Companies struggle to raise US$2 billion

ZIMBABWE'S manufacturing companies have struggled to raise about US$2 billion in fresh capital to drive production back to pre-crisis levels, industry data indicated this week, as executives warned the government to address factors that have repelled investment.

A poll of 400 companies by the Confederation of Zimbabwe Industries (CZI) showed significant industrial recovery in the aftermath of a difficult 2020 when diminishing spending power and foreign currency shortages haunted firms.

The poll said 86% of Zimbabwean executives were bullish about the 2021 outlook with industrial capacity utilisation projected to rise to 56% in the past quarter, from 47% previously.

However, the data, which was contained in the second quarter Business and Economic Intelligence Report, also showed that investment into industries remained elusive.

It said companies injected a combined US$25 million during the first quarter (Q1). "New investments by firms usually indicate a bullish outlook by business," CZI said.

"For Q1, respondents undertook investments totaling over US$24,5 million into the local industry. This was driven by anticipation of a continued positive economic outlook. As such, capital was directed towards retooling and modernising production processes to become more efficient and meet expected increase in demand as the economy grows. The investments can be attributed to firms taking into cognisance the AfCFTA (African Continental Free Trade Area) and the need to increase profits," the CZI said.

"However, investment (both domestic and foreign) remains low in the local industry which needs more than US$2 billion to retool. Key constraints to investment include challenges for foreign investors to remit dividends through formal banking channels, liquidity constraints on the local market, exchange control regulations that pose exchange risks, negative country perception, heavy taxation burden and a complex business environment."

The US$2 billion figure first came out in a government-commissioned report by the University of Zimbabwe about four years ago.

The paper looked at the impact of the global embargo against Zimbabwe, which was estimated by the ruling Zanu-PF to have cost the country US$42 billion between 2002 and 2013.

Tapiwa Sibanda, head of research at Trade Winds, said the slow pace of investment exposed authorities' failure to address handicaps that have confronted investors.

"The rebound that took place when Zimbabwe made reforms after 2009 demonstrated that with the right policies, foreign direct investment (FDI) can improve," Sibanda told businessdigest.

"But Zimbabwe has relapsed back to policy inconsistencies and other harsh policies that affect investment. This is why companies are struggling to raise funding to recapitalise. When we talk of FDI, it does not only involve companies coming to set up businesses in Zimbabwe. It involves investors bringing capital to invest in existing businesses. But remember that this is dominated by fund managers who are very careful about where to invest. They are custodians of other people's money. Government must address challenges raised by business to encourage fund managers to consider Zimbabwe," he said.

In its report, the CZI also cited issues with the investment climate.

"To address these constraints, the government is implored to adopt and maintain investor-friendly exchange control regulations that allow free movement of capital, crowding in of private finance in government projects and building of trust in the monetary policy. Similarly, simplifying the local taxation model will go a long way in attracting investment into the local manufacturing sector. Other aspects key to investment include guarantees to investor property rights across the whole economy," the CZI said.

"Industry has been experiencing delays of between six and nine weeks on the settlement of winning bids on the auction market signaling supply and demand distortions as well as faltering price discovery function of the auction. This has greatly affected cash flows and made planning difficult for importation of raw materials and the impact of this is likely to show up in second-quarter performance. This has seen some companies experiencing decline in production compared to the previous quarter."