Policy paralysis hits manufacturing

via Policy paralysis hits manufacturing – The Zimbabwe Independent April 15, 2016

OUR once robust manufacturing sector has been suffering from intermittent policy paralysis by government. The manufacturing sector is a typical victim of government bungling.

By Tapiwa Mashakada

You may recall that during the hyperinflationary period (2005-2008), the manufacturing sector became a victim of de-industrialisation caused by the economic meltdown characterised by hyper inflation, high interest rates, high cost of utilities poor business conditions and high production costs. The results were company closures and retrenchments. Capacity utilisation fell to 35% during the days of the casino economy. This was the hall mark of government policy failure.

During the inclusive government, thanks to dollarisation, the manufacturing sector improved capacity utilisation to 43% in 2010, 57% in 2011 before falling again after the July 2013 elections. Confidence dropped and lines of credit which had been availed through the Egypt-based Afreximbank and the China Eximbank dried up. During the inclusive government, facilities such as the Distressed Marginalised Areas Fund (Dimaf) at least helped some companies to re-open and retool.

Now, capacity utilisation is again down to levels below 35%. A combination of managerial failures and adverse business conditions has worsened the situation in the manufacturing sector. Linked to this, competition from cheap imports especially after the fall of the South African rand has continued to destroy the manufacturing sector.

Zimbabwe imports nearly everything from soap, tomatoes, onions, fruits including lemons, mushrooms, bottled water – you name it. In fact the current account deficit now stands at US$2,5 billion. What this means is that firms cannot recover because they cannot compete against imports.

The July 2015 Supreme Court Judgment offered a false relief to companies who found it easier to recklessly dismiss workers on notice but even that has not saved this sector which is now teetering on the brink of collapse.

The so-called industrialisation and value-addition mantra by government is evidently mere rhetoric. In order to improve capacity utilisation, the following measures ought to be implemented:

• Restore the original industry-agriculture value chain which was decimated by the chaotic land reform programme in 2000 and increase the import duty structure for finished products which can be produced locally especially agricultural products on condition local producers do not hike prices.
• Introduce a program of industrial re-engineering in order to change the old technology and introduce new product lines.
• Allow unfettered flow of foreign-direct investment (FDI) into manufacturing and set aside the indigenisation policy.
• Improve governance and renegotiate lines of credit which should be channeled through business associations via international audit firms.
• Improve social dialogue to arrive at productivity linked wages and stop the nonsense of internal devaluation and labour market flexibility.
• Introduce a corporate governance code to reign in white collar crime perpetrated by managers.
• Lower duty for raw materials and remove duty on all capital equipment
• Introduce preferential tariffs for water and electricity and other infrastructure.
• Improve industrial innovation and competitiveness
• Reduce interest rates for the productive sector and introduce longer loan repayment periods. This can be achieved with the introduction of a ZimExim bank which only focuses at trade finance.

This is achievable with the right government. With these proposed measures, capacity utilisation can increase to 70% within the next two years.

Mashakada is former economic planning minister and recently appointed MDC-T shadow finance minister.