The ManicaPost
Kudzanai Gerede: Business Correspondent
Capacity utilisation in the local manufacturing sector has steadily increased to 47.4 percent in 2016 from 34.3 percent recorded last year as market space for selected local products improved following Government introduction of Statutory Instrument 64 meant to restrict competition from imported goods, a latest survey shows.This is however dented by the fact that overall sector confidence remained very low due to biting operational challenges resulting in 24 percent of companies retrenching permanent employees during the course of the year, while 26 percent changed working hours mainly because of a decrease in aggregate demand lowering workload.
This has raised the red flag for possible company closures. This came out in the Confederation of Zimbabwe Industries (CZI) Manufacturing Sector Survey for 2016 launched last week in Harare.
Analysts say the discord between improved capacity utilisation and overall decline in business viability shows that only a few companies have managed to reap the benefits of SI 64 yet the majority of firms have struggled to recapitalise and take advantage of the instrument.
This conclusion can be substantiated by the fact that only 20.7 percent of respondents viewed SI 64 as positive. Capacity utilisation for manufacturing firms in Harare stood at 48.3 percent, Midlands 44.33 percent, Manicaland 43 percent and Bulawayo at 33.3 percent.
Sectors with products under SI 64 fared fairly, with wood and furniture sector operating at 57.8 percent, tobacco and beverages at 52.4 percent, printing and packaging at 52.9, metallic mineral products at 57.5 percent and foodstuffs at 56.1 percent.
On a more positive note, about eight percent of respondents operated at 100 percent capacity considering the current macroeconomic environment.
“This is a very positive development largely resulting from the moves on the part of Government to protect local industry and the import priority list,” CZI senior economist Dephine Mazambani-Mutafera said while presenting the results of the survey.
The survey however revealed some of the darker side to the local manufacturing sector which analysts described as a worrisome particularly with regards to the quality of capacity in the sector.
It was noted that most of the country’s machinery is antiquated hence full capacity utilization on antiquated equipment did not resonate with expectations derived from the given figures – raising inefficiency, poor product quality and weaker competitiveness fears.
The survey showed that only 18 percent of respondents spent on new investment in capital. Of the proportion that made capital investment, 83 percent invested in machinery and equipment with the aim to expand their operations.
For instance, machinery acquired 20 years ago and above constitutes 70 percent of all machinery in the Midlands province, 50 percent in Bulawayo, 47 percent in Manicaland and 15 percent in Harare.
In contrast, machinery acquired this year is at 9 percent in Harare, 7 percent in Manicaland, 6 percent in Bulawayo and insignificant in the Midlands province. Analysts note that lack of new equipment may suggest the reason most companies have not fully utilised Government policy interventions such as SI 64.
Confidence in the sector remains depressed as most respondents viewed the operational environment and policy inconsistency as hostile to business highlighting corruption and access to finance as other major stumbling blocks.
“At the same time is in notable that only 20, 7 percent of respondents viewed SI 64 as positive. “This seems to indicate that the overriding concern of industrialists is the uncertain macro-economic environment,” Mazambani- Mutafera said.
The survey also showed that viability was also a major concern for manufacturers attributing this to continuing uneven competition from cheap imports and low aggregate demand on the market.
60 percent of respondents said viability challenges remain unimproved, 36 percent viewing viability of products having deteriorated whilst only 4 percent believe it have improved.
Economic analyst Mr Kipson Gundani said improvement in capacity utilisation is a positive step for an economy operating under a bare-thread environment but implored on Government to quickly address issues of high costs in the local economy in order to combat low aggregate demand through price competitiveness.
“One of the major demerits of the SI 64 is that it has created room for local producers of goods to occupy market spaces albeit with higher prices as they encounter higher production cost and prices have fallen beyond the reach of the consuming public.
“This is further downplayed by the fact that the general macro-economic environment is tight, particularly the cash shortages being experienced entails that aggregate demand is bound to fall then business viability suffers,” he said.
