The prospects for Zimbabwe's manufacturing sector, squeezed by cheap imports from neighbouring South Africa, Dubai, Japan and China, are grim.
Economic observers say local manufacturing has been crippled and cannot satisfy local demand, so the government cannot even justify protectionist laws to cushion the sector from foreign competition.
But the influx of cheap imports is not the only threat. The sector is also being driven to the wall by a liquidity crunch, which has constrained recapitalisation. The indigenisation law, which requires that 51% of all companies be owned by locals, has driven away investment. Added to the mix is the sector’s inability to keep up with changes in technology that could otherwise increase productivity and efficiency.
Figures released by the Confederation of Zimbabwe Industries (CZI), the country's largest grouping of industries, suggest that the downhill trend in the manufacturing sector is likely to continue.
Last August, a manufacturing sector survey report compiled by the CZI found that factory capacity utilisation had declined to 39% from 44% in 2012 and 47.7% in 2010.
Unconfirmed reports by independent economic commentators suggest that productivity in the sector has fallen to nearly 33%, although officials declare that it has been 37.5% since the beginning of the year.
Competition from cheaper imports
A report by the country’s official Zimbabwe Trade Agency has further illustrated the sorry state of the manufacturing sector. According to the report released last week, more than half of the products made in Zimbabwe are not subject to local and international standards – a factor that has contributed to the fall in exports.
The agency also said South Africa remains dominant in Zimbabwe's economy, and nearly 52% of the companies in the manufacturing sector face competition from cheaper imports from its neighbour and from China.
"This is a very high level of export production but leaves the companies without any incentives, as the threshold to qualify for a 5% reduction in corporate tax is export of 50% of the total production," Mike Nyamazana, the managing director of Africa Corporate Advisors, said.
Meanwhile, it emerged this week that the government was the largest importer of goods last year, contributing to more than 60% of the $7-billion in imports.
Gershem Pasi, the Zimbabwe Revenue Authority chief executive, told a parliamentary portfolio committee on foreign affairs on Tuesday that the high import bill was fuelled by the state. "Of the $7-billion, $4.1-billion involves government imports, which do not pay duties. Government imports do not pay duties but they are declared," he said.
Last December, during the presentation of this year's budget, Finance Minister Patrick Chinamasa berated Zimbabweans for importing "useless goods" that did not add value to the economy.