THE revival of the manufacturing sector in Zimbabwe is premised on improving the business operating environment, reducing the cost of doing business and adjusting business models to be consistent with the dynamic competitive global environment, experts have said.
Industry in Zimbabwe is in a quandary after capacity utilisation plunged to 39,6% from 44% recorded last year.
But experts say despite the plethora of challenges in the economy, the manufacturing sector has enormous potential to recover provided there is a paradigm shift in policy implementation to create a business-friendly environment attracting foreign direct investment (FDI), especially in the sectors of power generation.
Zimbabwe Economic Policy Analysis and Research Unit (Zeparu) executive director Gibson Chigumira said the synchronisation of government policy with investment decisions of the manufacturing sector is critical if the country was to remain competitive in attracting investment and subsequently creating a positive cycle in the recovery of industry.
“Policy initiatives should be business-friendly,” Chigumira said.
“There is need to explore issues of policy and capability development necessary for the country to achieve manufacturing sector competitiveness within the region and globally.”
Zimbabwe has one of the most uncompetitive business environments and is ranked among the worst in terms of ease of doing business.
The country also remains unattractive to international financing largely due to a huge external debt estimated at close to $11 billion.
This has resulted in the unavailability of long-term cheap financing with the available short-term loans being expensive.
Reserve Bank of Zimbabwe (RBZ) Deputy Governor Charity Dhliwayo said there was need for the country to reduce its ballooning import bill to improve liquidity, adding that this was, however, dependent on the revival of the manufacturing and agriculture sectors.
Dhliwayo said RBZ was working on creating an international financial hub to attract foreign capital inflows anticipated at improving industry financing.
She said an international financial hub would ensure low and simple taxation policies, rule of law and a fair market and as such, reduce entry barriers to foreign investors.
According to Dhliwayo, an international financial hub would also fine-tune payment clearing and settlement systems to facilitate the safe and efficient conduct of international and cross-border financial activities, which are also expected to improve the country’s liquidity.
Failure by industry to attract foreign capital has also been attributed to the indigenisation law, which calls for foreign-owned firms to cede 51% of their shareholding to locals.
Commenting on the issue, economic analyst Eric Bloch said as much as the indigenisation policy was a positive move towards empowering locals, there was need for the government to revise the law to ensure flexibity in its implementation.
“The indigenisation law must be modified to attract FDI as the government has no money to finance the recapitalisation of industry,” Bloch said in his presentation at a Confederation of Zimbabwe Industries congress.
Bloch said industry recovery in Zimbabwe could only be financed by FDI as the government is cash-strapped to fund such projects.
According to Bloch, the industry needs an estimated $700 million in the short-term.
Commenting on improving the business environment, Bloch said repressive tax and labour laws also need revision.
He said the country’s restrictive labour laws, coupled with high minimum wages are unsustainable and uncompetitive compared to other countries in the region and as such, would hamper industry recapitalisation.
“The use of the US dollar in Zimbabwe provided incentives for dumping of goods from other countries by foreign entrepreneurs to get the elusive foreign currency and the government must intervene to protect local companies,” Chigumira said.
He said the government must come up with a deliberate policy to incentivise the manufacturing sector, while an industry protection policy from unfair trade practices must be implemented.