Industry in free fall

via Industry in free fall | The Financial Gazette by Shame Makoshori 3 Oct 2013

ONLY 10 out of the 74-companies listed on the Zimbabwe Stock Exchange (ZSE) are in good shape while over 100 firms have closed shop since 2011, signifying an industrial ‘Armage-ddon’ that requires swift remedial action if further de-industrialisation is to be averted.

Also quite telling is that capacity utilisation in the manufacturing sector has dropped by more than five percent from December last year.

The shocking evidence of an industrial calamity rattling the country emerged yesterday with a Confede-ration of Zimbabwe Industries (CZI) survey indicating that more manufacturing firms have sunk deeper into turmoil between last November and this month.

The manufacturing sector report released by the CZI in partnership with the Financial Gazette and CBZ Holdings yesterday revealed that capacity utilisation in the manufacturing sector slid by 5,3 percentage points to 39,6 percent this year, compared to 44,2 percent in 2012.

Cumulatively, capacity utilisation has plummeted by 17,4 percent since 2011.

Industrialists warned of an impending industrial “Armageddon” and called for swift intervention by government and the private sector to arrest the haemorrhage.

“It is an industrial Armageddon,” said ZSE chairperson, Eve Gadzikwa, who revealed that only 10 out of the 74-member local bourse were in good shape.
“The rest are teetering,” Gadzi-kwa told government and industry executives yesterday.

At least four manufacturing counters have de-listed this year after falling into the firestorm.
These include former bellwether stocks such as Apex Corporation Limited, Gulliver Consolidated Limi-ted, Steelnet Limited and Lifestyle Holdings Limited.
Steelnet has since slid into liquidation.

Outside listed firms, the bloodbath is written all over, with over 100 firms having closed shop since 2011, the majority of them in Bulawayo and Mutare.
Yesterday’s report portrayed an industry in a vicious circle, with only two out of a total of 250 executives surveyed saying their plants were running at full throttle.

The crisis has been more pronounced in the leather and allied industries where capacity utilisation declined to 11,3 percent this year, from 27 percent in 2012.
Pharmaceutical industry, whose crisis has been highlighted by the problems at CAPS Holdings, the country’s largest player, saw its capacity trimmed to 20 percent this year, from 58 percent in 2012, while capacity in car assembly plants declined to 13,1 percent, from 30,3 percent.

CZI said staff costs were contributing 24 percent to production costs, and 14 percent of the polled chief executive officers (CEOs) indicated that they had reacted by cutting jobs.
About 77 percent of the respondents failed to contain a ballooning wage bill.
Only 12 percent had recruited new staff.

When Zimbabwe switched to multi-currencies in February 2009, bringing inflation to -7,7 percent, from 500 billion percent in December 2008, the policy changes were greeted by optimism.
The manufacturing sector had hoped that a decade-long crisis that had forced the closure of 850 firms had ended.
But this week’s report gave the impression of an industry in a rollercoaster mode.

“Industrialists expressed concern that the current economic environment was no longer conducive for businesses to thrive. Following the rebound in 2009 in the manufacturing sector, growth is now fading,” said CZI.
“The slow down being experienced in the economy at large has not spared the manufacturing sector. From the total respondents, only 35,7 percent recorded capacity utilisations of above 50 percent, with only two firms recording capacity utilisation of 100 percent. Forty eight percent indicated that business has not improved at all and has actually been declining, 16 percent recorded a slight increase, and only seven percent recorded a significant improvement in business viability. Sixty percent of the respondents did not carry out any new investment in the year 2013. Ninety percent invested in machinery and equipment, while 10 percent invested in land and buildings,” the report said.

It cast aspersions on the continued liquidity stress roiling industries, suggesting that this could only be resolved through an aggressive mobilisation of long-term capital.
Yesterday, CZI president, Charles Msipa, acknowledged that job seekers were at crossroads.
“The situation has not improved at all (since last year’s survey),” he said.

“The prognosis is not looking good. We are inundated with job seekers, but we are cutting back,” Msipa said.
CZI blamed the de-industrialisation to a glut of cheap imports, which have been gnawing into a market previously dominated by local producers.
It said difficulties in accessing capital and the absence of long-term funding had affected operations.

High power costs and slackening delivery of electricity to plants has had far reaching consequences on production.
Olivine Industries managing director, Jonas Mushangari, also argued yesterday that poor financial management and prioritisation had resulted in most of the cash available for retooling industry being spent on imports.
Oil processing industries, for instance, were spending over US$240 million per annum on imports, yet only US$120 million was required to invest in planting the required seeds for raw materials.
“We are in a vicious circle,” said CBZ Holdings CEO, John Mangudya.

“We need to break the vicious circle. We need to move away from a first wave society that depends on agriculture. The manufacturing sector is the backbone of the economy, let’s create money. The time is now to change the situation, the time is now for Essar to commence production and the time is now for Green Fuel to produce fuel,” said Mangudya.
Essar, an Indian steel producer that was expected to take over operations at the Zimbabwe Iron and Steel Company in Kwekwe, now renamed New Zimsteel, has been waiting for the green light to commence production since 2011.

Red tape in government has also led to delays in full scale fuel extraction at Green Fuel’s Chiredzi plant.
Industry and Commerce Minister, Mike Bimha, said the new government that came into office after polls in July, had hit the ground running.
Yet another recovery plan, the Zimbabwe Programme for Socio-Economic Transformation, would soon be rolled out to deal with problems gripping an economy described by Msipa as in “the intensive care”.

 

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