Industry gets US$30m for retooling
THE Government has earmarked US$30 million for industry retooling from the nearly US$1 billion that Zimbabwe got from the International Monetary Fund under its Special Drawing Right (SDRs) disbursements to members.
The IMF injected a record US$650 billion of reserve assets (SRDs) to build confidence and foster resilience and stability in the global economy in the wake of the devastation caused by the coronavirus.
Although Treasury’s allocation remains a drop in the ocean compared to what industry requires, analysts said the facility will go some way to support industry’s capacity issues.
Treasury said the US$30 million will be used to capitalise a revolving fund facility from which deserving companies can borrow to fund their working capital or retooling requirements.
The move shows the Government’s commitment to help domestic companies to get back on their feet after the ravaging effects of the Covid-19 global pandemic on the economy since last year.
Treasury said the revolving facility was meant to improve the manufacturing sector’s contribution to the country’s Gross Domestic Product (GDP).
Last year, the manufacturing sector increased its contribution to GDP by almost three percentage points to 18,43 percent making it one of the most critical sectors of the economy.
Zimbabwe’s manufacturing sector‘s capacity utilisation is anticipated to grow to 61 percent by the end of 2021 from 47 percent attained in 2020 where it had increased from 36,4 percent in 2019.
The growing capacity utilisation, however, contradicts the procurement trends where over 70 percent of industry’s raw materials are imported from outside the country, making it one of the heaviest consumers of scarce foreign currency in the country.
As such, the Government intends to develop stronger value chains and improve industry to move the country to a position where it can become the production hub of the region.
At a recent engagement with captains of industry, Finance and Economic Development Minister Professor Mthuli Ncube highlighted that the planned industry retooling revolving fund facility would be administered through banks to advance the budget’s policy on value chains and value addition for industry growth.
“The country received the SDR allocation of US$960 million from the International Monetary Fund in response to the global Covid-19 catastrophe.
“I am delighted to reiterate that we have allocated part of the SDRs to the tune of US$30 million to support local industry in retooling and working capital in 2022 through a revolving facility administered by banks,” Minister Ncube said.
Also, through the budget, the Ministry of Industry and Commerce was allocated $3,9 billion for industrial upgrading encompassing value chain development, capacitation of the Industrial Development Corporation, and the revival of Ziscosteel.
However, Confederation of Zimbabwe Industries (CZI) economist Victor Bhoroma said the US$30 million to be disbursed by the Government was not sufficient to meet the demands of local industry, but the government should instead create an environment that attracts private capital for the enhancement of local industry.
“In terms of the amount itself being enough, obviously US$30 million is a far cry from the capacitation needs that are in the industry; industry is looking at a figure of US$2 billion and above.
“However, it is not a question of how much is coming in from the Government because remember the private sector and commercial banks can actually be able to chip in and help in terms of capacitating our local industry.
“What is needed is an enabling environment that ensures that private capital can be able to get a return on investment on whatever is lent to the industry.
“I am sure the US$30 million is going to focus on a few value chains. It could be cotton to clothing, it could be leather or a few industries that have got a huge multiplier effect, “said Mr Bhoroma in an interview.
He added that under capitalisation of the local industry had led to reduced capacity utilisation and raised the cost of production for players in the local industry.
“Under capitalisation in the local industry has led to low manufacturing capacity utilisation and cost of production tends to be very high because if you are using obsolete equipment, it constantly breaks down, you need spares from outside the country, and the old technology has a very high running cost,” he said.
In his budget statement, Minister Ncube spoke of the need to facilitate a shift towards the production of high-value manufactured products which will contribute more to output, export earnings, and creation of decent jobs.
The manufacturing sector remains a key contributor to the country’s GDP and is central to the dream of economic turnaround outside of agriculture and mining.