Manufacturing sector recovery picks up, capacity utilization rises

  • Capacity utilization rose by 11 percentage points
  • Projected to rise to 61 percent in 2021

Harare –  Capacity utilization of Zimbabwe’s manufacturing sector rose by 11 percentage points to 47 percent in 2020 from 36.4 percent in 2019 on the back of improved foreign currency availability, increased sales, and retooling of companies.

Capacity utilization can be defined as the percentage of total capacity that is actually being achieved in a given period.

Average production costs tend to fall as output rises – so higher utilization can reduce unit costs, making a business more competitive. The main reason for this is that total fixed costs in the short run can be spread over a higher level of sales or output.

The survey was conducted in 10 industrial sectors including foodstuffs, beverages, tobacco, clothing, footwear, furniture, paper (printing), chemicals, non-metallic minerals, transport, and equipment.

Presenting the 2020 manufacturing sector survey report on a zoom meeting dubbed CZI 2021 Economic Outlook Symposium Thursday running under the theme “Applying the Covid lenses to the industry and economic outlook….,” CZI Chief Economist, Tafadzwa Bandama said capacity utilization rose because of a number of reasons chief among them being forex availability.

She said certainty and predictability have been introduced in the economy.

Bandama pointed out that some measures of stability in the exchange rate tamed inflation, and the official exchange rate became the major determinant in the pricing equation.

It is encouraging to note that business, she said, can now access foreign currency through former channels although it is taking longer to access foreign exchange.

“Companies indicated foreign currency as a challenge because of difficulties experienced in the first half of 2020. However, during the second half the foreign currency auction system had assisted in the discovery of market-based exchange rate,” she said.

“This minimized distortions in pricing especially indexation of prices to the parallel market exchange rate. The market-based exchange rate system has assisted in dampening pressures on inflation.

“As of February 2021, more than 70 percent of total currency allotted has gone towards the importation of raw materials, machinery, and equipment.”

Bandama also pointed out that as businesses are resuming operations following the relaxation of lockdown which opened up a larger part of the economy, there is a need to re-establish supply chains, address the lack of working capital, also work on the loss of domestic and export markets and work towards eradicating infections at the workplace.

She projected capacity utilization in 2021 to increase to 61 percent, but this will involve a number of factors to be achieved.

“Sustaining the rise in capacity utilization will involve consistency policy process, currency stability which should address exchange rate stability and inflation reduction. There is also a need for export promotion, while encouraging manufactures to buy local. On top of all this there is need for the country to go through an aggressive vaccination program so as to preserve the gains.”

On her recommendations, Bandama said Government should address the currency issue, stabilize the exchange rate and inflation, ensure tight control of reserve money, financing quasi-fiscal operations from the fiscus, improve the doing business environment, promote exports and improve the efficiency of the public transport system.

On Covid 19 and Public Health Response measures, she said, there should be ample notice period before the implementation of national lockdown and clearly stipulate guidelines on exemptions and non-exemptions to avoid confusion.

To the manufacturers, Bandama recommended that there is a need for them to develop strong industrial linkages and value chains, achieve new levels of competitiveness by adopting and adapting to new technology, and focus on domestic market penetration than exports.

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