult to resuscitate them. So speed in coming up with corrective action is key.”
According to the survey, production for local consumption is 85percent, with the balance being exported. This means that our exports are still low, whereas imports are growing, which is widening the trade deficit. Most companies cannot export because local products cannot compete in outside markets, both in terms of price and quality. Companies also lack working capital to meet export orders, whereas some also fail to identify potential export markets.
Most of our exports are commodities which are vulnerable to external shocks, and our exports are also concentrated in nature. There is need to tap into the trade growth opportunities through market diversification and lowering our dependency on the export of commodities which are vulnerable to external shocks. Diversification should be pursued by becoming less dependent on the stagnating markets of our traditional trading partners in the developed world.
There is need to fostering manufacturing development from the waning rebound effects. We are beginning to realise suppressed economic growth, with forecasts from IMF saying growth will be averaging 5 percent by 2017. This can only point to external developments that are worsening the environment for Zimbabwe, being a commodity-intensive economy we are. So, as the rebound effects are starting to subside, we need to aggressive foster manufacturing development, which can only result in sustainable economic growth. This will be achieved by moving up the value chain ladder.
The industrial survey also revealed that a number of companies that invested in new capital increased by 11 percent. Machinery and equipment constituted 93 percent of these investments, whereas 7 percent was for land and buildings. The major reason for new capital investment was for the replacement of antiquated machinery and to expand operations. Some of the companies that have commissioned new plants include Delta, Schweppes, Alpha Dairy, Hwange Colliery, mentioning a few.
What is interesting to note is that the main source of capital is profit plough-back, although some are also getting bank facilities to acquire new capital. Only 5 percent have acquired new capital through foreign direct investment. This indicates that our investment climate is still not conducive for international capital movement. In their Article IV consultation, the IMF alluded that foreign investment appears hampered by poor business climate, uncertainties related to the indigenisation policy and the political process; while domestic investors may face difficulties accessing long term credit, since most local bank deposits are transitory in nature.
On retrenchments, the survey discovered that 21 percent of manufacturing sector firms has retrenched permanent staff. The main reasons for retrenching permanent staff were because of downturn in business and introduction of mechanisation. Hwange Colliery is a good example, where 200 permanent employees lost their jobs when a computerisation programme was introduced.
Some companies were said to have indicated that they wanted to retrench but they were being blocked by government. However, blocking companies from retrenching is a desperate and unfortunate move by government, since companies will eventually close down because of the high labour costs they will be incurring and everyone will lose their jobs. It is better to let companies retrench and stay competitive, rather than remain will all workers and eventually close down. The government itself is ‘fuelling’ unemployment by freezing recruitment into the public service, unless one wants to be a soldier or policeman.
The snapshot of the manufacturing sector, taken by CZI, is scary to look at and government too should remove the veil it is wearing and start looking at the snapshot with its naked eyes. It is high time the government started to implement the initiatives outlined in the Industrial Development Policy (IDP), some of which do not even require money, but enacting of legislation. One example is labour legislation, where government has pledged to review the labour laws by making them flexible, but nothing has happened until now. We cannot afford further decline in manufacturing, as the consequences are catastrophic to the economy.
Post published in: Business