Industry output jumps to 47 percent… CZI says capacity to rise to 61 percent …Calls for measures to sustain stability

INDUSTRIAL firms are targeting a 14 percentage points increase in production capacity this year after seeing the average output level jump from about 34 percent in 2019 to 47 percent of installed capacity in 2020, despite the negative impact of Covid-19.

The capacity threshold of 61 percent, if realised, would represent the highest output level for constrained domestic industry since dollarisation in February 2009.

The current and projected industry capacities are contained in the Confederation of Zimbabwe Industries (CZI) 2020 manufacturing sector survey report presented yesterday during the industrial lobby group’s ongoing virtual economic symposium, which ends today.

Results from the survey attributed better industrial performance to exchange rate stability following the introduction of the auction market in June 2020, which tamed the inflation rampage.

The official exchange rate became the major determinant factor in pricing, contrary to previous practices where businesses indexed prices to parallel market rates.

“It is encouraging to note that business can now access foreign currency through the formal channels although it is now taking longer to access foreign exchange,” CZI said.

The RBZ has since agreed with banks to ensure that foreign currency allotments are settled within 14 days from the date of auction. Previously, it was within 48 hours until the system faced glitches that saw importers taking more than 4 weeks to access allotted funds.

Despite the previous payment delays, industry said certainty and predictability have been reintroduced in the domestic economy while the auction system is fostering confidence and trust in policy formulation and implementation.

CZI said unique constraints in 2019 included forex and power shortages, high inflation, machinery breakdowns and water shortages.

Industry said major impediments last year encompassed limited access to foreign currency, inflation rampage, working capital challenges, Covid-19 restrictions, external competition, transport challenges, machinery breakdowns as well as water shortages.

The 2020 manufacturing survey report showed that major challenges encountered in 2020 due to Covid-19 entailed reduced revenue, value chain and supply bottlenecks, transport and logistical challenges, constrained global trade, short banking hours and employee infections.

Firms struggled to resume operations due to challenges in re-establishing supply chains, lack of working capital, loss of domestic and export markets, high cost environment due to Covid-19 control measures.

While 61 percent of surveyed companies indicated that they managed to export despite constraints posed by the pandemic, 81 percent of revenues realised by businesses came from local sales.

Industry said in order to sustain growth in capacity utilisation, there was need for consistency in policy making, stability of and reduction of inflation and currency stability, export promotion, buying local and aggressive Covid-19 vaccination campaign.

Survey results showed that the proportion of companies that laid off their workers doubled in 2020 to 14 percent while 86 percent of corporates said they did not retrench.

Coping mechanisms for those that did not lay off employees included salary reductions, shift programmes and adjusting employee benefits to avoid job losses.

Those that cut their headcount did so due to a fall in revenue, low demand, measures to cope with Covid-19 challenges and improved use of technologies.

Commenting during the virtual symposium, Industry and Commerce Minister Dr Sekai Nzenza said industrial capacity utilisation was very low when she assumed office towards the end of 2019.

Minister Nzenza said Covid-19 had negatively impacted Zimbabwe and the rest of the global economy due to measures aimed at controlling the spread of Covid-19.

“I am very pleased and feeling more positive despite Covid-19 and the lockdowns that we are on a positive trajectory,” she said, calling on industry to provide evidence-based input to policy formulation, refining and problem resolution.

She said the Government was working on a number of interventions to develop and grow the economy through its new blueprint National Development Strategy (NDS1) 2021-25.

The major focus will be value chain development and structural transformation to strengthen the value chains with the major strategy being promoting local content and thrust on import substitution.

CZI president Henry Ruzvidzo said there was need to continue to consolidate growth in capacity utilisation by fine tuning economic policies.

“The process should ensure companies can compete on the international market to boost the export base in order to generate foreign currency to drive industrial growth value chains,” Ruzvidzo said.–ebuisnessweekly.co.w