eBusiness Weekly
Dr John Mangudya
Following the release of this year’s manufacturing survey, Reserve Bank of Zimbabwe Governor Dr John Mangudya expressed reservations at using capacity utilisation instead of using output as a measure of economic development.
Dr Mangudya’s comments, captured below, followed a presentation of the Confederation of Zimbabwe Industries manufacturing sector survey 2017.
“We were not favoured with the results before coming here and therefore I never had anything that I prepared but that I was coming here to listen and comment thereon. The results are testimony of our informed position that output is going up in this economy as vindicated by the 5,5 percent increase in output.
But then I was asking myself if we should be measuring capacity utilisation or we should measure the growth of an economy.
Throughout the whole world we talk about the growth of an economy. I was asking myself what are the imperatives in this study. Should we measure as I said capacity utilisation or should we measure growth of an economy?
If you go throughout the whole world they talk about quarterly growth of an economy, of sectors. So what relevance does capacity utilisation have?
I will give you an example
Zimbabwe’s capacity to produce from seven cooking oil companies is about 45 million litres of cooking oil a month.
Zimbabwe’s demand for cooking oil is 10 million litres per month so it means that we have excess capacity of investment in the cooking oil industry.
So if we are measuring capacity utilisation, what is its relevance to the domestic consumption? It means one or two companies there can produce for Zimbabwe. The rest are excess capacities.
I was asking myself therefore what the relevance of measuring capacity is. These are good methodologies, very good. But is it relevant to what we want to achieve?
That’s food for thought
In that I can tell you by companies, if you go to Surface Investments the capacity is 12 000 tonnes, go to Pure Oil capacity is about 10 000 litres per month.
Those two only are enough for Zimbabwe. One of them can produce for the rest of the economy.
So should we provide foreign currency to seven companies in this country or to one company? That is the question because you are talking about capacity utilisation here and if you ask me as the central bank governor I am more concerned about the growth of the economy.
And I have said that many times that the economy is expanding and therefore the figures give us testimony, so we are happy with CZI. The numbers speak to what we are saying. It means we can export. If we need 10 million litres and yet we produce 45 million it means we have that 35 million litres that we can export.
We need to focus on value chains to build capacities so we can export.
We then look at the capacity utilisation levels (mentioned in the survey) from 34,3 percent (2015), 47,4 percent (2016) and now 45,1 percent (2017. Either two things have happened.
Either people have over invested in those sectors that is why capacity has gone down or alternatively that figures for last year were wrong since this year there is improved methodology it means that maybe you were going to move from 34, to 44 then 45.
But I also know that what is true is that there are companies that have invested in Zimbabwe over the past year and therefore there is capacity which is not being utilised.
What is our take home from the study as the central bank? We need to work on the economic fundamentals to ensure that this economy goes forward.
We need to increase production but the problem with the manufacturing sector is that production will increase by increasing foreign currency. I have never seen a sector that utilises foreign currency like industry in Zimbabwe. This sector called manufacturing sector, if you have noticed, only exports 13 percent if you include other minerals which are manufactured.
If you take pure manufactured products in this country they are between five and 10 percent of exports. But the utilisation of foreign currency is too much.
You have seen that last year when there was a drought they were using 84 percent from the local market but this year when there was no drought they are using 64 percent.
It means they are using more foreign currency . . . using imports to produce.
It means that this year companies in the manufacturing sector are now using more foreign currency than before so I want to challenge CZI president to look into this matter why this is so. We will be happy to share with CZI the names of those firms to see whether they are not just inflating figures for the sake of the survey or that they were telling the truth.
