Bulawayo companies, just like any other companies across the country, have been operating in an environment characterised by high interest rates, foreign currency shortages, unemployment and generally high uncertainty. Business Weekly’s Hebert Zharare (HZ), this week caught up with the Confederation of Zimbabwe Industries (CZI) Matabeleland president Joseph Gunda (JG) and discussed a number of factors affecting Bulawayo industries and whether the city can rise again to become the country’s industrial hub. The following are some of the excerpts from the conversation.
HZ — Government says Zimbabwe is open for business, are Bulawayo industrialists ready for firms’ revival?
JG — The revival and re-industrialisation of Zimbabwean industries, let alone Bulawayo’s manufacturing sector, has been on the radar and agenda for Bulawayo industrialists for some time now. For CZI, this has been the focus area and efforts to achieve this are evident and have culminated in initiatives such as introduction of protection through statutory instruments (SI 138, 126,16 and 122 etc) and introduction of Special Economic Zones (SEZs). All these initiatives were part of lobbying and advocacy initiated by CZI Matabeleland Chamber and adopted countrywide with the broader objective of reviving Bulawayo, which was the original hub of manufacturing in Zimbabwe. In the last five years, as CZI, we have held our annual congresses in Bulawayo and Matabeleland region thrice, and this depicts our seriousness about revival of Bulawayo industries. With the anticipated FDI (Foreign Direct Investment), which would be brought through the implementation of the SEZs as presented in our initial proposal document to Government, Bulawayo companies have been focusing on retooling to upgrade current old equipment and technology.
HZ — May you please expand on companies’ efforts to retool?
JG — Some of our members, particularly in Bulawayo, invested in new equipment in 2017, which helped in the 5,5 percent increase in manufactured output in 2017 in comparison to 2016 as captured in our 2017 Manufacturing Sector Survey. Bulawayo is one area which exhibits a mass potential for the establishment of new industries and as Bulawayo industrialists, we welcome the move to open business and as has been additionally mentioned by His Excellency President E.D. Mnangagwa, the “openness” is targeted not only at foreign but even local investors. We are pleased that the coming in of the new dispensation has even brought higher hopes for a city that has been in perpetual anticipation of revival. In short, Bulawayo industrialists have fully embraced Government’s “Zimbabwe is Open for Business” mantra and we are in a state of readiness to revive Bulawayo industries and restore the city to its original status as the hub of manufacturing in Zimbabwe. The city needs investments financially as well as policy interventions, which would facilitate and aid the revival.
HZ — What kind of support-policy, material and monetary — is needed for the city to regain its industrial hub status?
JG — As one of the chambers within CZI’s structures, we once did an analysis in an effort to push for Bulawayo to be declared a Special Economic Zone and in this paper we had estimated that Bulawayo needs up to US$200 million in investment in order to resuscitate the ailing industry and return the city to its former status as the “workshop” of the world. That was then, and I believe now that figure might have immensely multiplied owing to the existing challenges the country is facing in terms of ease and cost of doing business. We summarise the financial and policy support needed as follows:
Preferential allocation of forex to existing manufacturing companies in Bulawayo to enable them to import key raw materials and machinery spares. Currently this is the biggest threat to revival of Bulawayo industries as the shortage of forex has reached critical levels and is already destroying the gains achieved by SI’s so far.
Introduction of a retooling fund to the tune of US$500 million at low interest rates taking into account that Zimbabwe has the highest cost of borrowing in the region. This will help improve the quality of our products, improve productivity and competitiveness to enhance exports.
Urgently constituting the SEZ Authority for smooth implementation of the Bulawayo SEZ to ensure Bulawayo industries qualifying for entry into the SEZs, fully benefit or leverage on the incentives associated with this initiative. This presents the quickest way to revive Bulawayo industries as the development of Special Economic Zones is meant to trigger economic growth.
The Bulawayo SEZ initiative will certainly attract FDI, thus fulfilling Government’s aspirations of opening the economy to foreign investors.
