CZI urges companies to reduce idle capacity

Confederation of Zimbabwe Industries (CZI) chief executive officer, Ms Sekai Kuvarika, has urged the manufacturing sector to reduce unutilised capacity to lower overall production costs and boost economies of scale.

Ms Kuvarika noted that a significant share of the idle capacity was initially installed for the export market, presenting an opportunity to ramp up the production of exportable goods through better utilisation of existing resources.

Speaking during the International Business Conference held at the Zimbabwe International Trade Fair (ZITF) last week, under the theme “Revitalising Industrialisation for Zimbabwe’s Economic Resurgence”, Ms Kuvarika warned that unutilised capacity drives up fixed costs such as rentals, maintenance and repairs, depreciation, property taxes and insurance by spreading these costs over reduced output.

“Fixed costs are spread on smaller output produced from 55 percent capacity instead of 100 percent,” she explained.

“With a linear output-capacity utilisation relationship, a 45 percent unutilised capacity in our manufacturing sector increases the fixed cost per unit by at least 80 percent.

“Reducing unutilised capacity will reduce the overall cost of production and increase economies of scale,” she told delegates.

Ms Kuvarika emphasised that increased capacity utilisation would significantly improve the competitiveness of Zimbabwe’s exports, driving higher demand in foreign markets.

“This will improve the competitiveness of our exports and, in turn, increase the demand for our products in foreign markets.

“For many firms, a significant portion of the idle capacity was installed for the export market. Hence, there is an opportunity to increase the production of exportable goods through the utilisation of excess capacity,” she said.

She added that reducing idle capacity offered substantial benefits at both the micro and macroeconomic levels, including industrial output growth, efficiency gains, reduced production costs due to economies of scale, improved labour utilisation and employment growth, enhanced competitiveness, and export expansion.

“Improving the competitiveness of manufacturing firms is not only crucial for improving the export revenue of the country, but is also critical for preserving jobs when implementing the African Continental Free Trade Area (AfCFTA),” Ms Kuvarika noted.

She stressed the need for policy support to address cost burdens.

“Reducing the cost of production and the cost of regulations can reduce the idle capacity. We think this option will help reduce idle capacity without significant loss of tax revenue since some tax and fee cuts may be replaced by an increase in output and revenue-related taxes like VAT.”

Ms Kuvarika said that with many plants’ capacity underutilised, there is significant potential to expand output in response to emerging demand, particularly through opportunities presented by the AfCFTA.

However, she pointed out that Zimbabwe’s manufacturing sector currently exports only five percent of its output, signalling limited engagement in regional and international markets.

“This reflects a lost opportunity, given that there is room for utilisation of the remaining 47 percent to service exports,” she said.

Looking ahead, Ms Kuvarika called for an aggressive focus on technological advancement and innovation to strengthen Zimbabwe’s export capabilities.

“Moving up the quality chain beyond the value chain will introduce sophistication of our products for export markets and this requires an aggressive technology and innovation drive by both industry and policy.”-herald