Industry has lost competitive edge

By Daniel Chigundu

ZIMBABWE’S manufacturing sector which is operating at 40 percent capacity utilization owing to a plethora of challenges has been urged to focus on areas in which it still has competitive advantage than in manufacturing.

Problems weighing down production in industries include unreliable but expensive power and water supply, aged equipment and skills flight.

In its weekly market watch leading economic analysts Tetrad Holdings Limited highlighted that one of the major challenges that has made life difficult for local companies is the issue of high production cost against low revenues in the economy.

“Realigning business models has been another game-changer with most manufacturers turning to retailing. Examples that come in mind include Powerspeed, PG Industries just to name a few. Our view is that Zimbabwe no longer has the competitive edge on the manufacturing sector and this is the reason why we are a net importer of both basic and capital goods.

“We do not see the trend changing anytime soon even if one factor in the protectionist measures being implemented as our overall production cost remains high relative to our peers. Our view is that Zimbabwe should focus on areas where it has competitive advantage for instance in tobacco farming with the manufacturing sector playing a part in value addition rather than actual production of goods.

“We concur with the recent view from the Ministry of Finance that the five percent GDP growth might be an uphill task as most key sectors are struggling,” said Tetrad in a report.

 Two weeks ago the Confederation of Zimbabwe Industries (CZI) revealed that capacity utilization in the first quarter of the year dropped to 40 percent from 47 percent registered in the last quarter of 2012.

 Tetrad said the decline in the capacity utilization of the manufacturing sector is a cause for worry as it is slowly reversing the gains achieved since the inception of the multi-currency regime in 2009.

“The saddening bit about this data is that it comes in the wake of 2012’s capacity utilization plunge to 44.2 percent from 57.2 percent in 2011. Liquidity challenges according to CZI remained the major cause of the decline and we expect the trend to persist as the Ministry of Finance in its first quarter report publicly accepted that the liquidity challenge was now more real than ever before,” said Tetrad.

In trying to arrest challenges currently dogging the manufacturing sector CZI proposed cost cutting initiatives and realigning of business focus and already these measures have been credited for helping some corporates in improving their profitability since dollarization whilst those that are yet to rationalize their operations are still reeling in losses.

Tetrad however believes cost cutting is not an end in itself arguing that cost reduction can only be implemented to a certain level.

“Our view is that for most corporates costs have been reduced but the major issue now relates to tackling the slow or declining revenues. Thus cost cutting on its own will not go a long way in resuscitating the sector as the depressed economic activity is leading to low revenues. More so most costs in the manufacturing sector are fixed costs hence nothing much can be done,” Tetrad said