A tripartite negotiation forum between Government, industry and labour aimed at reducing the manufacturing unit cost of production is critical as companies are failing to penetrate the export market due to high labour costs as Zimbabwe’s labour costs have remained the highest in the region compared South Africa, Mozambique, Botswana, Zambia etc.
HZ — Give more detail on the high manufacturing costs you have alluded to.
JG — NRZ, ZESA, Bulawayo Power Stations and Bulawayo City Council (BCC) should work optimally in order to lower the cost of production through reduced transport costs and availing power and water at lower costs, respectively for Bulawayo industries. With power tariffs around US$0,145/kwhr against US$0,083/kwhr in the region and US$0,07/m3 of water, again Zimbabwe finds itself with the highest utilities costs (power and water) in the region, making our products non-competitive on the export markets. With a suppressed demand for power of more than 2200MW, Government needs to assist in additional power generation as the current generation capacity of around 1 300MW will not be sufficient to cover a resurgent Bulawayo and the country at large.
HZ — How many companies are still operating in Bulawayo?
JG — Accurate information is currently not available from Ministry of Industry and Commerce nor from CZI. For CZI it is difficult to measure using our membership records as not all companies are our members. Statistics are difficult to ascertain until the current survey by the SEZ Technical Working Group (TWG) is complete.
HZ — How many companies closed shop as a result of the challenges that have been experienced in the past and can they be revived?
JG — It is estimated that more than 300 companies could have closed shop in Bulawayo as a result of challenges that have been experienced in the past years. At least three quarters of these can be revived.
HZ — May you please comment on the equipment industries have (nationally), can it sustain demand for products given the anticipated economic boom?
JG: As a nation, we have been a capital – scarce economy both at the level of long term fixed investment and working capital. Obsolete equipment that we are relying on for production has been identified in our annual manufacturing sector survey as the major cause of low capacity utilisation over the past couple of reports. As CZI, we have been encouraging our membership to retool and adopt lean practices in order to gain some level of competitiveness on the global market.
To that end, with support from Zimbabwe International Trade Fair (ZITF), we started a programme to link local manufacturers to original equipment manufacturers (OEMs).
Equipment requirements differ from sub-sector to sub-sector. From our last survey results, 39 percent of the respondents expressed that they have machinery and equipment older than 20 years while 40 percent of the respondents have machinery 10 years and below. There is need to further incentivise importation of capital equipment via tax breaks as an example.
Our current industrialisation drive, with old machinery, is making our products non-competitive mainly in terms of pricing due to the cost of using old and less efficient machinery in production and this needs to be urgently addressed.
HZ — May you comment on the impact of NRZ revival on the industries in Bulawayo in particular and the country in general.
JG — As alluded to earlier on, one of the major contributors to Zimbabwe’s high cost of production is transport costs for movement of raw materials and finished goods. The revival of the rail sector is something CZI has been advocating and lobbying for a long time. Due to the dilapidation and inefficiency of NRZ, most companies have in the past several years resorted to using road as their mode of transportation of goods, however, this is not ideal and is also very costly. In our latest edition of our Manufacturing Sector Survey, we asked industry which infrastructure is impacting their business and 45 percent of the respondents indicated that roads that are in bad state of repair are negatively affecting their business.
The extensive use of our road for commercial transportation has contributed largely to the deterioration of our existing and even recently resuscitated road infrastructure. In the survey, 29 percent indicated that rail infrastructure, or lack thereof, has affected their businesses negatively. We have been asking Government to prioritise rail upgrade due to its obvious ability to lower the costs of transportation, creation of employment opportunities and opportunity to be the regional Rail transport hub. The recent delivery and commissioning of 13 locomotives, 200 wagons and 34 coaches being leased by NRZ from Transnet is a welcome move which industry hopes will mark the recapitalisation and modernisation of our rail network with the ultimate benefit of reducing our transportation costs that will enhance the country’s competitiveness and this development, I strongly believe, will go a long way in seeing the city regain its status as the country’s industrial hub.