By Tapiwanashe Mangwiro.
HARARE – (News of The South) – The Confederation of Zimbabwe Industries (CZI) has projected capacity utilisation to slow down to 27% this year from a decline of 36.4% in 2019, if there is no drastic change in the policy environment.
Last year, the country’s capacity utilisation dropped by 11.8% to 36.4% from 48.2% recorded in 2018, weighed down by cost and shortage of raw materials, low local demand and foreign currency shortages. Initially, industry had projected a capacity utilisation of 34.3%. The utilisation level mirrors that of the mining sector which is around 35%.
All of the 11 sub-sectors for the manufacturing sector were operating below the 50% mark which is in line with the historical trend which shows that capacity only rose above that level in 2011 at 57,2%.
“This low output level has been accelerated in 2019 due to energy challenges as well as an unstable currency environment. Inflation has actually resulted in a decline in aggregate demand for the manufacturing sector,” CZI chief economist Tafadzwa Bandama said.
She noted that in 2018, food stuffs and drinks, tobacco and beverage exceeded 50% utilisation. But as of last year, Bandama said foreign currency shortages and availability were the underlying challenges for industry as only non-metallic mineral products and wood and furniture operated at higher capacities of 49% and 47% respectively.
A share of 88% of firms indicated that they find it difficult to access forex at the interbank with 37% indicating that they have to wait for more than three months to access forex. In other instances companies had to wait for 3 months to access forex.
The survey showed that most companies use equipment that is over 20 years of age which distorts the findings. In the period, only 37% of surveyed firms invested in new machinery.
South Africa is the highest provider of raw materials to Zimbabwe at 36% followed by China at 21% which raises the need to promote local content so that the majority of the raw materials are sourced locally.
On energy, firms indicated that they only get 50% of their monthly requirement. This comes as the sector is still heavily reliant on the energy mix on the national grid.
In 2019, 43% of surveyed companies indicated that they exported their wares. Proportion of turnover that is sold locally has been declining over the past three years while turnover that is exported has been on the upward trend. In 2019, turnover sold locally was at 84.6% from 87.8% in 2018 while that of exports was at 15.4% from 12.2% in 2018.
“Companies have been focusing on export market as aggregate demand in the local market was contracting,” she said. Major export destination were in the region and the UK.
In the outlook, at least 78% of firms predicted that the economy will be in recession while 92% of the firms projected a continuation of the inflationary mode this year. They also raised the need of consistent and credible policy making process that boost confidence of all economic agents.
Industry and Commerce minister Sekai Nzenza admitted that there was policy inconsistence in government and this was affecting the smooth running of the industry.
“We need to harmonise our policies so that they make real practical sense in the implementation process,” she said.
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