Manufacturing sector capacity utilisation falls

CAPACITY utilisation in the manufacturing sector declined to 45,1 percent in 2017 from 47,4 percent recorded last year as rising costs of production and foreign currency shortages, among other challenges continue to take a toll on the sector.

Other constraints blighting the sector include competition from imports, antiquated machinery, which constantly breaks down, low local demand and access to finance, according to the Confederation of Zimbabwe Industries manufacturing sector survey 2017 released yesterday.

While presenting the survey findings yesterday, CZI chief economist Dephine Mazambani, said there was a “vicious cycle that can be broken by addressing Zimbabwe’s cost structures and holistic regulatory reforms”.

“Zimbabwe’s cost structure should be addressed as it affects final product costs and render Zimbabwean exports uncompetitive, affecting foreign currency, among others. Agriculture and manufacturing sector policy convergence is critical.

“A manufacturing sector export strategy is due while efforts to retool should be doubled,” said Ms Mazambani.

But Reserve Bank of Zimbabwe Governor Dr John Mangudya, was quick to question some aspects of the survey.

“(But) then I was asking myself should we be measuring capacity utilisation or growth of an economy. Where I come from throughout the whole world we talk about the growth of an economy.

“If you go around the world they talk about quarterly growth of sectors, so what relevance does capacity utilisation have?” questioned Dr Mangudya.

For instance, Dr Mangudya, said two of the seven companies in the oil sector have capacity to meet the country’s demand at 10 million litres per month.

The seven companies in the sector have capacity to produce “about 45 million litres of cooking oil a month, which means there is excess capacity as Zimbabwe`s demand for cooking oil is 10 million litres per month so it means that we have excess capacity of investment in the cooking oil industry”.

“So here we are measuring capacity utilisation, what is its relevance to the domestic consumption. It means one or two companies can produce for Zimbabwe. The rest are excess capacities.

“So what is the relevance of measuring capacity at this time of the day, is it relevant to what we want to achieve?

“These are good methodologies but is it relevant to what we want to achieve. If you ask me as the central bank governor I’m more concerned about the growth of the economy and I am sure that the economy is expanding and therefore the figures speak to what we are saying,” said Dr Mangudya.

“We then looked at the capacity utilisation levels (mentioned in the survey) from 34,3 percent (2015), 47,4 percent (2016) and now 45,1 percent (2017. Either people have over invested in those sectors that is why capacity has gone down or alternatively that figures for last year since this year there is improved methodology it means that you would have positive movement.

“I think the figures speak for themselves and are good results,” he said.

“However, as the central bank we need to work on the economic fundamentals to ensure that this economy goes forward.

“We need to increase production but the problem with the manufacturing sector is that production will increase by increasing foreign currency.

“I have never seen a sector that utilises foreign currency like industry in Zimbabwe. This sector called manufacturing sector only export 13 percent if you include other minerals which are manufactured.

“It means that this year the companies in the industry are using more foreign currency than before so I want to challenge you CZI president to further look at that matter why this is so.

“We will be happy to share with CZI the names of those firms to see whether they are not just inflating figures for the sake of the survey or that they were telling the truth,” the central bank chief said.

Ms Mazambani said manufactured output volume grew by 5,5 percent, recorded by companies whose machinery was less than 10 years old while companies with older machinery and equipment recorded either no growth or negative growth.

Close to 40 percent of companies in the manufacturing sector have equipment older than 20 years.

Industry and Commerce Minister Dr Mike Bimha, who was guest of honour at the launch of the survey said there have been measures by Government to address challenges being faced by industry. He said Government has come up with policy interventions to assist business.

“There have been measures to improve the supply of raw materials, the rebate of duty on capital equipment, improving access to affordable funding, the prioritisation of foreign currency allocation and the operationalisation of the National Competitiveness Commission,” said Dr Bimha.