Zim goods too expensive:CZI

via Zim goods too expensive:CZI | The Herald July 28, 2014 by Golden Sibanda

The strong US dollar adopted in 2009 and the depreciation of the South African rand in recent years has made local products 25 percent more expensive and less competitive compared to imported goods, the Confederation of Zimbabwe Industries has said.Addressing delegates at the 2014 Mine Entra mining, engineering and transport expo CZI president Charles Msipa said there was urgent need for salaries and wages to come down to reduce the burden on companies battling to prevent a collapse of their businesses.

Mr Msipa said over the last 24 to 36 months the South African rand had depreciated by 40 percent while local products became 25 percent more expensive at dollarisation in 2009.

“Because we are using foreign currency we are not able to devalue the currency; we do not have the (monetary) instruments. Use of the US dollar has resulted in products being over priced by about 25 percent. This is a huge impediment,” Mr Msipa told delegates.

Zimbabwe is presently incapacitated to use monetary tools to influence liquidity after scrapping its currency in 2008 at the height of macroeconomic instability and replacing the local unit with a basket of currencies largely dominated by the green back.

He said at a time when labour laws were inflexible for companies that wanted to cut the head count to rein in costs; the current wage bill was a binder for industry and the economy. This assertion was also confirmed by an International Monetary Fund observation.

While manufacturing capacity utilisation rebounded to around 58 percent at dollarisation, it has been falling gradually since 2012 when it dropped to 47 percent and further down to 39,6 percent as of the last manufacturing study carried out by CZI last year.

Poor industrial production, productivity and competitiveness have resulted in the country having to rely on imports with the import bill reaching an ominous $8 billion in 2013. This has crowded out local goods, constraining the viability of companies, which have now resorted to either downsizing, retrenching or at the worst total shut down.
High country risk profile has constrained access to line of credit and stymied foreign direct inflows while weak export performance has resulted in little liquidity inflows, negatively affecting the capacity of banks to and companies needed to mobilise liquidity.

According to the Ministry of Industry and Commerce, the manufacturing industry requires more than $2,5 billion to retool and raise production. CZI puts the figure at over $8 billion.

When available locally, funding has either been limited, punitively expensive or both. Mr Msipa said there was need to re-establish the traditional linkages that existed between the manufacturing, mining and agriculture to boost industrial capacity.

The interdependence was established before independence in 1980 when industry was focused on import substitution at a time when the then-Rhodesia was under global sanctions. Mr Msipa pointed out that reviving the economy required focus on all three sectors.

Mr Msipa said Zimbabwe needed to work at the soft issues such as the doing business rankings on global ratings and policies that attract foreign investment to get the funding it needs. He said countries that have worked on these issues have registered growth.

The manufacturing sector used to account for as much as 25 percent of national gross domestic product, but its contribution had fallen to just about 13 percent due to the myriad of challenges it faces.