Download Full Document

CZI PRESENTATION
2010 IIZ Annual Conference
Troutbeck Inn – 8 November 2010
STATE OF THE ECONOMY
Rebuilding Industry to Achieve
Competitiveness: Realities, Constraints
and Imperatives for Zimbabwe
By Joseph Kanyekanye
President – Confederation of Zimbabwe Industries
CZI PRESENTATION
Presentation Summary















Introduction & Scope
Performance of the Zimbabwean Economy
Key Issues for Zimbabwe
Constraints
Western Skepticism or Sanctions
Forecasted GDP Growth
Forecasted Sectorial Growth
Areas of Competitive Advantage
Way Forward
What Industry expects
Indigenisation
Unlocking Funding
National debt
Conclusions
Questions and Answers
CZI PRESENTATION
Introduction
Post – conflict and fragile economy but
growing largely on limited domestic
resources
Sanctions/AGOA: picture yourself out.
Focus on treatment not description of
wounds
Zimbabwean economy small - $120m per
month bur arguably not LCD but has features:
Zambia versus Zimbabwe visit by an ET
Zimbabwe RSA relationship
Scope – no fiscal measures
CZI PRESENTATION
History of the performance of the Zimbabwean industry
Over the past years, the country's industries have
been operating at less than 50% capacity, making it
difficult for the production of competitive goods,
and as a consequence the country ended up
importing everything from the neighbouring
countries
Post UDI industrial complex based on
competitiveness transformed into an outdated and
inefficient ‘burden’ needing modernisation and or
smart partnerships.
Economic decline amidst controversial policies
aggravated situation
CZI PRESENTATION
FDI Figures for 2009
ZIMBABWE
ZAMBIA
RSA
US$1.2 BILLION
US$8.4 BILLION
US$120 BILLION
REALITY CHECK: THE GOVERNMENT OF
ZIMBABWE IS LIKELY TO GENERATE MORE
MONEY FROM OUTSIDE THAN INSIDE
ZIMBABWE
IF
WE
ORGANISE
OURSELVES...WE NEED THIS MONEY
DESPERATELY
CZI PRESETATION
Key issues for Zimbabwe
 ABSENCE
OF LINES OF CREDIT
 WESTERN SCEPTICISM
 POOR ENGAGEMENT SKILLS
 LACK OF NATIONAL INTEREST
 FAILURE TO PICTURE OUR WAY OUT
CZI PRESENTATION
CONSTRAINTS
Economic decline, did not spare funding of business.
There is an absence of long-term capital from the
domestic banking sector to recapitalize balance sheets
High country risk continues to keep the doors to
international financing options closed.
External debt situation also means that we can not
benefit from credit facilities being offered by multilateral
institutions such as the World Bank and IMF.
Manufacturing shows only 13.4% had access to lines
of credit largely from Afrexim and PTA Bank.
CZI PRESENTATION
Funding..Funding …. Inadequate funding
Tenure and interest rates are unfavourable to business.
The local financial institutions are also offering credit, but again at
punitive interest rates ranging from 8% to 60%, and short term tenure
of between one to six months.
Local roll over facility comes at a cost to industry.
Official statistics indicate that the domestic credit continues to grow,
with domestic credit increasing from $766.8 million in January 2010,
to $1.247 billion in July 2010. Albeit the fact that domestic credit has
been increasing the conditions remain unfavourable to industry.
It is also fairly obvious that medium to long term credit necessary for
capital expenditure is not readily available locally.
Costly rights issues which have generally been poorly subscribed.
8
ZIMBABWE ELECTRICITY TRANSMISSION AND
DISTRIBUTION COMPANY
Internal Correspondence
Where are we on power?
Source
Current Av.
Capacity
(MW)
Dependable
Capacity
(MW)
Remarks
Kariba
720
750
 All units in Service
Hwange
300
780
 Major Overhauls a Must
 Fuel (Coal & Diesel) constraints
Small
Thermals
0
150
 No Coal
 High Cost Relative to Tariffs
Total
1020
1680
>600 MW Shortfall
9
Where are we on land?
10
CZI PRESENTATION
COMPULSORY READING
‘ Until the President makes the certification described
in sub-section(d), and except as may be required to
meet basic human needs or for good governance, the
Secretary of the Treasury shall instruct the United
States Executive director to each international financial
institution to oppose and vote against: (1) any
extension by the respective institutions of any loan,
credit, or guarantee to the Government of Zimbabwe:
or (2) any cancellation or reduction of indebtedness
owed by the Government of Zimbabwe to the United
States or any international financial institution’
SANCTIONS? RESTRICTIVE MEASURES? TARGETED? ZDERA?
CZI PRESENTATION
USA/EU Skepticism and Sanctions - 1
FACTS? TRUTH?POLITICS? FAILURE TO ENGAGE?
Conversations with EU,USA, Ambassadors, ADB,
World Bank, IMF, PTA .
Zimbabwe Democracy & Economic recovery Act
(2001) versus Bill (S.3722.IS) Zimbabwe sanctions
Repeal Act 2010 ( acknowledges the burden of
sanctions in Zimbabwe GNU)
EU Council resolution (EC) – 314/2004 CFSP –
financial restrictions on Zimbabwe and travel ban on
select government leaders
Sanctions UNILATERAL – no UN or WTO rules
Can sanctions be justified post GNA? You decide.
Is it fair? China after T. square, Angolan rulers,
Liberian diamonds
CZI PRESENTATION
Western Skepticism or EU US Sanctions - 2
FACTS? TRUTH?POLITICS? FAILURE TO ENGAGE?
 ZIDERA prevents debt rescheduling needed to
unlock funding and deal wit arrears since 1999
US/EU can influence Zimbabwe getting lines of
credit
The West has not forgiven or forgotten our
controversial land reform – heart of the issue
Targeted entities:
State constitute at least 40% of businesses
State utilities and enablers of growth largely
depend on foreign loans for capex – power,
railways
Deal with ZIDERA and land reform.
CZI PRESENTATION
ZIMBABWE FORECAST
% p.a.
GDP Growth
Inflation – end
year
2009 2010 2011 2012
4
minus
7.7%
Interest Rates (USD) 12%
Source: Hawkins 2010
4
4.5
6
10
6
6
16
13
10
CZI PRESENTATION
ZIMBABWE SECTORAL GROWTH
% p.a.
2009 2010 2011 2012
Agriculture
14.9 18.8
10.0
10.0
Mining
8.5
31.0
25.0
15.0
Manufacturing
10.2
4,5
4.5
6.0
Distribution
15.0 12.5
8.0
10.0
Tourism
6.5
6.0
6.0
Hawkins, 2010
3.5
CZI PRESENTATION
Some Key areas of competitiveness in
Zimbabwe
Clothing
and textile industry
Agro-Processing
Chemicals
Manufacturing - Food
Pharmaceuticals
Metals and Minerals
Technology
Wood and furniture
CZI PRESENTATION
Way forward :Priority Areas
The country must not only choose priority
industries to focus on, but products as well
 The products must come from sectors where the
country has competitive advantage and can
therefore be pushed into the region – focus on
quick fix e.g. in Argentina and Hungary
[SADC&COMESA]
 Consideration must also be given to non-tradable
goods
 The priority areas & products must also consider
the 2010 World Cup opportunities, and its
aftermath

