One of the trucks at Olivine Industries; the FMCG company requires at least US$32 million to recapitalise, US$4 million of which would be used to re-tool
Happiness Zengeni My Two Cents!
Olivine requires US$32 million to recapitalise, Cairns needs US$8 million, Reckitt is set to auction plant and Grindrod and CFI terminated the US$6 million deal. And now there is a raft of earnings reports, which sadly point to the reality that the economy is in a fix. Consumer spending has drastically slowed down; the downturn became very pronounced in the period November 2013, but it started in September 2013.
Directly it’s not really Zanu PF’s fault nor the sanctions, it was just a ticking time bomb which coincided with the re-election of the party.
Back to the sources of the decline – a lopsided balance of payments position, escalating wages in the face of poor productivity, uncompetitive business models and over-leveraging on short dated loans.
An alter ego once said: Capacity utilisation has fallen to the thirties. What exactly needs to be done? How will Government ensure that industry goes it back to its glory days?
E-erm…well that’s difficult because industry never had any glory days! As those of the older generation would like to tell us every time they get the chance; this industry was not built for efficiency. Rather during the UDI sanctions, effort was made to prioritize local content as a sanctions busting measure.
In most of the instances, industry was set up using 20-30 year old machines. There were also a few monopolies which were created during this time. After independence industry struggled along because after all, the socialist Government cared more about the people aspects rather than issues which would promote capitalism.
When ESAP came in the early nineties industry suffered greatly because the then Finance Minister Bernard Chidzero freed up the economy. Industry went on a death bed and has kind of struggled along over the years. Recapitalisation has worked in some instances and has totally failed in the majority.
It is important to note that the majority of it was also due to poor business models and management rather than the economy.
The fear of equity dilution has in a way contributed to the industry rot, but that is a different story altogether. So herein lies reality; reviving industry is going to take a very long time particularly when we have issues with the pricing.
Wages being the biggest culprit. George Guvamatanga (Barclays MD) rightly said that we are going through a price correction rather than deflation.
People just do not know the value of the US$ and this in a way has killed the economy. Matts Valela from Delta always gives an interesting goat economics lesson, though I would rather call it cow economics (as goats are hard to price).
Matts always says how many cows does one need to pay for a decent car service? You will be surprised how many cows one needs to buy a house.
When you put this into context that’s when you will see where we are getting it wrong as a country. The pricing is just not sustainable!
We have already started getting used to seeing ‘Zambian’ products on the shelves. And who knows Mozambique will soon identify the gaps in the market and join in.
What’s needed are clever people, capital and raw materials. Unfortunately this country follows the British model of personnel where those who did less practical degrees are made to run industries.
CAs and the like are not good managers for industry; this has been proven time and again. It does not work. In a split second, one can easily identify 10 companies on the ZSE which have been run down by un-skilled managers. See in Zimbabwe if anyone holds a degree, they think they are worthy to be in the high income bracket.
We need practical managers. General Electrics always gets its chief executives from their electrical engineers and the same applies to other big American and German corporations.
This is the reason why MBA was introduced at university to give some sort of business management skill to engineers.
If the same model was followed in Zimbabwe, Steelnet wouldn’t have closed or even Apex. You need the right type of managers for industry.
And even worse these managers place too much emphasis on status symbols; going for the Mercs and the blings.
Harare’s cash king Mohammed Mussa, who has taken over the South Ave space selling at only a 2 percent mark-up, drives a simple Toyota Corolla. Yet he holds the bulk of the cash transacted in Harare.
The huge industries in their form or the form that we are used to, are not going to come back. This is reality. Reckitt has just auctioned off its plant and products (the Dettols, Cobra etc) will be distributed through South Africa.
Unilever is also distributing. And Olivine needs a lot of millions to boost capacity. Setting up a plant could be less than US$10 million.
What is going to remain are agro industrial processors but even then there is a lot of work required to stay afloat as the agriculture side has been revived only where tobacco is concerned.
Presenting his 2014 National Budget Finance Minister Pat Chinamasa said his statement had ushered in a new economy.
He might not have had any explanation of what exactly he was talking about but this is where Zimbabwe finds itself.
Nadia Piffaretti, the World Bank country economist is also convinced that most of the big companies will not come back and instead told the Mandel Gibs seminar in January that Government needs to start looking at the SME’s.
Government needs to look into the ease of doing business in this country. It’s one thing for Zimbabwe Investment Authority to cut the days of processing an investment when there are further delays with the Reserve Bank of Zimbabwe and Competitions and Tariffs Commission.
It’s frustrating for foreign investors at the moment. It’s also another thing for locals to spend a couple of days waiting for a company to be registered. Perhaps someone really enjoys all this mediocrity.
And while everyone supports indigenisation there is belief that in this current environment Government needs to start offering incentives to foreign investors.
This has happened in other countries before. Government should make it easy for anyone who promises to bring in US$100 million and makes sure his investment will create, say 100 jobs.
That way you not only attract the right quality of investors but you achieve other Government social goals.
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