A boost for industry

Last week’s launch of a US$300m fund to support local manufacturers is a major boost for local companies that have struggled to access funding for their operations.

South African-based financial services concern Loita Capital Partners, in partnership with the Confederation of Zimbabwe Industries, unveiled the facility during the industrialist body’s annual congress for manufacturers to access funding for imports and for capital expenditure.

The facility is split into two: US$200m for supply chain financing and US$100m in value chain needs.

The local manufacturers were affected by supply chain disruptions caused by the Covid-19 pandemic and the Russia-Ukraine war.

They have also been affected by the legacy debts owed to foreign suppliers. The debts, amounting to about US$3.8bn were incurred following the introduction of the local currency in 2019.

The central bank directed firms to transfer balances at 1:1 to the apex bank.

Manufacturers are struggling to access raw materials as suppliers demand cash upfront due to the blocked funds.

This means manufacturers have to operate on cash business, an uphill assignment, especially with the obtaining liquidity squeeze.

The underperformance of the foreign currency auction system has escalated the need to look for foreign currency elsewhere. The auction, which was introduced in 2020 as a price discovery mechanism, has been reduced as an allocative platform and is allotting less than US$20m per week, which is inadequate to meet the needs of local manufacturers.

In addition, the central bank has in the past struggled to make available the foreign currency allotted at the platform, incurring a backlog of about 10 weeks.

The emphasis on value chain needs is critical at a time the government is expediting the domestication of raw materials in the value chains to increase local goods’ competitiveness as it lowers the production costs.

This will also reduce reliance on raw materials imports.

Finance and Economic Development minister Mthuli Ncube told a CZI congress the government was considering the “localisation of the raw materials to ensure raw materials are produced at relatively low prices”.

This would be the first step towards removing high costs, he said, adding that more tax rebates and Value Added Tax deferment would be availed to the manufacturing, mining, tourism, agriculture, transport, energy and health sectors to lower production costs.

The facility comes as manufacturers have been struggling to access patient capital for retooling as local banks are offering short funding, which caters for working capital.

The absence of long term funding has held back plans by the sector to retool and become competitive and able to tap into the large market created by the African Continental Free Trade Area (AfCFTA).

The obsolete equipment has resulted in breakdowns, which becomes a cost to business.

Obsolete equipment means that there is no efficiency in production thereby increasing the cost of doing business.

Resultantly, local products are not competitive. The Loita facility comes at an opportune time for manufacturers as they seek to plough into the uncharted territories