Harare – Capacity utilisation in 2019 is expected to decline to 34.3 percent representing a 7.7 percentage point decline compared to November 2018 levels of 42 percent, according to a recent report by the Confederation of Zimbabwe Industries.
Capacity utilisation is the extent or level to which the productive capacity of a plant, firm, or country is being used in generation of goods and services. Expressed usually as a percentage, it is computed by dividing the total capacity with the portion being utilized.
Compared to August 2018 capacity utilisation in November 2018 declined by 6.2 percentage points to 42 percent.
According to the industry’s lobby organization the decline in capacity utilisation was mainly a result of policy inconsistency by the Government, shortage of foreign currency and waning confidence in the economy due to lack of a clear policy direction on currency issues.
The downward trend is expected to continue in 2019 if policy direction does not change and at the projected 34.3 percent capacity utilization many companies will close with attended effects on unemployment, further worsening the economic crisis plaguing the country.
The CZI projections are already manifesting in the country with companies like Capri, which is a fridge maker, ceasing operations in November last year. The Company said it had lost local market share due to foreign exchange valuation concerns stemming from a severe shortage of foreign currency and government’s claims that the bond note is at par with the US dollar.
More recently, Surface Wilmar, manufacturers of Pure drop cooking closed operations amid a deepening economic crisis characterised by rising cost of production and foreign currency shortages.
The company is failing to service a debt in the region of $11 million owed to its foreign raw material suppliers and have been failing to access foreign currency from the Reserve Bank of Zimbabwe for the past five months.
Moreover, gold miners like RioZim and Falcon Gold among others are failing to produce to capacity and had already halted operations in some of their mines citing inability to access foreign currency and failure to pay outstanding amounts of foreign creditors which resulted in key creditors cutting off key operating supplies, disrupting normal operations.
Government on its part is showing little or no signs at all to forestall the situation especially on the open market rates which are a major cost driver. As companies sought to maintain stocks, they ended up getting foreign currency at higher premiums, which in the end spiraled to price increases.
Industrialists agree that if there is no drastic change in policy direction foreign currency shortages will persist and the 1:1 exchange rate is affecting availability of forex.
Generally, low levels of capacity utilisation means companies are eating into capital, hence if Government does not act swiftly many companies will close this year.
Industry is also suggesting that government should encourage and support value addition and beneficiation in order to boost the value, liberalise the foreign exchange market in order to minimize foreign exchange transactions on the parallel market and improve on transparency of the central bank in foreign currency allocation.
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