Manufacturing sector shrinks

Zimbabwe's manufacturing sector is in a pattern of steady decline as a result of acute shortages of fuel, electricity and local and foreign currency over the past three years. A Confederation of Zimbabwe Industries (CZI) report, "The State Of Zimbabwe's Manufacturing Sector in 2002" noted that the sector continued to record falling turnovers. "The Zimbabwean economy is currently in its fifth year of recession, with no signs of recovery. The causes of the crisis are complex, as they have economic, political and social dimensions. Unemployment is currently estimated at a historic high of over 70 percent, while year-on-year inflation for the month of June rose to 364.5 percent. These problems have negatively affected the operations of the manufacturing sector," the report said. Zimbabwe's manufacturing sector has historically played an important role in the economy. "The sector contributes significantly to gross national output, export earnings and employment. It is well diversified and has strong linkages with other sectors of the economy, particularly agriculture, mining and construction," the CZI study observed. The latest survey was undertaken on behalf of CZI with the aim of updating data from studies conducted in 2000 and 2001. The results "indicate that the problems currently facing the economy have negatively affected the operations of the manufacturing sector, resulting in reduced output, company closures and retrenchments," the CZI noted. Among other things, the study found that: there was a pronounced slowdown in productivity; the increase in output was only marginal (0.7 percent); the survey companies had an average capacity utilisation rate of 60 percent; and, in real terms, investment in manufacturing had plunged by more than half in 2002. "The manufacturing sector is exporting less and less. In 2001, export values as a percentage of turnover fell by 17 percent. In 2002 the companies registered the same average decline," the study found. "With the slowdown in manufacturing activity alluded to above, it is not surprising that employment in the survey companies dropped by 16 percent in 2002. The cost of labour, on the other hand, has remained above the 1995-96 levels," the report said. Chief among the factors constraining growth in the manufacturing sector were inflation, price controls, and shortages of currency and fuel. In light of these constraints it was recommended that the exchange rate policy be reviewed, and foreign currency availability be improved. The report also called for the removal of controls on prices and the exchange rate. "There is need to allow free play of market forces for non-basic goods. For basic goods the entire supply chain needs to be controlled. Controls must also be weighed against industry viability, and recourse to them should be made as a short-term measure," the report added. It was noted that inflation had to be addressed "as a matter of urgency" and fuel supply should be improved. Government also needed to "have a clear and dependable interest rate policy", the report concluded.