Idle capacity signals deepening crisis in Zimbabwe's industry

Nearly half of Zimbabwe's industrial capacity is lying idle, highlighting growing pressure on companies as subdued production pushes many closer to financial distress, a consultant with the Confederation of Zimbabwe Industries (CZI) has revealed.

The sharp decline in capacity utilisation — now just above 50 percent — reflects deep structural challenges within the economy, driven by high operating costs, policy constraints and weakening consumer demand.

"Capacity utilisation currently is just above 50%, which means a lot of capacity is lying idle. From most firms, more than 45% is capacity that is not being used," said CZI consultant Tichaona Zivengwa.

"These are firms that are almost in distress. If we add the issue of global risks, it's going to be even worse," he added.

Zimbabwean companies have increasingly entered corporate rescue over the past two years as macroeconomic conditions deteriorate. Key challenges include persistent energy shortages, exchange rate volatility, shrinking liquidity, a dominant informal sector estimated at 76,1 percent, declining disposable incomes and weakening capital bases.

Last month, major retailer OK Zimbabwe entered corporate rescue despite securing potential liquidity of about US$67,3 million — a development that underscored the severity of the operating environment.

Other firms, including Truworths Limited, Beta Holdings and Khayah Cement Limited, have also sought protection, while some businesses have exited the market entirely.

Meanwhile, South African packaging giant Nampak Limited is reportedly looking to dispose of its local subsidiary, further signalling investor caution.

Zivengwa warned that global developments are compounding local challenges, particularly the ongoing conflict involving the United States and Israel against Iran, which has disrupted key global supply chains.

The conflict has triggered a stagflationary shock, largely due to disruptions at the Strait of Hormuz — a critical transit route for about 20 percent of global oil and liquefied natural gas supplies.

As a result, Brent crude prices have surged past US$100 per barrel, increasing shipping costs and insurance premiums as vessels reroute around the Cape of Good Hope.

Locally, fuel prices have already risen sharply, placing additional strain on manufacturers.

"Fuel is a major input in the production process," Zivengwa said. "The rise in fuel prices is also going to be translated into an increase in prices for a lot of products. We are likely to see inflation numbers going up."

Beyond energy, disruptions are also affecting fertiliser supply, raising concerns over food security and adding complexity to monetary policy as inflationary pressures mount.

Export-oriented firms are also feeling the pinch, as global market disruptions weaken demand and interrupt supply chains.

At the same time, local policy constraints remain a concern. Under regulations set by the Reserve Bank of Zimbabwe, exporters are required to surrender 30 percent of their foreign currency earnings in exchange for local currency, limiting access to critical forex.

"We've got firms that are into exports, which have access to markets outside. Those countries are part of global markets, so it's going to break that chain," Zivengwa said.

He added that Zimbabwe's manufacturing sector is heavily dependent on agriculture, which supplies about 60 percent of inputs, particularly for fast-moving consumer goods.

"This will affect both pricing and availability of inputs, worsening existing challenges," he said.

Zivengwa warned that recent gains in inflation stability could be reversed by these global shocks.

"These risks are global, so we can't tackle them as an individual sector. We need to tackle them at a national scale," he said.

"At CZI, we continue to work with the government to move in a certain direction to circumvent some of these risks."

Government has indicated it is monitoring fuel prices and exploring measures to cushion industry, as concerns grow over the sustainability of Zimbabwe's industrial base.