The Sunday Mail
FIERCE competition from emerging markets under the BRICS umbrella, including rising economies in the sub-Saharan Africa, is threatening to put domestic producers out of business, the latest manufacturing sector report by the Confederation of Zimbabwe Industries (CZI) has shown.
Figures released last week indicate that direct foreign competition to local businesses rose to over 90 percent in 2014 from 58 percent last year.
CZI said the largest supply of imports was from the BRICS, an economic grouping of five rising countries – Brazil, Russia, India, China and South – with a combined Gross Domestic Product of US$20 trillion.
South Africa poses the serious threat, with local companies highlighting that 41 percent of competition is originating from the Southern African country.
South Africa is Zimbabwe’s biggest trade partner.
China presents 30 percent of foreign competition, India 14 percent, Brazil 8 percent, while Zambia at 4 percent is a rising future threat.
“In previous years, the frequency and percentage of companies who recorded competition from Zambia was negligible compared to this year’s survey,” said CZI.
Zimbabweans are importing almost everything, from sweets, soap, shoes and floor polish, fruits, cereal and even dog food.
At a Buy Zimbabwe conference held recently, Industry and Trade Deputy Minister Ms Chiratidzo Mabuwa described Zimbabwe’s import bill as “suicidal” after statistics indicated that US$400 million worth of groceries entered the domestic market during the first six months of the year..
However, that’s just 13,3 percent of the import bill total of US$3 billion in the first half of the year.
Exports amounted to US$1,2 billion during the period, yielding a trade deficit of US$1,8 billion.
Finance Minister Patrick Chinamasa expects imports to rise 9,2 percent to US$8,3 billion this year on continued low industry performance, he said so on September 11.
Coupled with recurring liquidity shortages, power outages and low consumer demand, the increased foreign competition has worsened business viability, which has continued to deteriorate during the past three years.
Of the companies surveyed by CZI, 54 percent said business was not viable in 2014, an increase from 48 percent and 31 percent in 2013 and 2012 respectively.
Only 7 percent reported an improvement in business viability in the past year.
In 2012, 32 percent of the respondents cited cash constraints as a major hindrance to business growth.
The figure rose to 40 percent in 2013 before declining to 26 percent in 2014.
Low demand continues to be a concern, with 13 percent of companies citing it in 2012.
The figure peaked to 17 percent and 28 percent in 2013 and 2014 correspondingly.
Utility shortages and poor infrastructure were also mentioned as key factors thwarting the revival of local industries.
At least 3,8 percent of the surveyed industrialists said they were experiencing unsustainable power and water shortages, which raised operational costs. Of the total respondents, 80 percent indicated that the state of infrastructure was generally poor and would not be able to sustain medium to long term economic growth.
As much as 84 percent said they were not satisfied by the service delivery of local authorities.
Previous surveys have also indicated the same and there is scope for improvement of services by local authorities. “The state of infrastructure in an economy has a significant bearing on the operating environment of business and ultimately affects the level of competitiveness. The level of efficiency as well as the cost is important to business operations.
“The absence of adequate provision of infrastructure is usually an added cost to doing business, as firms have to seek alternatives,” said CZI. The report said 44 percent of respondents said they were switching off power outside production times, while other companies have acquired modern, efficient machinery to reduce the cost of electricity.
Others have resorted to using alternate power sources such as solar for heating, generators and gas.
The industrialists proposed measures to improve utilities and infrastructure in the country to facilitate smooth flow of business.
At least 35 percent called for the facilitation of FDI and private sector participation in power generation while 19 percent proposed rehabilitation and maintenance of existing infrastructure.
In August this year, a high powered delegation comprising President Robert Mugabe and Finance Minister Mr Patrick Chinamasa were in China where mega infrastructure deals were signed between the two countries.
The rehabilitation of energy infrastructure, road and rail networks has the potential to unlock real value through employment creation and ease of doing business.
Some industrialists have blamed poor railway network system for low performance, which has seen capacity utilisation in manufacturing sector falling to 36,3 percent.
In terms of capital investment, 58 percent of the respondents did not carry out any new investment. Of those who did, 96 percent of the capital was invested in machinery and equipment while the remainder went towards land and buildings.
At least 45 percent cited replacement of obsolete machinery as the reasons for capital investment while 30 percent wanted to expand their businesses.
CZI notes FDI has remained depressed as the number of manufacturing firms that did new capital investments through FDI remained at five percent.
According to the Reserve Bank of Zimbabwe, average FDI for Zimbabwe between 2002 and 2012 was $88 million compared to $800 million for Zambia.
Mozambique received $586 million while Botswana had $486 million. The figures show Zimbabwe is trailing behind its regional counterparts in terms of receiving FDI.
“Given the liquidity challenges that the economy is facing, there is need for increased efforts to attract FDI in order for the manufacturing sector to realise its potential,” said CZI.
