Govt, industry must strategise to boost manufacturing
BY and large, it has taken one policy intervention to cause a 13 percent leap in industrial capacity utilisation in only five months. In June, the Government came up with a statutory instrument that removes a range of basic commodities, wood furniture and steel products from the Open General Import Licence. Removal of a product from the licence imposes restrictions on the importation of that product. A company seeking to import them for commercial use has to apply for and obtain a licence from the Government for them to be able to do so.
According to the Confederation of Zimbabwe Industries (CZI) Manufacturing Sector Survey, capacity utilisation has risen from 34,3 percent in 2015 to 47,4 percent, thanks to the import restrictions occasioned by the policy.
“The gains of Statutory Instrument 64 (SI 64) of 2016 are beginning to be realised (as) capacity utilisation has jumped significantly by 13,1 percentage points from 34,3 percent in 2015 to 47,4 percent in 2016,” said CZI.
“This is a very positive development largely resulting from the moves on the part of Government to protect local industry and the import priority list. Fifty four respondents recorded capacity below 50 percent, while seven percent of the respondents recorded capacity utilisation of 100 percent.”
The best performing sub-sector, wood and furniture products, is now operating at 57,8 percent of its installed capacity, followed by nonmetallic mineral products at 57,5 percent and foodstuffs at 56,5 percent. The tobacco, drinks and beverages sub-sectors were operating at 52,4 percent.
On a regional basis, firms in Harare are now running at 48,3 percent, Midlands (44,3 percent), Manicaland (43 percent) and Bulawayo (33 percent).
The huge leap highlights the positives that targeted policy interventions can do for our economy. We hail the Government for coming up with the restrictions and hope that the recovery would be sustained until capacity utilisation improves to at least 90 percent.
There was no way the Government was going to keep our borders open when our industry is down yet we have bustling economies around us notably South Africa, Botswana and Zambia. We ran the risk of turning this country into a retail economy that produces nothing and imports finished goods for sale. That would have been unfortunate and embarrassing for an economy that has such a massive manufacturing base and tradition as ours.
The Government is urged to continue implementing targeted policies to revive the economy until we reach the stage where we can open up the market to external competition. In this age protectionist policies don’t work in the long run. Governments can resort to them, as ours did, on a short-term basis when their economies are emerging from crises. Our trading partners appreciate the need for our economy to recover and consolidate itself before the Government takes a decision to open up.
However, regional trade agreements demand that economies are opened as much as possible for healthy competition and greater integration. If we continue with artificial protections, there is a chance that our neighbours might consider retaliating, which is bad for both sides. Also, a protectionist economy runs the risk of promoting internal inefficiencies which, in the end, may prove to be more disastrous than opening up.
Every economy develops if it produces enough for local consumption and export. The prevailing liquidity crunch is one symptom of an economy with a weak export performance. The Government is blaming the prevailing cash shortage on low exports and resulting depressed foreign currency inflows. To address this, authorities are imploring companies to aggressively export. But it would be hypocritical for our economy to close itself up for products from abroad, while we are pushing local companies to export. Who will accept exports from here if we have a protectionist stance preventing other countries to export to us?
What we are saying is that import restrictions are only good in the short to medium term but are unsustainable in the long run.
The CZI is, needless to say, aware of this, as is the Government.
Before the borders can be freed, the Government and industry itself would have to implement strategies to boost manufacturing performance.
One of them can be to intensify and grow the Distressed Industries and Marginalised Areas Fund for companies to access cheaper finance for working capital and retooling. As the CZI has always said, some manufacturing plants are more than 40 years old, thus cannot produce as efficiently as those in South Africa, for instance. Such plants have to be dismantled completely and new ones installed.
We also look forward to the bond notes helping to not only enhance exports, but also to improve liquidity for consumers and businesses to have enough cash with which to transact more efficiently.
Strategies to address the ease of doing business have to be intensified for more local and foreign investment to pour into the economy.
In the same vein, the export processing zones drive must come to fruition as soon as possible for the progress we have seen thanks to SI 64 to be consolidated.