Local industry fighting from multiple fronts

Zimbabwe is in a precarious position where there is a case of fighting for currency survival by monetary authorities and fighting for a meal by the country’s population.

Industry is suffering from cheap imports, and tough operating environment, but the question of who is to blame is always asked and few have the answers. Like the few, this opinion will try to answer the question, tell the condition and what is being and needed to be done to go back on the correct path.

Is our industry in control?

The country is being run with two parallel ‘industries’ as we have the local goods manufacturers who are supplying goods to our formal retailers. The other side has the informal retailers that are being fed by cheap imports and some not paying duty.

In the formal retailers, prices are getting out of reach of many, with a roll on bottle costing US$6.00 whilst the same bottle is costing US$2.00 in the thriving night street markets. This then leaves the question of whether or not our industry is in control.

Economist Thomas Sowell once said; “Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated.”

Like Sowell said, the people have voted with their feet and pockets and have decided to buy from the streets where standards of goods are not checked or known, because they want to survive.

With industry being said to be supplying 60-70 percent of goods in our retail shops, it becomes useless if the pricing is chasing away consumers. There is need to look at the fundamentals from both supply and demand sides to see why we are in such a situation.

Waning demand a cause for concern

There is a concern in the current environment as formally employed personnel are increasingly not being able to afford basic goods from formal retailers. This is simply stemming from low wages being administered to workers.

Low wage issue is not necessarily industry’s fault as wages are being wiped out by the parallel market rates before they are able to adjust them. For example, someone who was earning US$450 equivalent in local currency back in February 2023, has seen their salary reduce by an average of US$100 per month to April 2023.

British economist and politician ,David Ricardo, is famed for saying; “The farmer and manufacturer can no more live without profit than the labourer without wages.”

The Zimbabwe National Statistics Agency (ZIMSTAT) said the rate of extreme poverty in Zimbabwe fell slightly to 42 percent in 2022, down from 43 percent in 2021.

This is according to the results of the latest high-frequency telephone survey, known as the Rapid-Poverty Income Consumption and Expenditure Surveys (PICES) carried out by ZIMSTAT between December 2022 and January 2023.

According to the survey, the proportion of Zimbabwe’s population facing severe food insecurity dropped from 27 percent in July 2020 to 9 percent during the December 2022-January 2023 period, and this is because food insecurity falls as the country receives good and timely rains.

The father of modern economics, Adam Smith once said; “No society can surely be flourishing and happy, of which the far greater part of the members is poor and miserable.”

Revisit of Dollarisation

The country has gone full circle on dollarisation, as ZimStats says transactions in USDs are now as high as 80 percent with the 20 percent being done in local currency. Not to waste time on the issue, we have read about its disadvantages for years so I will just do a recap of the purported issues using South Africa as an example due to our exposure in trade with them.

Zimbabwean companies and individuals that buy goods in South Africa and neighbouring countries will find them cheaper goods that can be imported and resold here for way less than the cost of manufacturing locally.

The stronger USD makes South African and Chinese import goods more competitive on price in the local market. Realistically, the stronger dollar means lower prices on imported goods from cars and computers to toys and medical equipment which is why we have many imports in our houses.

A key worry for Zimbabwe is that a stronger dollar makes locally-made products more expensive in overseas markets, widening the trade deficit and reducing economic output, while giving foreign products a price edge in the local market.

What needs to be done?

Solutions that need to be done in order to pick up our capacity utilisation to above 60 percent has been said before.

During the CZI 2013 Conference, the then Standards Association of Zimbabwe Director General, Eve Gadzikwa, told delegates that there was need to recapitalise our industry and push for some sort of protection in order to try and be competitive with various imports.

Early this year the Ministry of Finance availed US$22,5 million to set up Retooling for New Equipment and Replacement for the Value Chains Revolving (REVCRF) facility, which is a step in the right direction in order to modernize our production systems.

However, the issue is not about the fund, but it is about the ability to make the fund a revolving one as we saw back in 2012 when the then minister Tendai Biti, issued US$10 million for retooling firms but according to reports no company repaid the loans, with some even going for corporate rescue and others for mergers.

Zimbabwe producers are using old plant and machinery which is expensive to run, and the problem with old technology is that it requires constant intervention, is labour intensive, consumes more power among other things.

So, there is need to continue investing in new machinery in order to be effective adding that local market is small and therefore the producers lack the economies of scale and are facing high utilities costs, water, power (in fact running on generators which is expensive).

Conclusively, the industry is facing a number of problems from its own sector and the external environment which is affecting demand. Blaming industry for the problems it is facing will be unfair, but it has its fair share of problems and should work on its side, invest in its operations.-ebusinessweekly