CZI PRESENTATION
How to rebuild competitiveness
Government should come up with a
comprehensive National Industrial Strategy
 Assist industries by giving them a competitive edge
in the export of their goods
 Rejuvenate Zimtrade to enhance exports
 Make use of the EPA benefits as this may yield
increase and progress in market liberisation
 Industry must innovate or die
 Allowing more players and ensuring that only
market rules apply
 Seek incubation period before zero tariffs

CZI PRESENTATION
How to rebuild competitiveness cont.






Advocate for foreign enterprises and other players
that seek to partner local industries
Endeavour to export value added products
Identify and address the challenges faced by
companies
Industries need to modernise
Need to dump high mark-up low productivity
business models
Use Total Quantity Measurement Strategies (TQM)
which improve the quality of goods and services
thereby increasing customer satisfaction
CZI PRESENTATION
What industry expects in General
Institutional and structural reforms – stop fighting
private sector, commercialise or privatise state
enterprises immediately
 Make the nation attractive to investment – Soros
economic Development Fund at US$500k to US$5m in
Liberia and Sierra Leone
 Policies that spawn new firms so as to keep ourselves at
the top – e.g. micro-finance
 Boost Research and development tax credits
 Lower corporate tax
 Capital equipment credits and NO VAT FOR CAPEX.
 Reduce taxation regime imposed on manufacturers

