The latest Confederation of Zimbabwe Industries (CZI) report showed that capacity utilisation was up to 47% last year from 36.4% in 2019 bucking the trend in a tough year in which companies had to wade through the Covid-19 induced disruptions.
The industrialists’ body attributed the growth in capacity utilisation to improved foreign currency availability, increased sales and retooling.
Of the performance constraints in 2020, foreign currency shortages and inflation contributed 28% apiece while Covid-19 restriction accounted for
27%. There was a marked improvement in foreign currency availability following the introduction of the forex auction system in June. In 2019, foreign currency shortages accounted for 31%.
As of February 2021, more than 70% of total foreign currency allotted had gone towards the importation of raw materials, machinery and equipment.
The retooling saw machinery breakdown accounting for 2% of the performance constraints last year from 6% in 2019.
The jump in capacity utilisation was unexpected given the disruptions caused by the pandemic which triggered closure of borders and lockdown measures as the government moved to contain the spread of the virus.
The supply of raw materials was affected and companies had to improvise taking an inward looking approach to rescue the situation.
The Covid-19 pandemic has further forced many companies to revisit their supply chain plans designed to reduce the over-reliance on foreign
manufacturing and stretched supply chains across the globe. This necessitated the need to better understand the capability of local suppliers.
Gone are the days of ignoring a neighbour on the basis of cost in favour of a foreign supplier.
The local supplier is easily accessible; the transport costs lower and this dovetails with the government’s local content policy.
The import substitution push has seen a reduction in the import bill. A number of companies such as Nestle Zimbabwe have come up with a new model in which the business’ foreign currency requirements have been reduced to 20% from over 85%.
This has seen the food and beverages manufacturer with the latitude to supply serve the domestic and export markets.
This inward looking push should be the anchor of the growth in capacity utilisation in addition to availability of foreign currency from the auction system.
CZI has projected capacity utilisation to increase to 61% this year and this requires policy consistency, currency and exchange rate stability, inflation
reduction, export promotion, buying local and an aggressive vaccination programme.
The push for local supplies means the firms have to be agile and efficient to meet the growing demand. In addition, the enablers—water and electricity— have to be available 24/7 for the local firms to meet the growing demand.
This creates more jobs and can boost exports thereby generating foreign currency from the economy.
CZI recommends the development of strong industrial linkages and value chains and focus on the domestic market penetration then exports.
It calls for import substitution by producing its own maize, wheat and soyabeans to save foreign.
Industry and the government are on the same page on what needs to be done. Covid-19 reinforced the need to adopt an inward looking approach. It is the only way out for local industries.