Challenges and Opportunities: Zimbabwe’s Struggling Manufacturing Sector

Spread the love

HARARE – Zimbabwe’s manufacturing sector, despite its proximity to established value chains in agriculture, mining, and retail, has consistently underperformed in contributing to the national Gross Domestic Product (GDP). GDP, a monetary measure of the market value of all final goods and services produced within a country over a specific period, often serves as a key indicator of economic health.

While sectors like agriculture, mining, and retail have experienced growth, manufacturing has seen a downward trend. Its contribution to GDP has declined from over 15% in 2017 to just 11.2% in 2022. This underperformance is particularly disappointing given the sector’s potential to drive exports, productivity, job creation, and overall wealth generation.

Current State of Manufacturing

The 2023 Confederation of Zimbabwe Industries (CZI) Manufacturing Sector Survey highlighted a decrease in capacity utilization, from 56.1% in 2022 to 53.2% in 2023. Economic headwinds and a highly regulated environment were identified as primary causes for this decline.

Government’s Response and Strategic Plans

Industry and Commerce Minister Mangaliso Ndhlovu acknowledged the numerous issues plaguing the industrial sector. He proposed a transitional plan, dubbed the “reconstruction and growth plan,” aimed at addressing these challenges and aligning with the National Development Strategy 1 (NDS1).

“We are proposing that we have a transitional plan, which we call the reconstruction and growth plan, that will complete the tenure of National Development Strategy 1 (NDS1) so that we launch our Industrial Development Policy aligned with NDS2,” Ndhlovu said.

Key issues identified for improvement include the ease and cost of doing business and securing adequate funding. The goal is to increase the manufacturing sector’s value from the current US$4 billion to between US$10 and US$12 billion. This involves identifying specific sectors capable of significant contributions and focusing on value chains in agriculture and mining-based economies.

Sector-Specific Challenges

According to CZI president Kurai Matcheza, manufacturing faces several obstacles, including limited foreign currency availability and electricity shortages. Around 52% of raw materials used in the sector are imported, necessitating substantial foreign currency reserves.

“We are import-dependent as a country. Issues such as hide availability and quality in the leather industry, for instance, stem from broader structural issues,” Matcheza explained.

Policy and Structural Recommendations

Industry players believe that reducing regulatory charges, which account for an average of 17.9% of total overheads, could significantly boost the sector. The Buy Zimbabwe initiative, which promotes the use of locally sourced and produced resources, has been working with the Ministry of Industry and Commerce and the Procurement Regulatory Authority to establish a local content rating and certification system. This would ensure that local companies benefit from government tenders, fostering more local manufacturing.

Buy Zimbabwe General Manager Alois Burutsa emphasized the importance of local content: “By using high local content, companies contribute to the economy by employing more people and supporting the local economy. We feel that companies should be rewarded for this.”

Expert Insights

Economist Eddie Cross highlighted the urgent need to address smuggling, duty-free imports, and dumping, which undermine the formal sector’s competitiveness. Moving towards a free market economy without price controls or manipulation is crucial for improving the competitiveness and quality of locally produced goods.

Victor Bhoroma, another economist, noted that improving capacity utilization involves relaxing rebate structures to allow manufacturers to import specific raw materials duty-free. He also emphasized the need for a stable currency, low inflation, and an improved business climate to attract capital and facilitate dividend movements.

Future Prospects

As Zimbabwe works on its National Development Strategy 2 (NDS2) for 2026-2030, which aims for economic stability and growth rates above 5%, the manufacturing sector’s revitalization remains a critical focus. Addressing infrastructure gaps, such as rail and road rehabilitation and power generation investment, will also be essential for creating a conducive environment for manufacturing growth.

In conclusion, while Zimbabwe’s manufacturing sector faces significant challenges, strategic planning and targeted policy interventions could unlock its potential, driving economic growth and enhancing the country’s overall economic health.