“To be a recognized leader in the sustainable production and supply of value added iron and steel products and engineering services”
Context and importance of the sector
Since 2009, Zimbabwe's economy started to recover from a decade of economic crisis that saw economic output cumulatively declining by more than 45%. According to information obtained from the World Bank, Real Gross Domestic Product (GDP) grew by 20.1% between 2009 and 2011. This was supported by the strong growth recovery of domestic demand and government consumption. GDP growth was led by strong growth in mining (107%), agriculture (35%) and services (51%) while recovery in manufacturing sector (22%) has been less vigorous (National Trade Policy 2012 – 2016). Annual average inflation remained moderately at 5.1% in 2012 despite rising international prices of grain and oil. In the following years, under the multi-currency regime, inflationary developments, in the short to medium term, continued to be influenced by the USD/rand exchange rate, inflation developments in South Africa and local utility charges. Against the background of weak domestic demand, tight liquidity conditions and the recent appreciation of the US dollar against the South African rand, inflation was slightly negative in 2014, and it is projected to remain low in 2015 (African Economic Outlook 2014).
Despite the strong 2009-2011 economic rebound, GDP growth in 2012 moderated to an estimated 4.4% largely supported by mining. The rate of economic growth continued to slow down with a GDP growthof4.4% in 2013 and 3,4% in 2014. The economic recovery in those recent years has been underpinned by the mining and agriculture sectors, which accounted for 93.5% of export revenues between 2009 and 2013. Mining, which made up 65.2% of export earnings over the same period, is a typical enclave sector, with weak linkages to the rest of the economy. It is also capital intensive, with limited employment creation opportunities. The GDP of manufacturing sector, which covers both engineering and chemical industries, grew by 17%, -4% and 14.4% in 2009, 2010 and 2011 respectively (Ministry of Finance and ZimStat, 2013). The sector registered then a drop in activity between 2011 and 2014: at least 4,610 companies closed down, resulting in a loss of 55 443 jobs (2015 Budget Statement). Capacity utilisation declined from an average of 57% in 2011 to 44% in 2012 and 39% in 2013 (CZI, 2013), and remains constrained by erratic power supplies, lack of capital, higher input costs, obsolete machinery and dilapidated infrastructure. Consequently, manufactured products have failed to compete both locally and internationally. Increasing presence of imported products on retailers' shelves poses potential competitive quagmire to the local industry when full scale production resumes again. On top of this, more than 80.0% of workers are now employed in the informal sector (African Economic Outlook 2014).
The Zimbabwean Engineering, Iron and Steel industry, like any other sector, significantly declined to its lowest ebb in 2008. During the period, several dominant actors like Zimbabwe Iron and Steel Company (ZISCO), Morewear Industries and National Railways of Zimbabwe (NRZ) amongst others, either closed down, reduced operations or relocated to other countries for their survival. The sector registered an overall deficit of about USD 3,3 billion in the period 2008 – 2012, translating into an average deficit of about USD 660 million per year. Exports constituted
41% (USD 7 billion) of trade, against 59% (USD 10 billion) imports. Exports were dominated by
primary metals and metal products over value added engineering goods from the
Zimbabwean manufacturing sector.
Dollarization and the formation of the inclusive government brought hope to the collapsed sector as the surviving companies increased capacity utilisation from below 10% in 2009 to peaks of around 50% in 2011(National Trade Policy, 2012 – 2016). Liquidity challenges, strong competition from low cost imports from China, India and South Africa amongst several other challenges have resulted in a decline in capacity utilisation to around 36.9% (CZI, 2013), company closures and massive retrenchments. Despite the fact that prior to the decade of long economic melt-down, Zimbabwe had a vibrant and diversified engineering and metals sector which dominated the SADC region except for South Africa (The Zimbabwe Economy, 1987), the business environment has completely changed with the emergence of new technologies, products, globalisation and trade treaties amongst other macroeconomic factors.
Today, the Zimbabwean engineering, iron and steel sector has the potential to generate USD 14 billion for year in revenue the economy, if recapitalized (ZEPARU, 2013). This makes of the engineering, iron and steel value chain a potential backbone for Zimbabwe’s economy.