CZI PRESENTATION
What industry expects in General
•
•
•
•
•
Assistance in form of incentives, tax holidays
Supporting of low interest rate loans which businesses
can borrow
Providing affordable industrial finance which enables
industry to recapitalize, retool and increase capacity
utilisation
Going back to the social contract & a investor - friendly
Labour Relations Act not paid for special leave and quasi Marxist employee endowments
Continuing to groom entrepreneurs
CZI PRESENTATION
What industry expects on Government Style and
Pace
Pace
of working – ZESA Power project & ZISCO delays do
not make sense; Marange diamonds
Cluster communication
Consensus as opposed to Rulers or arrogance
Need for national unity and purpose –politics must take a
back step for business
Deal with Venal Elites decisively and quickly – they spoil
the environment
Upholding
court judgements and International
Agreements
CZI PRESENTATION
What industry expects on Taxation
Contingent liabilities carried over from hyperinflation
need to go to give financials that attract investment
Moratorium to normalise tax needed without extremely
punitive penalties post dollarization
Vat Payment on 15th day does not create credit but
groceries for cash.
Create correct history – offset new and outstanding
statutory obligations against forex ‘taken’ by RBZ and
pre-dollarization Zimbabwean dollar balances
CZI PRESENTATION
What industry expects on Indigenisation,
Empowerment or BBBEE
DO NOT TAMPER WITH PROPERTY RIGHTS UNLESS YOU USE FREE MARKET RULES –
RSA CASE: BLACK RULE; TEMPORARY EMPOWERMENT;CHIMURENGA RULES DO NOT
APPLY EXACTLY;
LISTEN TO YOUR INDUSTRY SECTOR LEADERS – KENYA CASE STUDY
ENVISAGE A SUSTAINABLE OUTCOME IN BOTH SHORT AND LONG TERM HORIZONS
THAT WORK ON A VIABLE PLATFORM OF A FUNCTIONAL ECONOMY
HONOUR AGREEMENTS AND INTERNATIONAL LAWS BEFORE GOING PUBLIC –
WTO(100% FOREIGN INVESTMENT IN MINING) & COMESA (TARIFFS & FOREIGN
CAPITAL ) – CAN BE CHANGED BUT OBEY THE RULES
BBBEE NEEDS TO BE SECTOR SPECIFIC AND BE BASED ON CONSENSUS –
MANDELA'S RSA HAS INEQUALITIES AND TENDERPRENEURS
MANAGE THE DESTABILISING LUNATIC FRINGE - MARKET RULES APPLY
CZI PRESENTATION
Unlocking Funding … funding and HIPC
These lines of credit should be closely monitored and
performance of the recipients will be measured considering the
scarcity of resources. CZI believes that such schemes have to be
administered through banks rather than government to avoid
cronyism.
Debt relief under HIPC initiative to improve sovereign debt rating
and reduce risk for outside investors.
Mobilization of donor funds/credit guarantees for lending to the
private sector.
Secure medium term funding
25
CZI PRESENTATION
Funding …… more Funding
FCA balances at RBZ need to be dealt with through creation of tradable tax
credit certificates, conversion into long term Government bonds and/or use of
privatization proceeds from targeted state companies. Diamond sale proceeds
estimated at least $2 billion per year could also be used to restore some little
liquidity for disadvantaged firm
Innovative funding eg Botswana facility subject to our Government speedily
signing and ratifying BIPPAS, this can be done on a revolving basis, using a similar
template with RSA, Namibia, Angola, China and Malaysia.
US$2 – 5 billion revolving credit administered by local and international banks with
participating governments giving guarantees to mitigate risk thereby wetting the
appetite for banks to lend directly to Zimbabwean firms. The Botswana Line of Credit
gives up to 5 years period to pay with minimum loans of US500 000.
26
CZI PRESENTATION
National Debt
Zimbabwe National Debt needs to be sorted out. The reality is that with
or without the unilateral EU/USA sanctions, Zimbabwe has arrears since
1999 which prevent access to World Bank/IMF facilities to include African
Development Bank.
ZDERA and unilateral EU sanction both constitute an unsustainable
posture in a post GNU society. ZIDERA specifically works against debt
relief.
HIPC should be done. CZI’s discussions with the IMF suggest a debt
forgiveness strategy that involves staff supervision is a viable option. We
strongly believe serious political will to privatize can help the situation.
CZI’s view is that a hybrid approach if diligently followed can unlock
funding within 6 months.
27
CZI PRESENTATION
CONCLUSION
Building
blocks for policies must be market based principles:
Focus on incentives rather than punitive measures
Lets listen to sector leaders. Stop local and international business
hostility
 Look East and Learn – Kenya case: Sino-Indian Persian triumvirate
has upstaged UK 3 billion pound investment, Oversubscribed Bond
Programme, Growth
Indigenisation is a curved ball that must be played well and
professionally taking cognisance of free market rules or we will lose
exclusively through own goals.
When we fight within, amongst and between us, there will be no
investment.Lets retrace our steps … this time through consensus and
avoiding the ruler concept.
CZI PRESENTATION
'Behind me is infinite power; before
me is endless possibility; around me
is boundless opportunity. Why should
I fear?" - StellaStuart

THANK YOU
29