Victoria Ruzvidzo In Focus
The announcement of a decline in the manufacturing sector capacity utilisation had the potential to dampen market sentiment, but the Reserve bank of Zimbabwe Governor Dr John Mangudya interjected and made an interesting observation.
“But then I was asking myself should we be measuring capacity utilisation or growth of an economy. Where I come from throughout the whole world we talk about the growth of an economy. If you go around the world they talk about quarterly growth of sectors, so what relevance does capacity utilisation have? He quipped. He made reference to the oil processing sector where two companies could produce the required 10 million litres. So here we are measuring capacity utilisation. What is its relevance to the domestic consumption? It means one or two companies can produce for Zimbabwe. The rest is excess capacity.
“These are good methodologies but is it relevant to what we want to achieve. If you ask me as central bank governor I am more concerned about the growth of the economy and I am sure that the economy is expanding and therefore the figures to what we are saying,” said Dr Mangudya. I find this point quite sobering. The case in point here was the downward movement in manufacturing sector capacity utilisation to 45,1 percent from 47,4 percent.
Granted, measuring capacity utilisation and other facets scrutinised under the manufacturing sector survey is critical for this economy and helps firms make sound decisions, while informing Government on policing that need twigging or improving on, but at the end of the day, a decreased level in capacity utilisation does not necessarily translate into decreased overall production in a particular sector or that a market is being starved. We have for long been raising the red flag each time capacity utilisation in firms goes southwards, but it is critical to note that, as Dr Mangudya said, the economy may actually be growing and the firms may be meeting domestic demand and producing for the export market as well.
This is a valid stance that the Confederation of Zimbabwe industries should take note of in its periodic survey. Overall, the survey does provide critical information required to assess the state of the manufacturing sector, in itself a critical cog to the economic engine. Capacity utilisation increased last year from 34,3 percent in 2015 to 47,4 percent before the dip that was experienced this year. Companies attributed this to a shortage of foreign currency that the country is grappling with and obsolete machinery that has seen many firms failing to retool in the last 10 years. Indeed, these issues need resolving to ensure more efficient production in the sector.
However Dr Mangudya, who appeared to be in a no-holds-barred discussion with the sector, ordering a thorough investigation into firms, lamented the huge appetite for foreign currency by a sector that only exported 13 percent of its produce. He has previously said those that demand foreign currency, both individuals and corporates alike, should also be engaged in earning the said foreign currency themselves. He noted that although capacity utilisation had gone down slightly, the sector had used more foreign currency than before.
“So I want to challenge you the CZI president to further look at the matter. Why is that so? We will be happy to share with CZI the names of those firms to see whether they are not just inflating figures for the sake of the survey or that they were telling the truth.”
This is a challenge that the industry representative body should take on immediately and plug any loopholes. Many challenges in this economy have largely been attributed to inadequate foreign currency. It would be a sad day for our country where firms exaggerating their needs or their shortages to create a desperate picture that sends alarm to the rest of the economy. Of course there are genuine cases economy-wide that require foreign currency for critical inputs, but we would all want to see and know about those that are said to be overstating their requirements and circumstances.
It is quite unfortunate that the greatest tragedy in this economy has been overstating demands for foreign currency and under-invoicing earnings — traits that have cheated the economy of the oxygen that it needs to operate viably. I am not diminishing the effects of other forces, but dishonesty has been very harmful to the economy. Its repercussions are far-reaching and quite hazardous. At this stage the economy requires that we do our best to maximise on the available foreign currency while also engaging in businesses that could help Zimbabwe earn more for a better balance of payments position.
The central bank has come up with a prioritisation mechanism in its allocation to help ease the situation, but the appetite for foreign currency, whether genuine or exaggerated keeps growing. So once investigations are done, it would be critical for the central bank to use the culprits as examples of why no corporate or individuals alike should rob an economy that is already challenged in many ways. This form of corruption has the tendency to put paid to initiatives that have been put in place to salvage the situation.
Zimbabwe needs corporate citizens who are driven more by the desire to transform the economy and not to sink or misdirect the ship. Emotions run quite high in such circumstances, but a change of behaviours can easily produce the results that this economy needs at this moment in time. Bleeding the economy The past few days have produced news that demand a rethink in our economy. Yesterday our main headline was on the US$270 million incurred by at least 38 of the 93 parastatals in this country. What made this a sad reading was the fact that the loss was attributed to weak corporate governance practices and ineffective control mechanisms, both of which could have been avoided.
A whole $270 million loss in an economy where every dollar counts? We can all imagine what this kind of money could do to the economy. Companies could be saved, drugs bought and businesses started with this kind of money. I can easily understand why President Mugabe recently ordered coffins to bury some of these State enterprises that are bleeding the economy profusely like that. The Chief Secretary to the President and Cabinet Dr Misheck Sibanda actually said most State enterprises were technically insolvent. This is a dire situation that demands urgent redress. Dr Sibanda said that the structure, composition and competence of most boards and the manner with which they operated were the major causes for this unfortunate state of affairs. And to make matters worse some boards were run by one person. How?
Small wonder that State enterprises contribution to the Gross Domestic Product has dropped to two percent from 40 percent. This is quite tragic. Its an issue that Government should be seized with as a matter of urgency. We hope the Public Entities Corporate Governance Bill to regulate the activities of the State enterprises and parastatals will soon become law to deal with the situation. Parastatals play a critical role in the economy and their failure to perform compromises the economy’s ability to recover. Most of these entities have continue to rely heavily on spoon-feeding, further putting a strain on Government coffers. This is one area that the new Minister of Finance Dr Ignatius Chombo needs to deal with expeditiously. At least he is fully briefed on the situation concerning the parastatals given the displeasure he expressed at a parastatals meeting in Harare on Wednesday. He must act to save the situation. So much has been said about the parastatals. Its about time decisive action was taken.
In God I Trust!