IN a recently published annual Manufacturing Sector Survey by the Confederation of Zimbabwe Industries (CZI), the manufacturing sector in Zimbabwe reflected a sluggish trend in output, despite more investment in expansion.
This has seen the sector’s foothold in Gross Domestic Product (GDP) contribution receding, thus raising alarm on the prospects of achieving economic growth by 2030, and what should or could be done. According to the survey, capacity utilisation in the manufacturing sector has sustained a negative trajectory to a second consecutive year, retreating from 56,3% in 2021 to 56,1% in 2022 before shedding off a further 2,9 percentage points in 2023 to 53,2%. Notably, the FMCG sector in the food industry remained relatively stable, a reflection of elasticity of demand amid inflation-induced low disposable incomes in the given period. The beverage manufacturers (your typical Delta and Varun), boasted of a higher-than-average capacity utilisation, at 61%. On the other hand, manufacturers in the materials industry suffered the worst recession or stagnation (relative to particular manufacturer), recording a circa 36% utilisation.
For reference, capacity utilisation in this context is basically the link between the output generated with the available resources and the potential production that could be produced if all capacity was employed in Zimbabwe on the overall.
On one hand, the capacity utilisation in Zimbabwe has followed a trend similar to the Elliot Wave since the beginning of the 21st century. In this trend, the index shows a bullish trend, which is always followed by a corresponding bearish streak.
However, on a 10-year trend analysis, Zimbabwe recorded its lowest capacity utilisation in 2015 at 34,3%, and a highest point record of 56,3% in 2021. This means at 53,2%, 2023 level is the third highest in a decade. The capacity utilisation trend over the years indicates a strong correlation to currency and policy developments over the years, which attributes the manufacturing performance largely to macro-economic factors. It is imperative to note that manufactures sometimes deliberately mitigate or rather not increase capacity utilization as a response to prevailing business cycle. If the business anticipates increased demand for its products, capacity utilisation can be increased, while the opposite is true.
Demographically, Zimbabwe local market is not poised for large scale manufacturing. Therefore, manufactures often consider viability of the export market before deciding to increase capacity utilisation. A number of factors have restricted Zimbabwe based manufactures from producing goods for the export market, hence depressing capacity utilisation levels.
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The currency and policy stability post dollarisation led to a sharp recovery of the manufacturing sector, reaching a high of 57,2% utilisation in 2011. However, any continued growth meant room to venture into export market for excess products. This was not viable due to the use of a currency stronger than currencies in destination countries. Resultantly, manufacturers had to cut-back on excess production to align with local market demand as local goods were too expensive for the export market. Fast-forward, the introduction of another local currency, which was too weak meant competitive pricing on the export market and less competition from imports that were now deemed expensive. Consumption of locally produced goods started picking up in 2019 and has been exponentially growing.
However, local manufacturers have suffered from lack of foreign currency from both the central bank and exports, with remittances into Zimbabwe outweighing export receipts due to less competitive quality of local goods. In a bid to improve the quality to international standards, manufactures require substantial foreign currency to replenish machinery and expand operations, which is deterred by scarce foreign currency. Due to receding manufacturing activities, contribution to GDP has fallen by almost 1-fold since the 20th century, from a high of 25% to a circa 14%. Meanwhile, trading (wholesale and retail) activities have since taken dominance on GDP contribution, which reflects the substantial foothold held by imports on local shelves.
- Duma is a financial analyst and accountant at Equity Axis, a leading media and financial research firm in Zimbabwe. — twdumah@gmail.com or tinashed@equityaxis.com, Twitter: TWDuma_