A number of factors are responsible for this mess: lack of capital, low investor confidence, inflexible labour market, antiquated machinery and poor infrastructure.
An innovative government approach to factory closures is required as a matter of urgency, to checkmate the devastating effects of plant closures.
Imports are thin, whilst our exports are virtually stagnant, pointing to de-industrialization. The portion of imported components in our manufactured products is also unjustified, reflecting how drought has affected our agriculture. Given a cocktail of policies that have been announced, some might be interested in knowing just how ready the manufacturing sector is. The answer is not very.
The Medium Term Plan, Industrial Development Policy and National Trade Policy are just some of the policies aimed at promoting manufacturing growth, but failing to do the trick.
Another factor which is greatly impacting the performance of industry and is greatly ballooning the cost of business is labour policy.
The drop in production capacity over the years has meant that most companies have retrenched excess labour, but the high cost of retrenchment has meant that companies have had to retain dormant staff. This means companies continue to carry huge overhead costs that make them unattractive to potential investors.
The contagion effect
It has been estimated that 65 percent of retail shelves is occupied by imported goods. The local products that are found in shelves are relatively more expensive than imported ones. Given this increased competition from imports, jobs shall continue to be shed throughout the supply chains, via the contagion effect.
Just imagine the farmers who had contracts to supply raw materials to these firms which are shutting down!
Some might wonder why manufacturing is said to be sinking, when average capacity utilisation has been steadily rising since we dollarized. Manufacturing in Zimbabwe has a two-tier performance. We have firms that are underperforming on one hand. On the other hand, we have firms that are doing extremely well but the bulk of them are multinational subsidiaries.
How have these companies continued to grow? Over the decade of economic decline, these companies’ shareholders continued to support their businesses in Zimbabwe, whether it was through provision of equipment, technology upgrades or simply capital funding. This means, unlike most indigenous manufacturing firms, these companies have managed to keep abreast of developments in the global market.
An urgent campaign
The manufacturing crisis in the country calls for an urgent ‘Save Manufacturing’ campaign. The government should play a leading role in this particular cause. For those companies that have closed down, there is need to come up with immediate measures to resuscitate them, and medium to long term smart solutions which will ensure their sustainable growth.
There is also need for the government to work with the Confederation of Zimbabwe Industries, and National Social Security Authority, to create a fund that would provide assistance to workers in extreme cases when employers fail to pay them severance packages.
Given the reigning liquidity crunch, it is undeniable that we are going to need a lot of investment from outside the country, especially equity investment, to recapitalise our industry and restore competitiveness.
However, the International Monetary Fund concluded in its Article IV consultation on Zimbabwe that foreign investment appears to be hampered by uncertainties related to the indigenisation policy, the political process and the poor business climate.
The Fund also called for the need to create an enabling environment that supports private sector development and attracts much needed capital investment.
Post published in: Business