HARARE: Zimbabwe’s manufacturing sector has been buckling under the pressure of a challenging operating environment for more than a decade compromising most surviving companies’ export performance. After almost two decades of economic difficulties, the majority of Zimbabwean companies have suffered, with most closing shop while the remaining few operate at just 30 percent capacity utilisation.
The closure of firms, particularly in the manufacturing sector, has been an albatross for Zimbabwean exports. Most of these closures resulted from the unreliable supply and high cost of factory inputs, the liquidity crunch, and unpredictable domestic demand.
In his 2015 budget presentation, Finance and Economic Development Minister Patrick Chinamasa said about 4 600 firms had ceased operations since 2011, leading to the redundancy of some 55 400 workers. The situation was exacerbated by stiff competition from cheap Chinese and South African products that have established a stranglehold on the country’s markets, making local products uncompetitive.
This resulted in the widening of the country’s trade deficit, as Zimbabweans opted to import most basic goods that proved cheaper than local products, raising the import bill to unsustainable levels. According to Zimtrade, total exports in 2015 stood at US$2.7 billion, registering a 13 percent decline from the previous year’s figure of US$3 billion.
Manufactured exports were about US$475.2 million, having declined by about 7 percent compared to 2014. “This is a worrisome trend at a time when exports should be the main driver for economic growth,” the trade promotion agency said. Statistics show that in 2015, about 52 percent of local exporting firms were buckling under pressure from foreign companies, which receive various incentives and support from their governments to reduce the cost of exporting.
One of the main reasons for the decline in export performance is that minerals, which constitute the bulk of Zimbabwe’s exports, have been affected by the falling international commodity prices.
Value-added (manufactured) exports, which normally fetch higher earnings, also did not perform well during the same period. An analysis by Zimtrade of seven representative manufacturing subsectors namely: clothing; furniture; food; beverages; engineering; leather and footwear as well as agricultural inputs shows that these subsectors constituted about 10 percent of total exports in 2015, down from 13 percent in 2014.
The leather and footwear subsector registered the highest decline of 71 percent from US$40 million in 2014 to about US$12 million last year. Horticulture registered 43 percent decline to US25 million, while the furniture subsector recorded a decline of 42 percent. Engineering products were 40 percent down from US$55 million to US$33 million in 2015 and agricultural inputs were down 17 percent to US$19 million from US$23 million in 2014.
Processed foods remained the dominant sub-sector in 2015, constituting about 32 percent of manufactured exports at US$153 million from US$210 million in the previous year. The sub-sector’s exports also constituted about 6 percent of total exports, having declined from about 7 percent in 2014. On a positive note, the clothing sub-sector registered an increase in exports to US$10 million from US$6 million and the beverages sub-sector went up 13 percent to about US$9 million in 2015 from US$8 million.
“While this is a positive development, it is still far below Zimbabwe’s potential. The above performance is a reflection of the difficult environment that Zimbabwean manufacturing companies are operating in,” Zimtrade said. “There is, therefore, an urgent need for Zimbabwe to address trade facilitation issues and implement reforms if we are to realise an export-led economic growth.”
Analysts say Zimbabwe is failing to generate reasonable export earnings due to competitive issues arising from the use of a multi-currency regime. They say while the introduction of the multi-currency regime in 2009 was lauded as positive, the system has brought with it some challenges of its own.
Most goods in the southern African country are priced in the US dollar, making the country a lucrative market for South African finished products which land in Zimbabwe cheaply. Locally produced goods have then become very uncompetitive in terms of pricing compared to regional counterparts, as the effects of the strengthening dollar continue to be felt globally.
Zimbabwe’s export revenue figures are roughly half of Namibia’s and about one-third of Zambia’s and the ratio of exports to GDP is at 29.5 percent, which again is low in comparison to several Sub-Saharan counterparts such as Angola, which is at 55.8 percent, Botswana at 55.1 percent, Congo Republic 76.5 percent, Ghana 42.2 percent, Swaziland 56.3 percent and Zambia 41.9 percent.