'Need to re-engineer the Zimbabwean economy'

Published: 03 July 2014

The Confederation of Zimbabwe Industries (CZI) has said Zimbabwe's economy needs re-engineering as a number of local companies' operating models are still based on an obsolete import substitution mode.

CZI president Charles Msipa told BH24 last week that the country was suffering from the effects of an historical import substitution-based economy.

Import substitution industrialisation, a trade and economic policy that advocates replacing foreign imports with domestic production, was adopted by the Rhodesian government.

Overtime the protectionist policy has however led to inefficiency as local manufacturing firms have had no incentive from foreign competitors to reduce costs or improve products.

"I think we do have quite a number of firms that have simply become obsolete in terms of their processes and their products….the world is a different place now than it was 34 years ago.

"Our economy was built on an import substitution model and in many cases we did certain things in the economy because we couldn't import and therefore had to have local production of some products, but in the last 34 years there are many more competitive operators in many sectors for which we simply will not be able to be become competitive.

"Even if some of the debts are expunged from the companies' balance sheets some of these firms are in sectors were they are just don't have the competitiveness," said Msipa.

Msipa suggested that for local manufacturing firms to realise area in which they are or can be competitive, there is need for improvement in the country's infrastructure.

He also said the companies needed to access cheap funding.

"When we talk about re-engineering the economy we must focus on those things we call enablers, or barriers to growth. When we fix our infrastructure, water, power….. when we create an environment that create capital inflows allowing businesses to borrow affordable short-term loans you will find that firms will be able to find products and services that they will be successful at.

"But right now when we have a lot of these barriers and constraints to growth it is very difficult to create the conditions for the re-engineering," he said.

The local manufacturing sector appears to be buckling under the pressures of operating in a sub-optimal economic environment, with industrial capacity utilisation having declined to an average of 39,6 percent last year.

However Msipa says the majority of firms can be revived to the extent that they can access affordable capital and issues causing the present financial distress are set right sustainably.

"The broad majority of firms are in financial distress, some have accumulated debt because of issues to do with management mistakes or corporate governance. There is need for policy initiatives to address these issues and these companies can be viable if historical debts are addressed," he said.
- BH24

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