How do we cope with Chinese onslaught?

via How do we cope with Chinese onslaught? | The Zimbabwean 30.10.13 by Farai Mabeza

As the manufacturing sector, already reeling from domestic pressures, crumbles under the mountain of cheap goods flooding the market, analysts say Zimbabwe should take a leaf from western economies that have adapted and learnt to live with the dominance of Chinese imports.

Countries such as the United Kingdom have created service, financial and information technology industries to compensate for the loss of manufacturing caused by the Chinese onslaught. The Confederation of Zimbabwe Industries recently released a report which showed that industrial capacity utilisation had plummeted further to 39,6 percent from 44 percent in 2012.

The sector is also collapsing under a mountain of local problems such as constant power and water cuts, uncompetitive wage structures, rental costs beyond the rate of inflation and the threat of indigenisation that has crippled investor confidence.

Indigenisation is tightening its noose around the sector by preventing growth and deterring investors. In addition, regressive taxation policies hit small businesses especially hard. Economic analysts say that money is being spent mostly on imports and is therefore not circulating in the country. Local manufacturers complain that supermarkets pay foreign creditors first locals are left to struggle for what is owing to them.

Capacity utilisation was at a low 10% in 2008. It increased to 30% with the introduction of the multi-currency system in 2008. The upward trend continued in 2010 rising to 43,7% before reaching 57,2 in 2011.

Zimbabwe National Chamber of Commerce economist Kipson Gundani said Zimbabwe could recover in the long term but would need to come up with a new industrial structure.

“The industrial sector will not look the same as before. Many of our industries will be smaller sized and will come in the form of small and medium enterprises,” he said, adding that China had changed industrial dynamics in Zimbabwe.

“Some local industries have lost their competitive edge. For example the textile sector is gone because of the China factor,” he said.

The director of the Labour and Economic Development Research Institute of Zimbabwe, Godfrey Kanyenze, stressed the need for business reform to enable the economy to recover. “With no reforms even in the medium term the economy will continue on a downward trend and we can see that the trend has already started,” he said.

Kanyenze, an economist, said that the issues that should be addressed were access to credit, cost of credit, poor infrastructure and power shortages.

“Power issues, outdated technology and the liquidity crunch cannot be addressed in the short term. We need a shot in the arm,” he said.

Kanyenze said that international aid was migrating from humanitarian to developmental assistance. Zimbabwe’s lack of access to international finance was also hampering industrial development.

Debt resolution would be critical for the country, said Kanyenze, adding that that the Staff Monitored Programme negotiated by the Central Bank and the government with the International Monetary Fund would be a test of the country’s commitment.

“We may not be able to meet the preconditions,” he said. “The savings ratio and the investment ratio need to be transformed while the expenditure mix is not sustainable. 70 percent of the budget goes to cover labour costs leaving nothing for other initiatives.”

Analysts say that reckless election campaign promises have made life difficult for government.

“The government finds itself with lack of fiscal legroom caused by a number of factors such as the promises of salary increases made to civil servants,” Kanyenze said.

Former Confederation of Zimbabwe Industries president, Joseph Kanyekanye, said that some firms were only maintaining a presence in the hope of government intervention.

“In Mutare furniture and timber using industries are retrenching, scaling down or simply keeping up appearances in anticipation of a government stimulus package,” he said.