Manufacturing sector in crisis

HARARE - On the back of closures by 700 companies and elusive real investment, local industry, particularly the manufacturing sector, is the biggest casualty of years of economic morass and remains in dire straits but Confederations Industries of Zimbabwe (CZI) President Charles Msipa sees a fillip as long as stakeholders and government commit to policies that revitalise the once buoyant local industries.

Below are excerpts of the interview with Daily News’ senior assistant editor Guthrie Munyuki.

Q: Zimbabwe’s industry is in a near comatose state. What are the critical steps needed to resuscitate it?

A: Indeed, the manufacturing sector is in crisis, with its contribution to national GDP having contracted significantly from 25 percent in the 1990s to current levels of 15 percent.

Some of the key factors that have contributed to erosion of the competitiveness of the domestic manufacturing sector include;

- Scarcity and high cost of capital, leading to inadequate investment in plant and machinery.

- Lack of reliable electricity and water supplies, leading to high production costs.

- Rigid labour laws which lead to high overhead costs and limited labour mobility.

- Decline in productivity in agriculture — a key source of raw materials for local agri-businesses.

During the hyper-inflation period when basic consumer goods became scarce commodities, all finished products, including tomatoes, chicken and milk products (list is endless) became freely importable while import duties are levied on raw materials required for local manufacturing.

Local manufacturers cannot compete against imports when they are operating on obsolete equipment, unreliable utilities supplies, high cost of capital and paying duties on imported raw materials.

Fundamental and far-reaching measures for re-industrialisation of our economy must address and correct some of the key factors noted above.

Q: The plummeting capacity utilisation is a sign of the critical state of affairs in the industry, does protectionism which business is agitating for help revive the manufacturing sector and in what way?

A: The choices for us are very clear.

Unemployment in this country is at unprecedented levels, we can reduce unemployment through policies that promote and encourage local production, or we can continue to export jobs and accelerate de-industrialisation by encouraging unrestricted importation of finished products.

It is not feasible for us to produce everything efficiently, and we will always have to import some products which are more efficiently produced elsewhere, but there is no country that has achieved industrialisation without some incubation, protection and support for local production and domestic industrial sectors where competitive advantage can be developed over time.

Q: How many companies have benefited from the Distressed Companies and Marginalised Areas Fund (Dimaf) and is it the right prescription for problems in Bulawayo and Mutare?

A: Dimaf has been managed and administered by CABS, to whom we owe a huge debt of gratitude for filing a critical void in funding distressed companies.

According to information provided by CABS, as at end September 2013, the society had received a total of 127 applications with a value of approximately $61m. 

Of these applications, 77 were approved with a value $32 851 144 of which $23 814 774 has successfully been disbursed.

A total of 42 companies have benefited from the fund from various sectors manufacturing, agriculture, service and distribution. 

The tenure for companies applying for working capital is 12 months while those applying for capital expenditure is 36 months.

Demand for Dimaf assistance has exceeded available resources in the fund-so it has clearly eased the capital and liquidity squeeze faced by some of the distressed companies who have benefited from the Fund.
 
However, many companies which are distressed and have potential to restore viability probably require longer-term capital, investment capital, new operating technologies and in some cases management capacity-building and new management for turnaround strategies.

In addition, there is merit in considering declaring the areas in which distressed companies are concentrated as special economic zones to encourage investment in such areas.

Q: How many jobs have been lost as a result of the decline in capacity utilisation and influx of imported goods?

A: No accurate job loss figures are available.

Q: As CZI, what is your contribution towards the revival of industry and where do the current problems stem from?

A: The 500 or so companies in the manufacturing sector that are members of CZI are doing all within their power and capacity to sustain their operations, maintain local production, value-addition and local employment in a very challenging environment — they deserve recognition for their valiant efforts to keep industry on its feet. 

We stand ready to establish a formal framework with government to ensure joint public-private sector collaboration in implementation, monitoring and evaluation of the measures that are required to revive industry.

Q: Industry and Commerce minister Mike Bimha says industry needs $10 billion for revival but as industry yourselves, have you done an audit to see which areas need top priority?

A: Top priority is to ensure higher capacity utilisation and to restore competitiveness of those industries that are still in operation but are stressed. 

The other priority is to evaluate companies that are no longer operating and understand the type and level of assistance required to rehabilitate them.

Of equal importance is for us to realise the potential for new industries that can be established through beneficiation and greater value addition from mining and other sectors.

