The Sunday Mail
Clemence Machadu Insight —
Howdy folks! Some may remember my argument that the targets of the Draft Industrialisation Development Policy (2017-2021) are not dynamic and that we should have ambitious manufacturing sector targets.
The recently announced results of the annual Manufacturing Sector Survey by the Confederation of Zimbabwe Industries attest to that. Within a space of one year, capacity utilisation has risen by 13,1 percent from 34,3 percent in 2015 to 47,4 in 2016.
This when the Draft IDP has set an industrial capacity utilisation target of just 50 percent by 2021. In the survey, manufacturers actually expect capacity utilisation to rise to 50,3 percent by next year.
The Industry and Commerce Ministry is, therefore, encouraged to revisit its capacity utilisation aims; 75 percent is a good target by 2021.
You see, the target you set for yourself will determine the strength of strategies to be implemented. And 50 percent can be easily attained without even thinking outside the box.
But what both policymakers and industrialists need to know right now is that they still have a lot of ground to cover in their quest to position the manufacturing sector as an engine for growth.
We are faced with a tricky situation whereby the rise in capacity utilisation, for the first time in five years, has brought over-excitement that the manufacturing policies of Government are working and companies are becoming competitive.
If we are to critically interrogate what happened, we will see that most players in the manufacturing sector are as unrepentant as before and it is still business as usual.
It is expected that when you block a river, like we used to do with some naughty cowboys in the country, you create a dam and water stops flowing downstream.
But soon enough the pressure destroys the rudimentary dam and the river starts flowing again. We can draw many parallels from that when looking at the sharp jump in capacity utilisation.
Import controls under Statutory Instrument 64 of 2016 have been largely responsible for the growth. Unrestrained importation has been virtually banned and shifted demand to local products.
Folks are not buying local products because they are lowly-priced and of good quality. They are buying because their choices have been narrowed.
This is where we need to be careful and probe the sustainability of current capacity growth. Is it any different from cowboys blocking the river with sand?
What will happen if the controls are removed today? Will demand patterns remain unchanged or folks will rekindle their love for imports? As long as folks derive more merits from imports and continue to nurse a nostalgia for them, any increase in capacity during the period of protection will be futile.
Industry must not utilise this incubation period to focus on making super profits from their over-priced goods. They should use the opportunity to change consumer preferences in favour of their products by meeting and surpassing expectations.
What will matter most at the sunset of incubation are price and quality. And the winner will take it all! Manufacturers should, therefore, not sit on their laurels and think that the demand that has been dished to them on a giant silver platter will last forever.
They have to earn it. They have to win the hearts of consumers. It’s sad that some firms that have been protected are still not showing any signs of fostering sustainable consumer retention.
In fact, they are becoming arrogant. They know consumers have no option but to buy from them. It is that arrogance that stops them from refining their cost structures and business models. They get a sobering reality when they try to export their products.
This is why 79 percent of manufacturers indicated that they do not export their products. And the biggest reasons they cite for not exporting are high costs and lack of competitiveness.
I will highlight a few issues from the CZI survey. The pricing mechanism for most manufacturers, for starters, is still mark-up over cost. The survey said 43 percent of respondents use mark-up.
This pricing method is inappropriate for a sector targeting to enhance competitiveness to meet international standards. This type of pricing often fails to adequately cater for competition and does not take into account the buyer’s needs and ability to pay.
It, therefore, often results in companies over-estimating the price of products as the method includes sunk costs while ignoring opportunity cost.
The mark-up method also doesn’t take into account future demand for a product. It is also saddening to note that only 48 percent of manufacturers have an implementation plan with organisational targets, size and change management processes.
Isn’t it alarming that 52 percent don’t? Operating without an implementation plan is like flying on auto pilot. Have our industrialists forgotten that failure to plan is planning to fail? Having no plan at all means that they have no direction and they don’t even know where they are going.
The survey also said that only 18 percent of manufacturers extensively collaborate with local tertiary institutions on research and development. We are in an era in which innovation and creativity are the driving forces behind all thriving businesses.
For firms to successfully innovate, they can’t entirely rely on their internal R&D departments. But most manufacturing companies do not even have R&D departments.
We should see more productive linkages between industry and institutions of tertiary and higher learning for access to a huge pool of talent and skills.
Multinationals like IBM owe their success to their partnerships with universities. When you look at the strategies proposed by industrialists for price reduction, you also see an element of insincerity as close to 70 percent of the strategies are what they want Government to do for them.
What are they also doing to reduce prices? For industrialists who are preaching Lean production methods and internal devaluation, we surely expect to hear more on the micro-economics they are playing to pull costs down.
Local industry is also not serious when it comes to employee training and development. The survey established that only nine percent of manufacturing firms extensively invested in employee training and development. Yet, the survey also tells us that 18 percent of firms carried out new investments in capital.
How do you reconcile that folks? It means companies acquired new machinery and equipment but did not train employees how to operate them. Untrained employees often under-perform, make mistakes and waste resources, making them unproductive and inefficient.
Safety is also still proving to be an issue of particular concern in the manufacturing sector. About 35 percent of firms said they didn’t have safety and health plans, while 55 percent don’t have medical insurance for employees.
This explains why we have such a high Lost Time Injury Frequency Rate in Zimbabwe. Surely, not having a safety and health plan means workers don’t even know about the safety procedures to follow and just go by instinct.
It means some workplaces are death traps with accidents waiting to happen. Employers should know that safety improves quality, increases credibility and creates a strong employee base.
While the a manufacturers continue to concentrate their exports to South Africa, Mozambique and Zambia, they should also seriously consider diversifying to other markets with currencies that are appreciating.
The rand, for instance, has continued to fall this year, which reduces export returns. The meticais of Mozambique also fell heavily this year. The Malawian kwacha has also suffered the same fate, with only the Zambian kwacha gaining relatively.
All this is happening as Zimbabwe is supposed to launch a new National Trade Policy next year. It is hoped that industrialists will lobby for a policy that provides for more export incentives, identify new markets and capacitate producers with more information to empower them to export.
Our industrialists must seriously address areas in which they have been tried and found wanting by the 2016 Manufacturing Sector Survey.
Later folks!
