The manufacturing sector received $1.2 billion in support from the Reserve Bank of Zimbabwe in 2018. Sadly, the sector only managed to generate $200 million out of that. Something must be wrong. It is clear that manufacturers are faced with a number of challenges which are leading to constrained production. In this article, we explore some of the most common challenges that affect the manufacturing sector in the country.
As the country continues to face economic challenges, raw materials are increasingly in short supply. Even if they are there, they are expensive. This means that manufacturers will have to sell products at higher, less competitive prices. That Zimbabwe is landlocked doesn’t help matters. Raw materials that are not locally available have to be shipped in and this may take time. As a result, production is delayed often. Government should go on a drive to support local production so that raw materials become available locally. This will go a long way in alleviating this challenge.
For manufacturers who rely on imported raw materials, forex challenges are a reality. The banks do not have foreign currency yet the parallel market which never runs dry is now illegal. Those with foreign shareholders find that they cannot pay their dividends. Companies like Nampak and Delta Corporation have come out lamenting how it is proving difficult to pay shareholder dividends and repay foreign loans. They now owe millions in unpaid funds although locally, they have enough money. Furthermore, intermittent beer and soft drink supply is a result of forex scarcity as Delta Corporation is failing to secure the forex to purchase raw materials. Currency issues have to be addressed once and for all and we certainly would want the RTGS$ to provide an answer for business. So far so good as it has lead to provision of forex at a discount.
Many manufacturers are failing to keep up with cheaper imports that are competing with their products. Local car manufacturers continue to struggle for survival with customers opting for cheaper second-hand vehicles which are imported from Japan and Singapore. Maybe now that duty on imported vehicles is now payable in forex, this will give local manufacturers a lifeline. We have also seen a lot of competition in the clothing industry where imported second hand clothes (mabhero) flooded the market and priced out local players. Competition is healthy; however, it remains government’s duty to protect local manufacturers. South Africa made a decision to ban importation of second-hand cars years ago so as to enhance local growth and this seems to have paid off. In Zimbabwe, imposition of duty on goods that are found locally has helped but this is not enough.
In Zimbabwe, power supply is erratic. Although this is much better now than it was a few years ago, it remains a challenge. Electricity is also expensive. Manufacturers who rely heavily on electricity to power their machinery are always the biggest losers. While some have invested in generators, fuel prices may mean that these are more expensive to run at the moment. Other sources of power need to be explored. Solar quickly comes to mind. This can be cheap and effective.
Although this is not unique to manufacturers, brain drain adversely affects production. Many years of economic decline have disillusioned many professionals who have opted to go and work abroad where salaries and conditions are better. Currently, an estimated 4 million Zimbabweans are living abroad. Some of these are people with the skills needed to drive our industries. Many companies are left to employ unqualified staff with little or no experience to perform optimally. This results in poor quality products being churned out into the market.
Access to credit is limited for most small-scale manufacturers. They do not have the required collateral so the banks will not offer them loans to grow their businesses. Consequently, they have to rely on old and dilapidated equipment and, as technology develops, they are left behind. The small companies will remain small or even close down and this is worrisome. Efforts by government to support manufacturers are still not enough as only those with the right political links seem to benefit from government programmes.
Zimbabwean manufacturers need to focus on finding solutions to the challenges that face them. Where government support can be accessed, they should take advantage of such opportunities. That way, manufacturing will be our economic anchor together with mining and agriculture. Government also needs play its part.