eBusiness Weekly
Michael Tome and Tapiwanashe Mangwiro
LOCAL industry players say capacity utilisation is likely to decline as we go into 2023 exacerbated by the prevailing power outages and the high bank policy rate which has undoubtedly grown to limit borrowings on part of companies.
According to the players, this is likely going to be compounded by the intensifying dollarisation of the economy which will certainly compromise industry’s competitiveness in face of imports that keep making their way into the country’s informal channels.
Companies, particularly in the manufacturing sector, have indicated that tight monetary policies introduced in the third quarter of 2022, have weakened aggregate demand and entity growth as liquidity constraints continue to manifest following the announcement of the prevailing policies.
In July this year, the Reserve Bank of Zimbabwe (RBZ) increased the bank policy rate to 200 percent from 80 percent accompanied by the introduction of gold coins as part of measures to curb bloating inflationary challenges.
This was not an isolated case to Zimbabwe as elevated global and regional inflationary pressures resulted in central banks across the world adopting various and aggressive monetary tightening strategies.
This was after Zimbabwe’s annual inflation in the third quarter closed at 280,4 percent which was an increase from June 2022’s 191, 6 percent.
Gold Coins were introduced to provide investors and the general public with alternative means to preserve value and hedge against the negative impact of renascent inflation while the 200 percent interest rate was a way of reducing money supply in the economy.
On the other hand, the power situation is likely to remain dire as the Zambezi River Authority (ZRA) recently announced that Zimbabwe had used more water than it had been allocated, necessitating the closure of the power plant until at least January 2023 to allow the dam to replenish. The Kariba power stations can, however, still generate a maximum 300MW per day.
This will definitely be detrimental to industry operations given the pricey cost of using diesel-powered generators which are the most used energy alternative.
On the back of all this, Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza projects that the industry’s capacity utilization will remain flat largely on the back of a stable exchange rate despite hindrances.
“We achieved a capacity utilisation of 56,25 percent last year and this year we expect it to remain the same or improve a bit as was seen in the third quarter,”
“We are not seeing as much traffic as we used to see in our shops and also the retailers themselves are not buying as much as they used to do hence the aggregate demand is very low,” he said.
Economist, Eddie Cross pointed that the intensifying dollarisation would dent the competitiveness of local produce and would have a ripple effect that will definitely affect the industry.
“One of the things worrying about the present situation is that industry has seen a decline in capacity utilisation and I put this down to dollarisation. When it happened in 2009 – 2010 we ended up with 95 percent of our goods being imported from neighbouring countries.
“People are starting to use the US dollar as a principal means of transactions in the domestic economy, mostly by default because the management of our own currency has been so bad, when that happens local industry becomes uncompetitive.
They simply can’t compete with neighboring states, if you look at situation that prevailed during the GNU while the economy was recovering quite strongly, the reality on the ground was that our local industry was losing ground and was not recovering,” said Mr Cross.
The forecasted decline in manufacturing industry growth is however coming at a time when there is increasing optimism in growth in some sectors of the economy this year particularly mining and tourism.
Mr Matsheza however reiterated that the obtaining power deficiency was undoubtedly going to hinder industry operations adding to limitations that have been brought about by the 200 percent interest rate.
“There are a number of issues that are pulling us back, firstly the power issue, those in production are not able to produce as much as they should, given the unreliability of power supply, which is adding to the 200 percent interest rate that has been hitting our operations,” said Mr Matsheza.
Economist Dr Prosper Chitambara said the interest rates are at the right level and Treasury is correct to say we need a sustained period of stability until we think of a rate cut. He however acknowledges that it will come with its consequences such as failure to meet growth targets. Financial and economic analyst Tafara Mtutu said, “It is likely that the country could slide into a recession as the high-interest rates mean companies cannot borrow to finance their operations as the money is deemed expensive. This will lead to companies scaling down their operations and leaving capacity utilization at risk.”
Dr Chitambara added that, “It is true that the tight monetary stance has strained aggregate demand in the economy and if sustained it will affect economic output growth in the long run. The tight monetary stance will exacerbate the already dire growth situation as we know growth is already going to be lower than it was last year.”