Q: Why is it there is a lot of emphasis on government injecting money to revive the sector yet there is little talk about modernisation given the state of most of the machinery in the industry?

A: It is not our expectation that government will inject all the money required to revive the manufacturing sector.

Government does have capacity to establish and implement a policy environment that attracts capital and investment inflows that are required for upgrading of our infrastructure and for investment in existing and new industries.

Some of the capital requirements in industry are for working capital, but the bulk of the capital requirements are for upgrading machinery and equipment.

Q: What is the impact of indigenisation on industry and what approach do you favour?

A: We re-affirm our support for the indigenisation and economic empowerment programme.

However, at a time when the economy is so fragile and there is a critical need to attract capital inflows in order for the economy to create 2, 2 million jobs over a 5-year period, it is also appropriate that we re-assess approaches and initiatives that will ensure that we achieve our objectives of attracting investment as well as achieving  broad-based economic empowerment.

Q: Have you been consulted in the crafting of a new industry policy and what is your contribution to that policy?

A: We were consulted and provided input into the Industrial Development Policy, the National Trade Policy and on the Zimbabwe Agenda for Socio-Economic Transformation (Zim Asset). 

Government establishes policies and the private sector and other actors have critical roles to play in the implementation and ongoing assessment of those policies to achieve economic growth and development.

Q: How does industry cope with wage demands against a backdrop of declining production?

A: As part of measures to reverse de-industrialisation, it is imperative that wages and salaries are linked to productivity — we applaud the efforts of the Employers Confederation of Zimbabwe (Emcoz) to establish this principle in the National Employment Councils, implementation of which will contribute to restoring competitiveness in local industry.

Q: The law is the law but how do you balance respecting it and striving to remain in business?

A: CZI actively encourages its members to observe and abide by the law and promotes the practice of sound business ethics and corporate governance principles in their respective operations.

Q: What would you want to see included in the National Budget next month, at least from the perspective of CZI?

A: Our submissions regarding the National Budget have been made and are under consideration by the Finance ministry officials.  It would be inappropriate for me to pre-empt the engagements that are ongoing between CZI and the ministry over the National Budget.

Q: Previously, CZI sued Zesa Holdings (Zesa) for loss of production but we see a continuation of power outages. How are you dealing with this?

A: Point of clarification. CZI initiated legal action against Zesa in the Administrative Court of Zimbabwe for effecting electricity tariff changes covering period September —

December 2011 without following due process as stipulated in the applicable regulations.

The Administrative Court ruled in favour of CZI, and Zera has since lodged an appeal against the ruling to the Supreme Court. 

As CZI we continue to have engagements with Zesa and Zera to ensure the provision of reliable power supplies at a fair price to all consumers.

Q: What options do you have?

A: We are an advocacy organisation dedicated to creating an enabling environment for economic growth and development and for private sector to play its rightful place in such development. 

We continue to engage and seek collaboration with stakeholders and policymakers to play our part in economic turnaround.

Q: Municipalities scrapped water bills for residents but did not extend relief to industry, how do you intend to settle debts given the current state of industry?

A: We encourage our members to pay their utility bills and in turn we continue to engage with local authorities to press for reliable provision and delivery of utilities and service at viable, fair pricing.

Some of our member associations, such as Matabeleland Chamber of Industry, have collaborated successfully with Bulawayo City Council to ensure continued provision of water supplies in a very difficult environment. 

We seek to establish similar levels of close, mutually beneficial collaboration with local authorities in other cities and towns as well as with the Water, Environment and Climate ministry.

Comments (3)

Mindless labour laws and you 51% are also a factor.Oh, but im sure sanctions will be blamed!

cloud - 31 October 2013

Do we still have an industry in Zimbabwe? I am shocked. If there are any manufacturing companies in Zimbabwe, what are they into and which products are they producing? I just want to be taught on this because just a random check of products on the market I don't seem to see anything "Zimbabwean". And again Mr. Msipa you acknowledge that the indigenization policy is gud but you want it to shelved or flexed for now because our economy is in trouble at least so that you attract investment; so are you telling me that once the foreign investors have put their money and when the economy is functioning it will be gud then to take the 51%? sorry, as investors we read between the lines do ever think that we are fools.

Investor - 31 October 2013

I find Mr. Msipa's answers quite refreshing and honest..I hope he will also use the same frankness and honesty and deal with the staff at CZI to be very careful about capitalisation figures they dish out to the press. I would suggest as this is a very crucial area on which policy formulation hinges on, he should outsource the collection and collation of these vital statistics.

gutter poet - 31 October 2013

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