Thu, 16 Jul 2020

Zimbabwe industry's capacity utilisation contracted to 36.4% in 2019 and could fall further if the southern African country's policy direction does not change drastically.

Capacity utilisation measures the level at which a company is operating at, or the level at which it is using its plant and equipment.

The manufacturing sector survey of the Confederation of Zimbabwe Industries (CZI), revealed that companies had fallen victim to power and foreign currency shortages during 2019.

The CZI is the biggest representative board for manufacturers and over 300 companies took part in the survey according CEO Sekai Kuvarika.

About 88% of firms surveyed in 2019 said they struggled to access forex on the official market, and when they do they only get 10% of their actual requirements and still have to wait three months to access the money.

Zimbabwe, despite its growing exports at $4.3bn (about R64bn) in 2019 is struggling to pay for imports that include fuel, electricity and raw materials.

Despite crippling fuel shortages, Zimbabwe's monthly petrol import bill averaged $30m in 2019 versus an average $44m in 2018.

According to Zimbabwe's national statistics agency, Zimstat, electricity imports gobbled $119m and averaged $9.9m per month, compared to an average of $13.7m per month in 2018 or an annual total of $164m.

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These import challenges, according to CZI resulted in capacity utilisation falling to 36.4% in 2019, down from 48.2% in 2018.

In 2019, not even a single sub-sector of the industry operated above 50%, according to the survey outcome.

The CZI projects capacity utilisation in 2020 to fall further to 27% "if the policy direction does not change drastically."

Policy makers are accused of introducing the local Zimbabwe dollar prematurely before right fundamentals are in place. The local currency has since tumbled from trading at par with the US dollar to an exchange rate of 17.7 as of Friday.

On the parallel market, the exchange rate was at approximately 27 on Friday.

Financing of government expenditure including subsidies on fuel, public transport and recently maize meal were seen as the biggest drivers of inflation and weakening of the local currency.

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A Reserve Bank of Zimbabwe report released recently showed that net credit to Government stood at $16.24 in 2019 while the private sector got Z$11bn.

Economist Joseph Mverecha recommended that for meaningful policy change authorities will have to focus on currency stability through control money supply and money supply growth.

In 2019, broad money supply grew by 249.8% to Z$35bn according to the central bank.

Mverecha also recommended the introduction of an efficient foreign currency trading system as the current one had failed with business failing to access requirements.

Delegates were also told that countries that have been consistent with reforms for doing business environment have had relatively good economic performance and those that have had a start-stop, start-stop approach have performed badly.

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