‘Hurricane Closure’ highlights business slump

via Zimbabwe: ‘Hurricane Closure’ highlights business slump | beyondbrics by Irene Madongo Sep 26, 2013 

In just under two weeks the Confederation of Zimbabwe Industries (CZI) is due to hold its annual congress. The main focus will be restoring growth at a time when factories and shops are fighting to stay open. Zimbabwe’s industry is still in a perilous state, but following Robert Mugabe’s election victory in July, what can be done?

A CZI 2012 survey shows factories are operating at less than half throttle – capacity utilisation in the manufacturing sector has fallen from 57.2 per cent to 44.2 per cent, with average manufacturing output growing below 2 per cent. And just as worryingly there are a high number of companies shutting down, or, as Dephine Mazambani CZI Senior Economist puts it, “Manufacturing has been hit by Hurricane Closure”.

It is estimated that 300 manufacturing companies have shut down or shut down large parts of their production since around 2009, and the figure could be higher. About two weeks ago ZIM-TRADE, the country’s trade and promotional body held a training programme for businesses in the country’s second largest city, Bulawayo. An estimated 84 companies in the city shut down last year and it is feared that another 64 companies are on the verge of collapse. The new Industry minister Mike Bimha is talking up the prospects of recovery – but at least he acknowledges there is a crisis.

On the eve of the CZI indaba (meeting), business sentiment is low, which is understandable. While economic progress has been made since dollarisation in 2009 and some businesses have done well, it is still a struggle. Zimbabwe’s growth rate has now dropped to 3.4 per cent – growth was 5.7 per cent in 2009 and averaged 9.7 per cent un 2010-11. The trade deficit is widening – in the first half of the year imports reached $3.9bn against exports of $1.5bn, resulting in a trade gap of $2.4bn. Companies are battling with liquidity constraints, depressed demand and stiff competition from cheap imports. High labour costs are also a burden, as are chronic power cuts and antiquated machinery.

Business leaders are openly doubtful. Only last week, leading clothing retailer Edgars Stores Zimbabwe chairman Themba Sibanda was quoted as saying that it was “too early to determine with certainty the direction in which the economy will move.” Factors such as political instability, the controversial indigenisation policy and the looming prospect of a return of the Zimbabwean dollar under a Zanu-PF government fuelled uncertainty in the run-up to the elections.

There are different solutions being discussed. Bhima believes that government and the private sector should work more closely together. The CZI has its own proposals, including scrapping the 15 per cent importation of raw materials.

Local business pressure group Bulawayo Business Arise wants the city to be declared a special economic industrial zone, a policy that has worked well in other countries such as China and India . Even Robert Mugabe, who says the one-time industrious Bulawayo was where he used to buy ‘nice suits’ in his days as a teacher decades ago, has a view, saying money from the mining sector should be channelled towards reviving ailing Bulawayo companies.

But for any potential overseas investor, there is still the spectre of indiginisation to deal with, a hugely off-putting prospect. In response to questions about the indigenisation policy, Bimha recently said: “We would want to solicit investment and promote industrialisation as a result we have to engage the Ministry of Indigenisation. Indigenisation is a law and it’s not unique to us. Our challenge is not to say it’s bad or good, but how to package it.”

That is a rather hollow endorsement.

Harare-based economic analyst John Robertson said: “Under these conditions, we have hardly any existing or prospective manufacturers planning investment and many signs that among those that have survived so far, many have come to the end of the line. Only dramatic revisions to the policies could make a difference now.”

Robertson added: “The most important of these would be to abandon demands for indigenisation. The country needs the jobs desperately, so investors are essential and we should set no unattractive conditions on their possible arrival. But as most of the factories need agricultural products as raw material supplies, we should also re-establish large-scale commercial farming.”

Can Bimha, Mugabe, and the CZI work together to find a solution? For many businesses in Bulawayo close to closure, any measures may already be too late.