The Sunday Mail
ZIMBABWE’s automotive industry is pinning its survival hopes on policy initiatives by President Mnangagwa’s new administration amid indications that capacity utilisation has plunged to levels between 2 percent and 15 percent due to foreign currency shortages.
The sector – which is made up of AVM Africa, Quest Motors Manufacturing and Willowvale Motor Industry – largely manufactures and assembles cars, tractors and buses.
However, due to biting foreign currency shortages in the last few years, production has dramatically plunged.
AVM Africa, which manufactures and assembles buses and lorries, says production capacity had shot up to 60 percent in the last few years, but foreign currency shortages have caused a decline.
Mr Kenneth Musanhi, the executive chairman for AVM Africa, told The Sunday Mail Business last week that production capacity had plunged in recent years since foreign currency shortages escalated.
He is now pinning hopes for turning around the company’s fortunes on the new Government led by President Mnangagwa, which has announced a new thrust aimed at building a new economic order, since his swearing in ceremony on November 24.
President Mnangagwa said his Government plans to turnaround the economy based on increased agricultural production and amending laws that prevent a free flow of foreign direct investment.
Finance and Economic Development Minister Patrick Chinamasa, announced in the 2018 National Budget last week that the Indigenisation and Economic Empowerment Act – which previously directed all foreign investments to comply with the 51/49 shareholding structure – will now apply to diamond and platinum sectors only.
And Mr Musanhi believes the new economic thrust could be an opportunity for AVM Africa to transform its operations.
“I am looking forward that things are going to get better for our sector under the new administration.
“You see, our biggest constraint at the moment is foreign currency shortages. Our operations have been seriously affected by the lack of foreign currency, despite being on the priority list.
“In recent years following dollarisation, our production capacity had gone up to 60 percent but since shortages of foreign currency started to bite in the last year or so, we are now operating at below 15 percent,” said Mr Musanhi.
Foreign currency challenges are not peculiar to AVM Africa alone.
Quest Motor Manufacturing, which is based in Mutare, is also singing the blues.
The company’s director, Mr Tarik Adam, said “We are currently “operating at less than 2 percent capacity, as we have not been able to secure foreign currency even though we are classified as a strategic industry and are on the priority list”.
The company has an installed capacity of 10 000 units per annum on an eight hour shift.
Mr Adam said they have built 10 000 vehicle units in a year before, and if the foreign currency shortages are addressed, the company would return to normal production.
Quest has a versatile plant which assembles almost any type of vehicle, including the Chery Tiggo, JMC, Foton, Tunland double cabs and Foton Daimler 3,5-tonne to 30-tonne and tippers.
It also holds the franchise for BMW and selected Mitsubishi vehicles, and three bus lines – 28, 63 and 65 seater buses.
But the bus production line is lying idle as Quest is unable to import the bus kits due to foreign currency shortages.
Mr Adam said the market for a variety of new cars, trucks, tractors and buses used to consume over 20 000 units per year, adding that local manufacturers and assemblers can still supply that number of vehicles in a single shift.
However, high production costs have ensured that only a small portion of the population can afford locally assembled and manufactured cars, with the bulk relying on importing second hand vehicles.
Even Government departments are not purchasing the bulk of their vehicles from local assemblers, preferring imports from other countries.
This is despite the existence of a Presidential Directive and Government Gazette issued in 2002, which compel ministries and other public institutions, including parastatals, to procure vehicles from local assembly plants.
The Government Gazette further says tender specifications for vehicle purchases shall be aligned to those vehicle models available from the domestic automotive assembly plants.
But the directive has been disregarded, together with a Cabinet Circular No. 16 of 2011, which sought to promote the purchase of locally assembled vehicles.
Mr Adam said: “If our industry gets the support that is already Government policy, which has to be policed strictly, there is no reason for not growing and creating a once very vibrant sector of the economy.
“During (the) period 2009 to 2013, there was a shift in Government policy during the GNU; that reduced import duties for completely built units (CBU), which has continued only with minor changes made in the past two years.
“The reduction in duties opened the floodgates for both new and used CBU imports at the expense of the local automotive industry and component manufacturers.
“This, coupled with flouting of legislation compelling Government departments to buy vehicles locally and heavy Government subsidies given to automobile manufacturers exporting out of South Africa, resulted in the decimation of the local vehicle industry.”
It is estimated that up to 70 000 second hand cars were imported into Zimbabwe per year since 2009.
The local automotive industry has blamed cash shortages on the importation of second-hand vehicles.
Mr Adam said in countries where second hand vehicle imports are banned such as South Africa and Australia, their motor industries are thriving.
In New Zealand where imports of second hand vehicles are permitted, 71 of the 136 car industry suppliers closed down.
Added Mr Adam: “Another factor that has worked against the local automotive industry especially regarding Government imports is that not only are they (vehicles) exempt from customs excise duties, but also VAT, which is against legislation.
“Government purchases made from the local manufacturers have to pay the 15 percent VAT.”
Quest, which has been operational since 1960, has invested in excess of US$100 million into its local operations.
Willowvale Motor Industry had not responded to emailed questions by the time of going to print.
Going forward
Both Quest and AVM Africa are confident the future is bright for their operations, but only if Government implements its policy pronouncements, dubbed the “new economic order”.
Mr Adam said they intend to work closely with the various Government ministries in developing the Zimbabwe Motor Industry Development Policy.
The policy is expected to make local automotive industry, and by extension, the economy, thrive once again.
“Quest is very confident, and our other local assemblers are all confident that we can provide Zimbabwe and the region with a wide range of vehicles for all purposes, providing employment to thousands of Zimbabweans in both upstream and downstream industries, in line with our new President’s inaugural speech of reviving the industries and employment for the economy to recover.
“We have a number of ongoing projects and a number of projects we plan to roll out to meet the country’s entire vehicle requirements for the future as we are confident that Government will again realise the huge potential that this industry has,” said Mr Adam.
Mr Musanhi also believes that once the foreign currency pickle is resolved, the industry can start to believe again.
He explained that the acquisition of over 100 buses by schools and companies is indicative of the strong demand that exists in the country, which can rise significantly if macro-economic fundamentals are addressed.
When operating at reasonable capacity, the motor industry has potential to employ thousands of people.
Quest – which has kept its plant open in the last eight years despite falling throughput resulting in huge losses – directly employs between 1500 and 2000 people in the assembly plant.
The motor assembling sector is at the apex of the pyramid where the base is the component
suppliers with employment generation in excess of 50 000.
In South Africa, the motor industry is the second largest employer after its food industry, with foreign currency earnings from vehicle and motor components exceeding gold since 2004.
To underline the centrality of the automotive industry, the United States, Japan, South Korea and South Africa owe much of their success to the motor industry.
