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Industries in panic mode

Business Digest
The bailouts relate to a US$30 million tranche pledged for industrial recovery from the US$958 million International Monetary Fund (IMF) windfall, which managing director Kristalina Georgieva released in September last year.

SHAME MAKOSHORI ZIMBABWE’S haemorrhaging industries warned this week that manufacturing exports will plummet further in 2022, frustrating recovery efforts following prolonged downturns, until the government injects crucial packages announced to reboot faltering output.

The bailouts relate to a US$30 million tranche pledged for industrial recovery from the US$958 million International Monetary Fund (IMF) windfall, which managing director Kristalina Georgieva released in September last year.

The IMF package was part of about US$650 billion worth of special drawing rights (SDRs) injected into the global economy to help economies restart following Covid-19-induced downturns and bankruptcies.

Before that, the government had undertaken in the 2022 national budget — which was announced in November last year — that it would be reforming the Industrial Development Corporation (IDC) and inject ZW$2,3 billion (about US$6 million) on-lending funds to give traction to on-going efforts to help industries.

Government’s latest promises to companies began as Covid-19 tore through the globe in 2020, forcing governments to apply hard lockdowns and direct firms to shut down to manage the contagion.

Harare then promised to release a combined ZW$18 billion (about US$47,3 million) in relief packages to calm jittery firms, most of whom had run out of resources to sustain operations.

Globally, over US$5 trillion was promised and released by governments to save companies. But in Zimbabwe, Confederation of Zimbabwe Industries (CZI) and other lobby groups said the ZW$18 billion never reached manufacturing companies, which last year estimated they required US$2 billion to return to pre-crisis production levels.

In a five-page paper presented to Finance and Economic Development minister Mthuli Ncube last week, CZI said firms were burning, while important funds were taking long to reach them.

“Zimbabwe received SDR677,4 million (US$958 million equivalent) from the International Monetary Fund (IMF) in 2021,” CZI said in its paper, which highlighted companies’ expectations for the mid-term fiscal policy.

The review is set to be announced on July 28.

“The (2022) budget highlighted that the funds will be used to support projects in the social sectors, namely health, education and vulnerable groups, productive sector value chains, infrastructure investment and foreign currency reserves and contingency fund,” CZI noted.

“A retooling revolving fund for new equipment and replacement for value chains was to be created. Industry is yet to benefit from these allocations, and we have gone through the first six months of 2022.

Industries in panic mode help industry to retool, which is long overdue. As CZI we are assuming that there have been no drawdowns from SDR by industry.

“The 2022 budget set aside ZW$2,3 billion for provision of medium- and long-term finance to enable companies across the agricultural, mining and service sectors implement value addition activities through the Industrial Development Corporation, following the addressing of outstanding governance issues.

“However, this facility is yet to be availed in 2022 despite the glaring need for funding on the ground. CZI hopes that the mid-term review will place emphasis on the need to expedite this process,” it added.

CZI further stated that: “Under the 2022 national budget, it was observed that exports by the manufacturing sector had declined by 25,7% between 2020 and 2021.

“However, the root cause of the problem remains largely on the viability of sustaining exports by the manufacturing sector and the trend of falling manufacturing sector exports has continued into 2022,” CZI added.

It called on the government to consider coming up with incentives for promoting exports to tackle problems coming out of tough Reserve Bank of Zimbabwe surrender requirements.

“Unlike commodities such as minerals and tobacco, manufacturing sector firms have to spend a significant amount of resources each year to look for markets as well as to build the necessary relationships, with fierce competition from all countries,” CZI said.

“Thus, the 40% surrender requirements reduce viability for the manufacturing sector exporters, especially given the exchange rate distortions in the market, hence is also another form of taxation.

“The budget review could also introduce new tax incentives for manufacturing sector exporters to restore manufacturing sector viability.

“Multi-sector engagement has not been revived to address the inherent ease of doing business obstacles that have been hindering our progress as a country, especially with respect to the cost and multiplicity of regulators that have to be approached for related services,” it said.

CZI said the issue should be of priority in the second half of the year. “The country is witnessing an erosion of competitiveness as domestic prices rise, and various taxes are levied on business,” it stated.

“The African Continental Free Trade Area, which is now under implementation, needs a competitive industry in order to survive and penetrate export markets. Failure to address competitive issues will result in the demise of most domestic industries,” it added.

Last week, data released by the Zimbabwe Public Debt Management Office showed the country made its first US$280 million from the SDRs.