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Capacity utilisation to remain subdued

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MANUFACTURING sector capacity utilisation in Zimbabwe will remain subdued in the first quarter owing to rolling power cuts, Covid-19 and limited access to foreign exchange, a research unit has said.

BERNARD MPOFU

Despite having one of the most diversified industries in the region, local manufacturing firms continue to face a myriad of challenges such as capital constraints, competition from regional peers and antiquated equipment and technology. Official figures show that merchandise exports are estimated to have increased by 28% to US$6 315.2 million in 2021, from US$4 931.9 million in 2020, driven by increases in mineral and agriculture exports, while manufactured exports remained subdued.

Experts say electricity generation in the sub-Saharan Africa region has continued to deteriorate over the years with most state-owned entities providing the public good unprofitably. On average, the Zimbabwe Electricity Supply Authority (Zesa) requires US$17-20 million per month to import additional power from Mozambique and Zambia to meet the national requirement.

Akribos Research Services in its weekly markets review said the outbreak of Covid-19 in some parts of China could blight Zimbabwe’s economic prospects. China is one of Zimbabwe’s major trading partners.

“The Zimbabwean economy was also not spared by the power shortages that affected the region as increasing demand continued to outstrip supply. Demand for electricity stands at between 1 800MW and 2 200 MW against local production of 1 400MW,” Akribos said.

During the week under review, the country’s power utility, Zesa announced that the electricity situation is likely to get worse before it gets better, citing that they were unable to get foreign currency allocations on the Dutch auction system to cover the electricity import bill. Zimbabwe has strong ties to China and we expect the knock-on effects to be huge should China extend its lockdown further than anticipated. Experts say the possible effects on the local economy will include delayed shipments and inflation caused by shortages of goods and services.

“In the short to medium term, forex shortages will continue to worsen the power situation in Zimbabwe and the Government of Zimbabwe needs to reimagine its pricing model or risk subsidising power consumption. For the manufacturing sector capacity utilisation is expected to remain subdued in Q1’22 (first-quarter 2022) and the upcoming quarters. The ongoing power expansion projects of Hwange Thermal Power Station Units 7 and 8 which are set to be completed in November 2022 and February 2023 respectively will start to bear fruit and provide some relief to the manufacturing sector in 2023 going forward. Manufacturing will likely further underperform its projected performance in 2022 as most of the risks to the projections are materialising,” the report says

“In Zimbabwe, forex shortages will continue to worsen the power situation and the manufacturing sector capacity utilisation is expected to remain subdued in Q1’22 and the upcoming quarters. Inflation will remain a key risk to economic growth as consumers will scale back on consumption as they seek to preserve incomes. Household and corporate balance sheets will likely remain under pressure as cashflows will be squeezed by rising costs. Resource-based sectors of the economy will grow at a declining rate as the Chinese economy seeks directions amidst the resurgence of the Covid-19 pandemic. Contact-based sectors of the economy including tourism are at risk of contraction as lockdown threats heighten.”

Massive closures and downscaling of large firms and yesteryear multinational companies has resulted in job cuts and growth of a thriving informal sector which, according to independent estimates, accounts for more 70% of the economy.

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