What will it take to boost industry capacity utilisation levels?

THIS is one of the questions I have been pondering about for too long. What will it take to boost the country’s industry capacity utilisation levels that can significantly get the economy to be able to meet the domestic demand for consumer goods and thus cut the import bill to sustainable levels and save foreign currency that the country is so desperately in need of.

I am aware that Zimbabwe has a number of commodities such as fuels, power and essential raw materials that the country has no absolute advantage to produce locally. However, the demand for basic food staff and other consumer goods that otherwise could be produced locally, by the domestic industry has continued from the immediate post hyperinflation period to date, and this has put a lot of pressure and strain on the limited foreign currency reserves that the country is experiencing.

The Confederation of Zimbabwe Industries (CZI) early this year projected the industry’s capacity utilisation to increase to 48 percent this year from 45,1 percent last year as companies continued to invest in growing their businesses in a very difficult economic environment.

The CZI reiterated that the ability of the industry to push its capacity utilisation was dependent on the mitigation measures to be employed to improve foreign currency allocation and the impact of rainfall patterns on the agro-processing sector. According to the CZI, these two factors posed a serious threat that has continued to hamstring or hamper the efforts by the industry to enhance capacity.

Industrial capacity utilisation peaked at 57,2 percent in 2011, before sliding to 44,2 percent in 2012; 39,6 percent in 2013; 36,3 percent in 2014 and 34,3 percent in 2015. It is clear that the performance of the country towards the resuscitation of its industry from the hyperinflation era has not been good at all.

In my opinion, there is a mismatch in the prioritisation of foreign currency allocation that is between the productive and nonproductive sectors of the economy. Our priorities do not seem to be sitting right. Yes, it is true that the Government must function on a day-to-day basis.

Bearing in mind that the bulk of Government expenditure is recurrent and non-productive by its nature, it is paramount that the new Government streamlines its expenditure towards cutting-measures in order to ease the fiscal burden and free the financial resources through savings.

Whatever potential savings could be made, when channelled into the productive sector, especially towards boosting the industrial capacity utilisation levels, in my opinion would go a long way towards prudent management of the foreign currency reserves and liquidity.

While Zimbabwe is open for business and there is good effort towards normalisation of the country’s relations with the international community in order to attract FDI, I strongly believe that much needs to be done to improve domestic investment towards a sustainable domestic production of goods.

I believe there is not much focus on the re-industrialisation of the economy serve for potential lines of credit that are being negotiated. I have said it in the past; the heavy import bill is not healthy for a weak economy such as ours.

Believe it or not, this is one area that has gobbled the foreign currency reserves, yet the potential to save the foreign currency is great once our industry reaches the capacity levels that can sustain the domestic demand for goods.

I believe the awaited and anticipated economic stabilisation programme of the new Ministry of Finance and Economic Development in my opinion, which should be developed in or with the collaboration with the Ministry of Industry and Commerce should come up with a deliberate financial bailout or fund to help the industry increase its capacity to set target levels that would help to reduce the import bill to sustainable levels.

Once that has been achieved, whatever import restrictions would make a lot of economic sense. At the same time, the economic stabilisation programme should enhance or boost exports.

While achieving the 2030 vision is set for the 12-year timeline, I believe the reasonable industrial capacity utilisation increases could be achieved with the next six to 12 months with the deliberate capitalisation of the industry in terms of both working capital financial, machinery and equipment support.

In my opinion, boosting industry capacity utilisation levels should take the flogging of the dead horse until it rises from the dead. I think there is too much expectation of FDI to direct itself to our industry. I doubt if this would happen without significant deliberate domestic investment approach towards the industry in terms of building confidence in our own industry. Potential foreign investors are watching with keen interest, on the domestic investment confidence levels.

Are domestic investment confidence levels building up or not? What are the locals or domestic dispositions towards the industry? What is it that the Government is doing and intending to do in the immediate, medium and long-term to resuscitate the ailing industry? I am not in any way advocating for the country to go back to the previous economic model where the Government used to subsidise the industry through fiscal appropriation.

The Government has no capacity to do that and in fact, that is against the spirit of economic transformation and reform. I am advocating for the establishment of an industrial bailout package over and above the potential negotiated lines of credit to boost the industrial capacity utilisation levels.

In other words in my opinion any efforts to stabilise the economy and work towards turning the Zimbabwean economy into a middle-income economy by 2030, must involve deliberately resuscitation of the industry to increase its capacity.

I know the assumption might be that by default working towards a middle-income economy means sorting out the industry’s challenges as well. In conclusion, I doubt very much if economics operates on defaults, especially in our situation, there is need for deliberate and consented efforts that are made towards the resuscitation of the industry.

Dr Bongani Ngwenya is currently based at UKZN as a Post-doctoral Research Fellow and can be contacted at nbongani@gmail.com