eBusiness Weekly
Hebert Zharare
Some firms are beginning to feel positive effects of Government’s intervention measures such as liberalisation of foreign currency market as witnessed by increased exports and availability of locally manufactured goods relatively cheaper compared to imported substitutes.
This comes as industry experts, however, said currency liberalisation alone is not enough to ensure a competitive sector, arguing at least US$2 billion revolving envelope is needed to enable firms replace the antiquated equipment.
Competiveness remains a function of industrial output, external and internal variables over and above sustained availability of foreign currency.
Before the introduction of the interbank foreign currency floating system in March the local unit traded at 1:1 with the greenback, a development many industrial lobby groups say rendered local products uncompetitive on global markets.
However, following the introduction of the auctioning system that started at 1:2.5 and has since moved to 6.17 against the US dollar as at Monday, companies say they have since ushered a fresh impetus to start competitively exporting.
Reports say even firms that have been complaining of antiquated industrial machinery have also started enjoying a fair share of export earnings on the back of a “softer exchange rate”.
However, this comes as some firms that have been failing to successfully apply for foreign currency on the interbank market still continue to source their requirements from the unofficial market where they are being charged creaming rates of up to 1:10.
New currency exchanges result in stela companies’ performance
Local companies have not been retooling for some decades and some of them have been using antiquated machinery that are not energy efficiency and breakdown more frequently, against a backdrop of spare parts shortage.
Such companies have not been able to replace the machinery, let alone to source enough foreign currency to source spare parts. However, industrial experts say the economic fortunes of the companies have since changed ever since the introduction of the interbank foreign currency auctioning system.
The Confederation of Zimbabwe Industries’ (CZI) immediate past president Sifeni Jabangwe, said with the relatively easier availability of foreign currency for many companies, even those with old equipment have been able to export.
“Yes, there was an issue of antiquated technology…but right now we are competitive because of a softer exchange rate. Actually, if you look at the local market our products are very competitive.
“The local products are cheaper than the imported ones. Previously it was the cost of labour, which was actually the highest in the region (which was a cause for concern for companies) and right now all our costs are actually too low because of the exchange rate.
“So the exchange rate is the key compared to when we were using the US dollar. The exchange rate has made our products competitive.
“Now with the exchange rate of more than 5 to the US dollar, you can export as much as you want as companies are now accessing foreign currency,” he said.
According to official figures from Zimstats, there was a decrease in overall performance of the export sector that recorded $295 915 832 in March and $276 974 261 in April. But industry players argue the figures show they will start surging up though on a slower pace as volumes respond to the liberalised currency market.
Retooling still key to achieve total competitiveness
Government can protect local firms as a strategy to allow them breathing space to retool, gain competiveness and start tussling it out with other players on the global market, but there is a limit that protection can go.
Too much protection by a country can attract back lashes from trading partners who might angrily respond and impose restrictions on the country’s products too. Companies that enjoy too much protection at times lack innovation as they do not think outside the box on how to create new markets among other misgivings.
“The issue of tools is a factor, but because of the softer exchange that we have, even companies with antiquated equipment are beginning to export.
“We are looking at almost $2 billion to retool as local industries. We should be able to have at least one other fund like what happens in the agriculture sector. The Industrial Development Corporation should be funded to take up that responsibility,” said Jabangwe.
Recently the Cairo-based African Export Import Bank (Afreximbank) was reportedly in discussions with a subcommittee of the Ministry of Industry and Zimbabwe’s private sector concerning the availing of a $300m facility to support export-related companies. This adds up to numerous facilities that have been availed by local banks.
Competiveness a function of many factors
In as much as the availability of foreign currency, cheap lobour and replenished industrial tools, there are a number of factors that can also weigh down on competitiveness if overlooked.
The Zimbabwe National Chamber of Commerce (ZNCC) chief executive Chris Mugaga: “Competitiveness is not a function of the exchange rate alone. There are a number of factors such as the cost and availability of fuel and electricity, lack of cheap financing for small businesses as very few banks are willing to offer them some loans.
“ However, in the medium to long term we should start to feel the benefits of the liberalisation of the exchange rate.”
The majority of firms have very old equipment that according to Mugaga has also weighed down heavily on their competitiveness.
“The antiquated equipment increases the cost of doing business, the breakdowns are numerous and efficiency is curtailed. Where you are supposed to produce 10 units you end up producing one and wastage is also very high. This means the process becomes very expensive and you end up being labour intensive instead of automation.
“To compete with say a firm in Ethiopia making similar products becomes difficult. We end up producing high priced goods that are not competitive.
“Hence competiveness is a function of output, foreign currency, the state of the company and other internal and external factors,” he said.
