CAPACITY utilisation in the manufacturing sector is expected to further plunge this year as the economy takes a knock due to political uncertainty and limited lines of credit, the Confederation of Zimbabwe Industries (CZI) has warned.
By Victoria Mtomba,Business Reporter
Already, Finance minister Tendai Biti has said the economy could have lost up to 3% of its size in the first four months of the year triggered by lack of clarity on the country’s electoral processes.
CZI, the country’s industrial lobby group, said the extent to which a business is using its production potential will take a slump due to a myriad of problems confronting the economy.
A comprehensive study of the manufacturing sector performance is expected in August.
In an interview recently, CZI president Kumbirayi Katsande said Zimbabwe’s economy shrunk in the first five months of the year mainly due to de-industrialisation in Bulawayo, once the country’s industrial hub.
“My expectation in capacity utilisation is not likely to be higher than last year. There are sectors where capacity utilisation has gone high due to new products, but we are importing more as the local economy is collapsing,” Katsande said.
In 2012 capacity utilisation for the first time since the formation of the inclusive government in 2009 plunged to 44,2% from 57,2% in 2011.
The economy in the past five years has failed to meet the targeted 60% capacity utilisation.
Katsande said low inflation figures and the multiple currency regime adopted at the formation of the coalition government had created an illusion of economic growth.
“We are slow to introduce corrective measures. We have this illusion offered by the hard currency. Inflation is low yet the economy is shrinking. Since the US dollar is here for a long time, we need to understand what that means. Our thinking was modelled to local currency,” Katsande said.
He added that in this environment, businesses should start to try to get the basics right as the environment is difficult.
“Business is flat, profits are going down. In this environment let’s get the basics right because to go for profit maximisation in this hostile environment is very difficult.”
Katsande said in this environment, companies were faced with many difficulties that included water and power problems.
The sector is also facing viability problems due to lack of working capital and obsolete machinery.
The sector witnessed company closures with nearly 90 folding in the past four years nationwide due to viability problems, which means a major decline in tax revenue to government coffers.
Katsande said Zimbabwe’s economic growth slowed down in 2011 due to political uncertainty and policy inconsistency following indigenisation and empowerment regulations compelling foreign-owned companies operating in the country to sell controlling stakes to locals.