eBusiness Weekly
Tawanda Musarurwa
Dr Howard Nicholas, Associate Professor at the Institute of Social Studies (ISS), Erasmus University of Rotterdam, recently told a Zimbabwe Association of Pension Funds (ZAPF) meeting that pension funds would do well to include manufacturing in their investment portfolio as it is the key driver of global economic growth.
“Pension funds should seriously consider investing in the manufacturing sector because it currently underpins the global economy. And all countries are locked into the global economy,” he said.
“The global economic system is driven by global output, and global output is driven by global manufacturing. Currently China drives global manufacturing and therefore global cycles.”
According to Nicholas, manufacturing is vital to any economy insofar as it allows increasing diversification of production; it means that more products can be brought onto the market, compared to agricultural production, for example, whose expansion and diversification is limited.
The Confederation of Zimbabwe Industries (CZI) has identified the current lack of affordable long-term financing as a major constraint among its members that has been inhibiting manufacturing output.
The unavailability of cheaper and long term funding, needed for refurbishing run down machines as well as for boosting production for expansion purposes has contributed to weakening capacity utilisation in the sector, which currently ranges at about 36,4 percent (according CZI’s 2019 estimates), and could decline further for 2020 due to the impact of the Covid-19 pandemic.
And from another perspective, the local manufacturing sector has over the years seen a proliferation of new indigenous players coming in, however, these have struggled to access working capital as a result of their size.
This is where local pension funds can come in.
The pensions industry is fundamentally underpinned by the principle of investment, as players in the sector are naturally inclined to ensure that accumulated monies give out the best returns at the de-accumulation or pay-out stage.
Insofar as this is the case, there is perhaps no other single economic sector that has high efficacy levels in investment, that has, and can significantly contribute to the economy.
But traditionally, local pension funds have largely invested in properties and equities. Focusing on creating a manufacturing investment portfolio would constitute a major shift from this trend.
But its doable.
According to National Independent Investments Company director for financial markets and investments, Dr Khumbulani Mhlope, local pension funds should look beyond the stock market when planning to invest in companies.
“It’s important for pension funds to look at both listed and unlisted companies. The ZSE has good companies, but we are a small-to-medium enterprise dominated economy,” he said.
“Funds can help small-to-medium enterprises (SMEs) grow into entities that can significantly contribute to economic growth. It doesn’t matter that a company is not listed, what matters is that an entity should have solid systems.”
In a 2011 paper titled ‘Positioning Zimbabwe Manufacturing Sector as a Growth Driver’, the Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) noted as much:
“The Taiwanese successful story was hinged on the manner in which the SMEs sector was harnessed into the production process.
“The SMEs sector’s importance in the overall economic development thrust was recognised at the early stages and efforts were made to ensure that the sector also benefits from key incentives targeting the manufacturing sector,” said ZEPARU.
“It was thus not surprising that they contributed significantly to the overall export earnings. In the same manner, the Zimbabwe SMEs sector can also be used as a platform for the growth of the manufacturing sector.”
