The Sunday Mail
Herbert Zharare Assistant Business Editor
When the business sector says Bulawayo is the country’s industrial hub, the generation of today might fail to appreciate the true meaning of the statement.
Proprietors of many businesses as recent as 2000 used to flock to Bulawayo for heavy equipment, plant and equipment repairs and machining.
The major railway line linking port cities in South Africa and major markets up north of Africa, coincidentally passes through Bulawayo, making serious economic sense for Zimbabwe’s second capital to be the nerve centre for national economic growth.
When visiting Bulawayo today, the size of factory shells there bears testimony that indeed, the city used to house some of the biggest industries in the country, if not in the Sadc region.
The situation in Bulawayo is a replica of what is obtaining in most towns and cities in the country – huge mining and industrial premises that have been abandoned over the last two decades or more.
As the country targets a new economic order to come from reforms of the new administration headed by President Emmerson Dambudzo Mnangagwa, debate has been rekindled on what kind of investment is needed to retool the country’s industries and make them work again.
There are some manufacturing companies such as the Zimbabwe Iron and Steel Company (Ziscosteel), whose blast furnaces have long collapsed and need billions to revive. In the manufacturing cluster, many firms have been using equipment imported from Britain over four decades ago and has become antiquated. The equipment needs total overhaul.
However, in the wake of an impending economic boom buoyed by huge foreign market confidence that is gradually building, will these companies produce products that compete favourably locally and abroad?
That is the biggest dilemma many companies face today, whether to upgrade the old machinery they have or to dismantle it and start afresh for them to be competitive.
Recently, the Confederation of Zimbabwe Industries said Zimbabwe’s manufacturing sector require about US$8 billion for working capital and equipment upgrades to arrest a downward spiral in capacity utilisation and collapse of firms due to viability challenges.
Statistics
But the biggest headache any economic analyst face when unpacking this subject is of securing correct statistics to use to back his or her line of thought. Some private players argue that when the country started facing economic challenges, companies closed shop and relocated to other countries while others went under.
The correct statistics of firms that closed and those that relocated are yet to be officially made public and many have been speculating.
But as the country under the leadership of President Mnangagwa battles to mend the economy characterised by disinvestment, there are some companies that should close shop for good unless the owners are prepared to adopt new business models, invest in new technologies and start afresh.
Confederation of Zimbabwe Industries president Mr Sifelani Jabangwe shared the same sentiments saying some companies had already invested in new equipment in 2009 when the country introduced multiple currencies.
He said there was a need for President Mnangagwa to continue with his pro-industrial production trajectory supporting the industry, the majority of which has reached 47 percent capacity utilisation since dollarisation of the economy.
“At the moment most companies are operating at 45 percent capacity utilisation and cannot compete with firms that are operating at 75 percent. Their cost per unit will be very low compared to those operating at 45 percent. Government needs to nurture these companies until they reach 55 or 65 percent capacity utilisation before opening them to com- petition.
“Most companies are at infancy stage after they started retooling in 2009. We expect the Government to continue addressing the other key economic fundamentals. If you increase capacity, production cost comes down and this will enable the firms to invest in additional capacity in future,” said Mr Jabangwe.
He said it is prudent for companies to invest in latest equipment for a period of between five to 10 years, adding a number of companies have invested in automation of the industrial processes.
Inasmuch as protectionist policies might discourage innovation and advanced entrepreneurship among firms, surely some Zimbabwean companies still need nurturing given the hard times the majority of them experienced for the past 10 or 15 years.
Economist Dr Tapiwa Mashakada concurred that most of the companies have dilapidated machinery, adding that there is a need for re-engineering.
“Most of the equipment in our industries need re-engineering. There is a need for companies to invest in digital technologies and do away with the manual systems the majority of them still have.
“Even if you look at the textile sector, they have gone digital – they have computerised their production system. We need to revamp everything and migrate to ICTs,” he said.
But the biggest challenge is where will the capital running into billions come from?
Dr Mashakada, however, suggested that the retooling of the industries could be achieved through a sustained funding of the industrial sector by Government, supported by some financial institutions.
Said Dr Mashakada: “There is a need for the Government to work together with banks such as Afreximbank to fund the retooling exercise but this should be linked to the export sector,” he said.
Presenting the 2018 Budget last week, Finance and Economic Planning Minister Patrick Chinamasa said Government has already adopted a new paradigm shift of reviewing previous polices that stifled Foreign Direct Investment.
Indigenisation and Economic Empowerment Act
Argued Mr Chinamasa: “Government is, through the Finance Bill being submitted to this august House for the 2018 financial year, amending the Indigenisation and Empowerment Act, to bring the following into effect from April 2018.”
Diamonds and platinum
In the extractive sector, the minister proposed that diamonds and platinum are the only sub-sectors designated as “extractive”.
“Accordingly, the proposed amendments will confine the 51/49 indigenisation threshold to only the two minerals, namely diamonds and platinum, in the extractive sector.
“The 51/49 threshold will not apply to the rest of the extractive sector, nor will it apply to the other sectors of the economy, which will be open to any investor regardless of nationality,” he proposed.
Under empowerment laws promulgated under the new economic order, some issues of interest included the reserved sector, which is only for Zimbabwean citizens, and for non-Zimbabweans, entry into the sector will only be by special dispensation granted by Government.
The approval will only be granted if it’s generally agreed it creates employment, affords the opportunity for the transfers of skills and technology for the benefit of the people of Zimbabwe, promotes the creation of sustainable value chains and meets the prescribed socially and economically desirable objectives.
Noted Mr Chinamasa: “As we seek to attract both local and foreign investments, existing and potential investors become fully guided by the amendments we seek to effect through the Finance Bill that is being brought to this august House.
“Those already in the reserved sector, except gold panning, will be required to register and comply with our laws.”
It is these and among other policies that investors will be keen to see their implementation to ensure a sustainable economic investment environment where they know they can recoup returns on their investment.
Ease of doing business reforms
The minister noted Zimbabwe’s ranking with regards to the ease of doing business remains unacceptably poor, with its ranking only moving from 161 out of 190 countries in 2016 to 159 in 2017.
Government is, therefore, seized with the need to implement a much broader array of ease of doing business reforms. President Mnangagwa has pronounced his position on this issue. Hence, Government’s thrust should be to make ease of doing business reforms more practical and administratively accessible for actual day-to-day transaction processes to the ordinary Zimbabwean and foreigner intending to undertake business or investment.
To prevent the errors of yesterday, monitoring and evaluation mechanisms need to be put in place to ensure consistency.
