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Cablegate: Zimbabwe Manufacturing Expands, but Firms Remain

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PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0847 2990959
ZNR UUUUU ZZH
P 260959Z OCT 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 5057
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHNR/AMEMBASSY NAIROBI 5720
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC

UNCLAS HARARE 000847

SIPDIS

STATE PASS TO USAID FOR J.HARMON AND L.DOBBINS


E.O. 12958: N/A
TAGS: ECON ZI
SUBJECT: ZIMBABWE MANUFACTURING EXPANDS, BUT FIRMS REMAIN
PESSIMISTIC

1. Summary: A new survey of manufacturers delivers more evidence of
economic recovery in Zimbabwe. Capacity utilization among
manufacturers rose from less than 10 percent in the first half of
2007 to just over 32 percent in the first half of 2009. But despite
the improvement, less than 10 percent of the 150 firms surveyed were
optimistic about future prospects for manufacturing. End summary.

2. New survey results show signs of recovery in Zimbabwe's
manufacturing sector. A study just released by the Confederation of
Zimbabwe Industries (CZI) shows that capacity utilization among
manufacturing firms increased significantly in the first half of
2009 compared to the same period in 2007. The CZI survey shows that
capacity utilization rose from below 10 percent of installed
capacity in 2007 to an average of 32.3 percent in 2009. As a result
of the improvement in capacity utilization, the survey found that
89.2 percent of 150 sampled firms recorded growth in manufacturing
output compared to first half of 2007.

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3. In spite of the improvement in capacity utilization, many firms
surveyed pointed to a number of constraints bedeviling the
manufacturing sector. Of the sampled firms, 32.5 percent said they
were constrained by the low availability and high cost of working
capital. Only 17 percent of the sampled firms undertook meaningful
investments during the first half of 2009. Just over 25 percent of
the sampled firms pointed to low domestic demand arising from very
low salaries as the most important constraint to operating at full
capacity, while 13 percent of the firms identified the shortage of
inputs as a major constraint to improving capacity utilization.
Power shortages and antiquated equipment were also identified as
having been responsible for low capacity utilization levels by 6.5
and 5.9 percent of the sampled firms respectively.

4. The survey also shows that decline in manufactured exports
continued but the rate of decline slowed from 35 percent during the
first six months of 2007 to just 5 percent during the period under
review. Most firms stated that their products could not compete in
foreign markets because of high production costs associated with
high labor costs, very high utility charges, and lack of long term
credit.

5. Overall, only 9.5 percent of the firms surveyed were optimistic
about future prospects within the sector while the majority (67.4
percent) was indifferent and 23.4 percent were pessimistic.


6. Comment: Like Zimbabwe's economy as a whole, manufacturing is
improving because there was no place to go but up. And there is
anecdotal evidence that recovery continued beyond the first six
months of this year. Sustaining that recovery will be difficult,
however, as long as political risk discourages external capital
flows to Zimbabwe's private sector.

Petterson

© Scoop Media

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