Manufacturing industry  feeling the heat

CLOUDINE MATOLA AND TENDAIISHE NYAMUKUNDA

Companies in the manufacturing sector are feeling the heat of mounting economic headwinds  and highly regulated environment amid fears many would soon shut down operations , expanding the corporate graveyard, Business Times can report.

The sector, which has seen capacity utilisation utilisation fell by 2.9 percent points to 53.2% in 2023 from 56.1% the previous year, primarily as a result of economic headwinds and highly regulated environment, the Confederation of Zimbabwe Industries (CZI) report shows.

The country’s largest business lobby group’s chief economist, Dr Cornelius Dube, said manufacturers were battling forex shortages, crippling power crisis, exchange rate volatility and currency crisis, among many other headwinds.

“Capacity utilisation, which measures roughly how productive a factory is, is down to 53.2% in 2023 from 56.1% in 2022 and 56.3% in 2021,” Dr Dube said.

He said disclosed that manufacturers’ contribution to GDP fell to 9% in 2023 from 14.8% in 2018.

“In 2018, the manufacturing sector’s contribution to GDP was 14.8%. It has since fallen to just 9% in 2023. This is about half of what manufacturing was contributing to GDP in the 1980s and 1990s. Between 1980 and 1989, manufacturing contributed 23% to GDP on average,” he said.

Dr Dube said companies are being burden by compliance burden because 17.9% of their overheads goes to compliance fees.

“Small companies pay 21.3% of their total overheads, medium firms pay 17.4% of their total overheads and large companies pay 14.5%,” he said.

He added that 52% of the total raw materials are imported and this is putting pressure on the foreign currency demand.

“Non-metallic mineral products import 24% of their raw materials, wood and wood products 25% of their raw materials is imported, pharmaceuticals import 87% of their raw materials, printing 73% of raw materials is imported, wearing apparel imports 70%, on rubber and plastics 67% of their raw materials is imported leather companies import 63% of their raw materials and chemicals, paper and paper products imports 62% of their raw materials and chemical products imports 54%,” he said.

An industrialist who requested to remain anonymous  told Business Times yesterday that the  manufacturing sector has  also been  severely  impacted by power outages, which have caused production disruptions for many companies.

The industrialist added that certain businesses are experiencing foreign exchange shortages, which are having an impact on operations. The majority of businesses import raw materials, and as a result of the currency scarcity, output declines.

Additionally, the players in the manufacturing sector which have the lowest non-performing loans—roughly 1%—have voiced concerns about banks’ unwillingness to lend to them.

According to the CZI the manufacturing sector has the least non-performing loans at around 1% ,but banks are not providing loans to them despite firms repaying the little they are given.

“The claim that manufacturers are the source of non-performing loans are not based on fact (<1%)

However ,banks are saying the manufacturing sector is the slightly favoured sector because it contribute 11%on the sectoral   Gross Domestic Product(GDP).

Lawrence Nyazema the Group CEO for CBZ Holdings said: “Manufacturing contributes 11% but get 13% of the loans which means it’s slightly favoured compared to other sectors,

“Low NPLs are a factor in lending it is important that the financial services sector support the entire economy.”

He added:”Agriculture generally has high NPLs due to climate change, unfavourable market conditions, low productivity among other factors but we cannot stop supporting it as there’s need to feed the nation. You will find that most of our manufacturing adds value to agriculture produce hence the need to support the primary sector in order for the secondary to get raw materials.”

 Fanwell Mutogo the  CEO of  the Bankers  Association of Zimbabwe (BAZ) concurred saying:”It is important to note that access to credit is contingent upon several factors that banks typically take into account,

” These factors play a crucial role in determining loan eligibility and terms. Customer risk profile is a primary consideration in the lending decision. Banks also evaluate the business’s financial health, cash flow, and growth potential. A solid business plan enhances credibility. The liquidity of the market at the time of the loan application also plays a crucial role.”