Govt manufacturing sector under threat

via Govt manufacturing sector under threat – The Zimbabwe Independent 19 December 2014 by Fidelity Mhlanga

Government is failing to rescue the manufacturing sector which continues to be weighed down by persistent challenges arising from antiquated machinery, influx of cheap imports, high cost of borrowing and weak demand associated with the prevailing liquidity constraints.

Finance minister Patrick Chinamasa last month in his 2015 budget presentation said the sector was expected to register a marginal growth of 1,7%, hinged on sustained implementation of supportive policy interventions enunciated in the 2014 Mid-Year Fiscal Policy Statement.

These measures, among other things, relate to promoting competitiveness of the domestic industry through reviewing of import tariffs for selected sectors such as motor industries, beverages, agricultural commodities, clothing and leather sectors, as well as mobilisation of affordable lines of credit to domestic industry for re-equipment and re-tooling.

In an attempt to protect the local motor manufacturing industry, Chinamasa in the mid-term fiscal review statement in September increased import duty for vehicles. He reviewed tax for single cab of a payload between 800kgs -1 400kgs from 20 to 40%, double cab trucks from 40 to 60%.

Buses with carrying capacity of 26 passengers and above from 0 to 40%.Passenger motor vehicles of engine capacity below 1 500cc from 25 to 40%.

However, economist Takunda Mugaga said targeted growth in the manufacturing sector was impossible because of numerous factors militating against this objective.

“I don’t think there will be a 1,7% growth considering a number of factors that are militating against the target. The ministry is busy considering protecting local industry instead of supporting them,” he said. “The increase on duty tarrifs on imports is not what is needed at the moment. The issue of Distressed and Marginalised Areas Fund should be revived depending on line of credits from Afrexim Bank not using the local budget. The 2015 growth of the sector cannot be above 1% unless there is dramatic shift in economic political fundamentals.”

Economist Godfrey Kanyenze said projecting the growth of the manufacturing sector was a pipedream as it has has continuously spiraled downward.

“This 1,7% growth in 2015 is too ambitious. If you look at CZI at deindustrialisation has reached a dire state. There is no capacity utilisation going up. There is antiquated machinery, high cost of doing business, water and electricity shortage, These factors are not short term issues,” he said.

Kanyenze said after Zanu PF congress, government should concentrate on uniting the party to enhance cohesion before implementing parastatals’ reforms that are key to growth.

“There has been talk of public enterprises reforms with 18 parastatals being on the agenda since 1991 and nothing has materialised. There are no reforms on the horizon. You cannot implement reforms in the same year and enjoy benefits the same year. It requires a lot of time to recapitalise. After the congress the agenda is to unite the party. How do you turnaround the economy in that situation when people in government are not seeing eye to eye. There is need for social cohesion . It needs the whole government operating in one direction,” said Kanyenze.

Another Economist Brains Muchemwa said there was need for political will to implement proposed reforms in order to resuscitate the sector.

“The minister has set the right tone in terms of reform proposals. However what is key is to evaluate the political will in implementing the said reforms, more so considering that policy proposals on such important aspects as parastatal reforms and public wage bill realignment have been on the cards since 2009 and nothing has materialised to date,” he said.

Of the 4 600 companies that have shut down since 2011 resulting in the loss of more than 55 400 jobs, manufacturing sector was the second hardest hit after 458 companies closed losing 9 978 jobs.

The hardest hit was the tourism sector , with 2 142 firms shutting down since 2011 losing 18 413 jobs as a result.

The construction sector was not spared with 317 companies closing shop resulting in the loss of 3 651 jobs, while 368 companies in the agricultural sector closed down affecting 5 465 jobs.

Company closures have been attributed to a number of economic bottlenecks such as the liquidity crunch and lack of credit, obsolete equipment, low aggregate demand, cheap imports and non-performing loans.

Capacity utilisation has shed 3,3% from 39,6% in 2013, to 36,3% in 2014.

Kanyenze said that there was nothing on the ground to mitigate the company closures as the country was not attractive to investors due to the indigenisation policy as well as water and electricity shortages.

Foreign investment which has a positive impact on market liquidity, however, remains subdued due to the perceived country risk.
For the first 10 months of 2014, the country received foreign direct investment amounting US$146,6 million compared to US$311,3 million during the same period in 2013.

Chinamasa said in 2015, Foreign Direct Investment (FDI) is projected to increase by 69% from US$349 million to US$591 million on the back of the continued implementation of the ease and cost of doing business reforms and the re-engagement process.

The success of the manufacturing sub-sectors like foodstuffs, beverages, tobacco, and cotton and clothing, and leather hinges on the performance of the agricultural sector.

Kanyenze called on local institutions like Confederation for Zimbabwe Industry (CZI), Zimbabwe National Chamber of Commerce, trade unions to agree to clarify the indegenisation policy.

On budgetary allocations, the ministry of industry and commerce was apportioned US$18 673 000 which is a far cry to the needs of the industry in Zimbabwe.

However, Muchemwa said the growth was achievable despite a myriad of challenges bedeviling the sector.

“The 1,7% projected growth for the manufacturing sector for 2015 is within reasonable and achievable range notwithstanding the challenges facing the sector and the wider economy,” he said.

Although the capacity utilisation as reported by CZI has declined marginally, there are still strong pockets within the manufacturing sector that would be able to pull the sector forward should they take up a raft of production-oriented incentives that have been presented by Hon Chinamasa.”