Industry capacity utilisation drops

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Oliver Kazunga, Senior Business Reporter
CAPACITY utilisation in the manufacturing sector for 2017 has slid by 2.3 percentage points to 45.1 percent from 47.4 percent in 2016, the Confederation of Zimbabwe Industries (CZI) has said.

In the 2017 manufacturing sector survey report released in Harare yesterday, CZI indicated that capacity utilisation was constrained by a number of factors with the cost or shortage of raw materials being the major constraint affecting productivity.

Capacity utilisation was this year expected to reach 60 percent on the back of the successful bumper harvest as well as improved business conditions riding on the ongoing ease of doing business among other fundamentals.

The industrial representative body revealed that the cost or shortage of raw materials weighed down on capacity utilisation by a magnitude 19.59 percent, while low demand came second at 17.18 percent.

Of late, the manufacturing sector has raised concern over the depletion of nostro account balances resulting in delays in accessing critical raw materials required by the manufacturing sector.

Forex shortage was also a major constraint impacting negatively on capacity utilisation by the manufacturing sector contributing 13.75 percent.

CZI also indicated that competition from imports contributed 8.5 percent in suppressing efforts by industry to stimulate productivity             while capital constraints’ contribution was 6.87 percent.

Liquidity crisis contributed 6.19 percent in dampening efforts by local industry to increase capacity utilisation to competitive levels. High cost of doing business, drawbacks from the prevailing economic environment, access to finance, and competition from local producers were also                                                                                                               some of the factors contributing to negative efforts by industries to boost their production levels.

As part of efforts to boost capacity utilisation to competitive levels, the Government has introduced a number of policy interventions including import control measures aimed at supporting the viability of local firms. In her presentation during the release of the 2017 manufacturing sector survey results, CZI chief economist, Ms Daphine Mazambani, said:

“Most companies face competition from both domestic and foreign markets, 26 percent feel their industries are somewhat insulated from foreign competition. About 11.4 percent of the companies have no local competition while two percent of the companies enjoy monopoly status.

“South Africa still represents the largest source of competition for Zimbabwe manufacturers followed by China”.

She said competition from Zambia should not be underestimated by the present contribution as this has been growing steadily over the past three years.

“The Zimbabwe-South Africa trade agreement needs to be fully exploited and review other arrears that can be improved,” said Ms Mazambani.

Power and water shortages contributed about 1.3 percent in suppressing efforts to boost capacity utilisation by the local manufacturing sector.

She said there was a vicious cycle that can be broken by addressing Zimbabwe’s cost structure and holistic regulatory reforms.

“A case management approach perpetuates decline as fundamental issues remain unaddressed. Zimbabwe’s low cost structure should be addressed as it affects final product’s costs and render the country’s exports uncompetitive, affecting exports and forex, among others,” she said, adding that efforts to retool should be doubled.

Before the introduction of a multi-currency system in February 2009, capacity utilisation in the manufacturing sector averaged 10 percent.

@okazunga

Article Source: The Chronicle