A time for action not more words

via A time for action not more words – The Zimbabwe Independent by Victor Makanda October 11, 2013

The Confederation of Zimbabwe Industries (CZI) released its manufacturing sector survey report for 2013.

Nothing out of the ordinary came from the survey as the sector mirrors activity on the macro-economic level which during the review period was characterised by weakening domestic demand amid tight liquidity.

As was expected, the survey confirmed that capacity utilisation further declined by 5.3 percentage points to 39,6% in 2013 compared to 44.9% in 2012.

This marked the second consecutive year in which capacity utilisation declined after having been on a growth trajectory from 2009 to 2011.

Capacity utilisation peaked at 57,2% in 2011. The 39,6% figure also looks to be on the optimistic side as events on the ground point to a more depressing situation. Many companies have closed shop and the ones still operating are reporting capacity utilisation of an average 20%.

With regard to the challenges bedevilling the sector, regular followers of these surveys since the adoption of the multi-currency system in 2009 can easily tell that the challenges affecting the sector have remained largely the same.

These include lack of cheap long-term capital, unfriendly business policies — particularly the indigenisation regulations – unfavourable pricing and erratic supply of utilities, antiquated machinery and low domestic demand.

Import competition is also another factor which with the passage of time has impacted negatively on the manufacturing sector’s prospects. These factors have dogged the sector for a long time now and it appears that there is no solution in sight.

What is crystal clear is that while the challenges are well known, nothing concrete is being done about them. There is a saying: “Those who do not learn from history are doomed to repeat it.” Are the authorities willing to learn from history?

Are there other solutions besides the obvious ones that must be adopted to resuscitate the dilapidated state of the sector? It seems stakeholders, particularly government, are not motivated to do anything. There is much talk and little action.

Willingness to learn from history is demonstrated by putting words into action. If willingness to learn was merely based on utterances by policymakers, then definitely the manufacturing sector would by now have been operating at optimum levels! The awful state in which industry finds itself is no longer an excuse for further inaction. What is desperately required is for the authorities to move away from their comfort zone and begin to act.

Manufacturing is all about efficient and effective use of the factors of production in supplying goods and services to the market.

Availability of rightly-priced capital of a long-term nature will go a long way in assisting businesses to retool and improve on efficiencies. Businesses will thus do away with antiquated machinery and start using modern technology that will reduce wastages and lower the overall cost of production per unit.

Innovation is a major determinant which separates boys from men in as far as manufacturing is concerned. It is only when favourable structures are put in place that the manufacturing sector will be able to compete against imports.

Furthermore, availability of capital in the country will go a long way towards rehabilitating the infrastructure particularly water, electricity and the transport networks.

The major reason why Zimbabwe no longer holds its place as a low cost producer in most goods and services emanates from high utility charges. It is highly unlikely that this area will be addressed adequately in the short to medium-term. As long as utility charges remain high, local businesses will remain uncompetitive.

Policymakers thus need to work on improving electricity generation or finding other alternative energy sources. As mentioned before, all these activities require long-term capital which can only be sourced from foreign investors due to the illiquidity of the local environment.

The government and some industry players are lobbying for protectionist policies. Such measures, though useful especially when dealing with goods being dumped, are of a short term nature. Local industry is already failing to meet local demand as it is not producing enough due to below optimum capacity.

Further increases in import duties will not translate into industry producing adequate goods to supply the market but will squeeze the disposable incomes of consumers which are already low. This could also lead to high consumer prices, raising inflation. In addition, local demand will dwindle if all goods become increasingly expensive. With the extent to which the world is fast becoming a global village, long-term solutions are required which will lead to a sustainable competitive advantage being realised rather than extensive dependence on protectionism.

Regulation is also key in addressing challenges for the sector. Investor-friendly policies for both current and potential investors will go a long way towards easing capital challenges being faced by local manufacturers.

Zimbabwe’s present case is worrying, however, as CZI reports that misconceptions concerning the interpretation and implementation of indigenisation laws negatively impacted on the sector’s performance. Policymakers may for the umpteenth time need to address this area as it remains a major deterrent to inward capital flows.

Government needs to find ways to deal with the issues stalking the sector. Various conferences and indabas may be held but as long as the appropriate action is not taken, rescuing the sector will be an uphill task.

Government is thus faced with two basic choices; either to let a once vibrant industry crumble and die, or take the necessary hard decisions before it is too late.