Current economic stability fragile, businesses
INDUSTRY has described the current economic stability as fragile, indicating that the government should do more to consolidate growth and stability achieved in 2021. The economy endured a stable environment for the greater part of last year, despite the year having started off on a difficult terrain with inflation operating in three digit levels and a volatile parallel market exchange rate which was used as a reference point in the pricing mechanism.
After a very turbulent time characterised by exchange rate depreciation and hyperinflation, the economy witnessed an extended period of stability since the introduction of the foreign currency auction system in June 2020.
The year 2022, has started on the negative characterised by resurgent inflation, disposable income contraction and a volatile exchange rate.
Business members who spoke at the CZI manufacturing sector survey report launch in Harare on Wednesday said the year 2021 mirrors a tale of two halves.
Wellington Dangarembizi, the managing director Hunyani Paper and Packaging company as well as the CZI representative on the ZIMTRADE Board, said the first half 2021 helped the sector to improve a lot in terms of the capacity utilization.
“But obviously, currently, we now have issues where we have to wait for 8 to 12 weeks to access foreign currency from the auction, and that has had an effect in terms of the smooth performance of the packaging sector,” he said.
He said for some manufacturers, they have failed to supply packaging on time due to failure by raw material suppliers to advance supplies.
Dangarembizi said as a sector, there was positive growth in 2021 with a 35 percent growth in terms of volumes for the sector.
“This growth was across all substances of packaging that includes plastics, paper, and metals. So we had growth across all sub sectors of our sector driven by increased demand that was experienced across all sectors of the economy, including horticulture,” he said.
He noted that the packaging sector works as a barometer in terms of economic activity, because sectors such in agriculture, beverages, edible oils, require packaging.
“Generally, there was an improvement in terms of volumes and capacity, and one of the key drivers as a sector for this improvement was the RBZ foreign auction system in the first half of 2021.
“Where, even with our foreign suppliers, just that note that you have been allocated, forex, the players would release products,” said Dangarembizi.
He noted that the packaging sector also benefited from the essential services sticker that was given by the government during the pandemic when most companies were working limited hours.
This, he said, resulted in the packaging industry continuing to work and that had an impact on performance.
He noted that currently, raw material availability has improved, although not yet at levels of the pre-Covid era.
“We still have very long delays in terms of supply chain across the world, as the general shortage of in terms of raw material. So that impacted our local partners that are our manufacturing sector in terms of them putting their products into the market.
“These are problems with everyone; we no longer have credit lines with suppliers, so we rely on having to run around and the alternative market has become very important for us,” he said.
Archie Dongo a member of the CZI economics roundtable, said the year 2022 had started on the negative characterised by resurgent inflationary environment, disposable income contraction and a volatile exchange rate.
Dongo said the manufacturing sector was financing about a 60 percent foreign currency deficit through sales in foreign currency.
“As we saw, manufacturers are raising forex through US dollar sales to cover about 60 percent of the deficit identified by the survey. When you see products being sold only for US dollars you need to go back through the chain and sort it out. We are only seeing the results of what has been happening throughout the chain.
“With spontaneous dollarisation along the chain manifesting itself on formal shop shelves, this is threatening the relationship between formal retail and manufacturers as it creates a preference for informal channels on the part of manufacturers,” he said.
He added that continued existence of arbitrage opportunities arising from foreign exchange management regime is causing damage and disruption of orderly distribution channels due to informalisation.
According to Dangarembizi, the packaging sector has had to continually invest in new technologies, to allow the products to be environmentally friendly.
He said from 1980 to 2020, the industry had invested in excess of US$400 million in new technologies.
“There is a lot of packaging that used to be imported in the past 5 to 6 years, but most of the packaging is now available locally, so the sector continues to play its role in terms of foreign currency,” he said.