These are encouraging economic signs

HARARE - It's not every time that hard-pressed Zimbabweans get to hear news from industrialists that cheers them up because conversations amongst business leaders are most of the time dominated by depressing news.

If it’s not the slow pace of bank transfers for cross-border transactions occasioned by the liquidity crisis, the discourse is centred on fending off an intrusive taxman desperate for money to fund central government; beating inflation or ensuring there is sufficient money in bank accounts to take care of salaries and other pressing commitments. It is such a tired and boring narrative that now sounds like a broken record.

Around this time every year, it is becoming predictable for the country’s largest industrial lobby group — the Confederation of Zimbabwe Industries (CZI) — to spoil the Christmas mood by releasing drab Manufacturing Sector Survey data whose major highlight has been the decline in capacity utilisation.

The 2017 survey was no different: That periodic statistic (capacity utilisation), headlined CZI’s survey results. Weighted capacity utilisation dropped by 2,3 percent from 47,4 percent in 2016 to 45,1 percent owing to challenges in sectors such as non-metalic products, wood and furniture, transport and equipment and petroleum products.

For the first time in as many years, the CZI survey had something worth celebrating. While capacity utilisation went further down during the period surveyed, manufactured output grew by 5,5 percent, propelled by growth in non-metalic mineral products such as cement manufacturers, producers of clay and ceramic products. Hear! Hear!

This segments forms part of the construction industry — one of the most volatile sectors in any functional economy — also regarded as a barometer for the wider economy. Growth in any segment of the construction industry has a feel good factor on the rest of the country’s economy.

More importantly, it corroborates talk that Zimbabwe’s economy is on the rebound. Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, has said as much but few believed him because he is part of a thoroughly discredited government that is struggling to regain public confidence because of how it has mismanaged the country’s economy.

Numbers don’t lie! The fact this is coming from CZI gives credibility to Mangudya’s pronouncements.

According to CZI, the growth in output came from companies whose machinery is less than 10 years, an indication that those firms that have re-tooled are being rewarded for their efforts.

On the contrary, those companies stuck with their antiquated machinery susceptible to frequent breakdowns and which are now too costly to maintain, have been caught up in a time warp. Unless they dust themselves up and join the wave, they risk being consigned to the corporate graveyard.

This is not a threat; it’s real.

In December 2014, former Finance minister Patrick Chinamasa set tongues wagging when he remarked in Parliament during his national budget presentation that in order for a new economy to emerge the old one must first die.

No-one took him seriously.

But that those companies that have invested heavily in new equipment are registering growth in output vindicates Chinamasa to some extent. The former Finance minister must be saying ‘‘I told you so’’, even as he tries to set up Zimbabwe’s latest bureaucracy, as the new minister of high-sounding Cyber Security, Threat Detection and Mitigation.

As industry’s chief representative, CZI must be lauded for heeding the call by government and other agencies to re-tool and produce, as well as for its advocacy role that has seen various positive initiatives coming on stream to capacitate its members.

One such initiative has been the RBZ’s export incentive scheme and Statutory Instrument 64 of 2016 introduced by the ministry of Industry and International Trade. These initiatives, amongst others, have given local companies some breathing space.

CZI’s 2017 survey results indicate that Zimbabwe could be on course to achieve the 3,7 percent growth as forecasted by government and the 2,8 percent growth projected by the International Monetary Fund (IMF) and other international trade and economic agencies. In fact, the IMF revised its growth forecast from the previous two percent.

My source of optimism is premised on nothing other than the fact that outside of the manufacturing sector, there are other industries that are on the rebound, among them tourism, agriculture and mining. If one is to add the numbers coming from these sectors, Zimbabwe may as well be on course to achieve the 3,7 percent growth, cumulatively.

Having tweaked its survey approach this year with encouraging results, CZI must not end there. There are many other areas that can be covered by the survey beyond tracking capacity utilisation. The by-words these days are retooling, opening new markets, and seeking partnership, and somehow these different slants need to be reflected in the survey just as we have seen CZI revealing progress made in empowering women in the manufacturing sector.

From the feedback received thus far, capacity utilisation, while still relevant, no longer commands as much weight as before because it does not reflect the true picture in our industry where the loss of export markets in the crisis period (2000 to 2007) has meant that those companies that were producing for export may never fully utilise their capacities unless there is a total shift in their mindsets towards rekindling their lost export markets.

What that means is that big companies that used to produce 90 percent of their production for export can weigh down the overall capacity utilisation even though the 10 percent capacity being utilised is sufficient to cater for the domestic market.

The reduction in capacity utilisation should therefore not be a major issue because it is a function of the percentage of the firm’s total possible production capacity that is actually being used thus it does not measure growth. By CZI’s own definition, it refers to the relationship between actual output that is actually produced with the installed equipment and the potential output which could be produced with it if capacity was fully used.

It is therefore not surprising that throughout the world, economic growth is measured by the increase in output of goods produced, otherwise known as the Gross Domestic Product (or GDP).

Now that output is on a positive trajectory, there is need to maintain the momentum by ensuring that the excess capacity is used to grow exports but for that to happen companies must become competitive.

It is pleasing to note that 13 percent of companies surveyed have increased exports. This is partly a result of the RBZ’s bias towards rewarding exporters which has benefited companies such as Paramount Garments, Arenel Sweets, Cairns and Capri, to mention but a few.

Companies in the packaging industry are also doing exceptionally well with most of them operating at above 75 percent capacity.

This is worth celebrating.

To Mangudya and team at the RBZ, do not take the foot off the pedal.

You are on the right track!

Post a comment

Readers are kindly requested to refrain from using abusive, vulgar, racist, tribalistic, sexist, discriminatory and hurtful language when posting their comments on the Daily News website.
Those who transgress this civilised etiquette will be barred from contributing to our online discussions.
- Editor

Your email address will not be shared.