Monday, December 16, 2013

(SUNDAY MAIL ZW) EDITORIAL COMMENT: Stop the industrial bloodbath
Sunday, 03 November 2013 00:00

The catastrophe which has hit the manufacturing sector is astonishing in its sheer size and scope. Hundreds, if not thousands, of companies are helplessly losing their valuable equipment and buildings after failing to repay loans. On a daily basis, there are many factories being auctioned at give-away prices. The industrial imbroglio is scandalous, heartbreaking and shameful.

In most of the cases, the pattern is invariably the same. You can trace the problem to 2001-2002 when the economy was jolted by Western sanctions. The subsequent years were extremely difficult for companies as hyperinflation took hold.

When the nation dollarised in 2009 following a decade of economic turbulence, everyone assumed that the worst years were finally behind us. With the benefit of hindsight, we can now see that this was wishful thinking.

There was no way the nation could wave a magic wand and wish away all the problems of the hyperinflation years. The damage had been done. Although corporate executives heaved a sigh of relief in 2009 and salivated at the prospect of raking in the green backs, they failed to realise the brutal reality of the deep-seated malaise that had taken root in the economy.

Sanctions-induced hyperinflation had inflicted massive damage. With no stock, no money to buy raw materials, no money to pay US$ salaries, no money to finance operations and no money to pay utility bills, most corporate executives rushed to the banks. They needed a rescue package to inject life into their comatose factories.

To be fair to the corporate executives, they had run out of financing options. Shareholders had neither capacity nor appetite to chip in.
Offshore funding was near-impossible to get owing to fears of economy-wide contagion. The Government had no rescue fund in place. Where else would companies find the money to kick-start operations?

The companies — struggling in the face of competition from cheap imports and stymied by a liquidity crunch that had left corporate entities gasping for oxygen — approached the banks for some respite.

With their backs to the wall, company executives literally sprinted to the banks. The banks — being what they are — welcomed them with open arms. In fact, so desperate were the firms for US$ loans that the banks had the luxury of cherry-picking the companies to do business with.
After all, banks aim for minimum risk and maximum profit.

The banks extended the companies some loans, but charged extortionate interest rates. What happened next is the stuff of corporate nightmare.
A lot of the companies which took out bank loans got entangled in a messy web of high production costs, unrealistic salary demands, outdated machinery, depressed sales and a slowing down global economy. Quite predictably, they could not achieve their performance targets.
Meanwhile, the bankers were waiting for their pound of flesh.

Four years later, here we are. The bankers have lost their patience. Instead of gently reminding the companies to pay up, they are swiftly instructing an army of hungry lawyers to pounce on the defaulters. The result is a bloodbath — on an industrial scale.

At first the defaulting firms that were losing their assets were predominantly those based in Bulawayo, Mutare and to some extent Gweru. The tide is turning. Harare-based companies are in the line of fire and the collateral damage is nothing short of catastrophic.

Loyal workers who have stood by the companies through thick and thin are being retrenched and just told to go home empty-handed.
What is heart rending is that a company can lose buildings worth US$5 million over a US$500 000 loan.

And the building is sold at a measly US$400 000. Where is the justice? Where is the Government?
If we are not careful in this country, the painstaking gains of indigenisation will be reversed overnight. Many of the businesses that are losing equipment and buildings are owned by indigenous business operators.

If they fail, they do not drown in the sewer as individual players. Rightly or wrongly, their collapse will be seen as the failure of an entire indigenisation revolution. If the manufacturing sector ends up in foreign hands, the empowerment revolution would have suffered an agonising setback.

To be sure, not every company deserves to be rescued by the Government. Some are collapsing because their owners have been profligate and reckless. Those should be allowed to die. But the truly strategic companies must never be allowed to crumble.

A firm that makes essential medicines, such as CAPS Pharmaceuticals, is surely of strategic importance. Why do we take chances on fake imported drugs? The maker of tyres, such as Dunlop, is another example. Defective second-hand tyres which are being imported by sleazy businessmen are claiming lives on our roads.

When Finance Minister Patrick Chinamasa carries that hallowed briefcase to Parliament this month, the masses are expecting him to announce quick-win remedies for the industrial bloodbath.

The final countdown to the 2014 National Budget has indeed begun, amid high expectations that the Government will use this important instrument to provide the much-needed financial momentum to the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset).

In many ways, the budget will be seen as the financial mirror of Government policy as enunciated in Zim Asset. The Government’s commitment to the success of Zim Asset’s four clusters and two sub-clusters will find practical expression in the way financial resources are allocated.

But Zanu-PF must get its act together, to allow the new Government to do some meaningful work. Looking at the party’s ongoing provincial elections brouhaha, a visitor from planet Mars, landing here for the first time, would be puzzled by Zanu-PF’s propensity for self-destruction. The party seems determined to squander the huge mandate it received in the July 31 elections.

What the nation needs is not a fractious Zanu-PF mired in perpetual election mode. The nation needs a strong, focussed, disciplined and united Zanu-PF because when the party does well, the nation prospers.

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