Source: Govt warned over proposed rescue fund – The Standard August 21, 2016
THE industrial development fund that government plans to set up to assist in the retooling of ailing companies should only benefit firms which have no access to other means of financing and yet have good revival potential, manufacturers have said.
BY MTHANDAZO NYONI
Government recently revealed that it was mobilising seed capital for the establishment of a new industrial development fund that would assist in the retooling of ailing companies.
The move comes after widespread concern that the $40 million Distressed Industries and Marginalised Areas Fund (Dimaf) and the $70 million Zimbabwe Economic and Trade Revival Facility (Zetref) facilities failed to rescue ailing companies due to abuse and stringent conditions attached to their disbursement.
However, the Zimbabwe Clothing Manufacturers’ Association (ZCMA) said this time the fund should be used “very efficiently and appropriately”.
It should only benefit companies which cannot access finance themselves but could be resuscitated with the sources available, ZCMA said.
“The Ministry of Industry recently announced it was trying to raise money for another Dimaf and Zetref facility.
“I am not sure where these monies will come from. Assuming the funds will only be a fraction of what the total manufacturing sector requires, it must be used very efficiently and appropriately,” ZCMA chairman Jeremy Youmans, told Standardbusiness in emailed responses to questions.
He said the harsh reality was that some companies could not be resuscitated as they were beyond redemption or were simply no longer relevant in the current, constantly changing, global environment.
“There are also companies which can get access to finance. I believe they should not be beneficiaries of these funds. The funds should be for companies which cannot access finance themselves, but are able to be resuscitated with the sources available and put into a sustainable economic position,” he said.
Youmans said government would have to find a way of carrying that risk, or the funds would fail to have the desired impact.
He said the textile sector was capital intensive and therefore small amounts of money were not likely to have much of an impact. This, however, did not mean that there were no opportunities in the textile industry, Youmans said.
“There are, but they will require a large proportion of funds and that will make the payback opportunity harder, long-term and riskier, to achieve,” he said.
Youmans however said the clothing sector had very low capital requirements and small amounts of monies could have significant impact.
He said the sector had the majority of its capital resource requirements in place, that is, factories and machinery.
“What it needs is working capital to procure raw materials and hold stock. There is no quick fix to these challenges. It will be a slow process but will gain momentum,” he said.
However, Youmans said while the support measures put in place by the government were essential to this process, they were not enough to create the turnaround on their own.
“We still need to greatly improve import compliance to ensure the correct duty is paid on imported goods and have further reforms that improve the ease of doing business and reduce the cost of doing business in Zimbabwe,” he said.
Most companies in Zimbabwe are struggling to operate competitively due to ageing equipment, with national capacity utilisation tumbling to 34,4% last year, according to the Confederation of Zimbabwe Industries (CZI).
In February, government prohibited the importation of blankets, second-hand clothes and shoes without import licences as part of economy-wide measures to facilitate recovery of local industry. This was done through the promulgation of Statutory Instrument 19 of 2016
But six months down the line after the measures were put in place, the interventions are yet to make a mark as grey imports are still finding their way into the country due to corruption and porous border posts.
CZI president Busisa Moyo said manufacturers had to be supported at the right level and not giving a company $100 000 when it required $10 million for retooling.
He said the interest rates should be below 10% with a tenure of four to six years and not the present 24 to 36 months with a moratorium of six to nine months.
“The last Zetref facility saw companies being pushed into difficulty by high interest rates, as high as 36-42%, and full repayment being required in 18 to 24 months,” he said
“Value chain approach to funding is important. For example, a juice making company must have access to additional tonnage of fruit or unprocessed pulp before it can expand capacity or raw material import permits from abroad.
“A cooking oil company must have access to soya beans when capacity is expanded.”
Moyo said industry was glad that the ministry of Industry and Commerce and the central bank “had already begun consultations on this all important issue of financial support dovetailing the buy local and minimum local content initiatives which other countries like South Africa have been operating under for some time”
He said Zimbabwe was somewhat late and was being pushed to a “market or wholesale state” with no production opportunities from even within its own borders.