ZIMBABWE still relies heavily on imported goods as local industry battles to recover from years of economic decline, central bank governor Gideon Gono said on Friday.

"Generally, there was an increase in the level of foreign imports across all sectors of the economy," Gono said in his mid-year monetary policy statement.

From January to the end of June this year, banks processed payments of US$950m for imports, up 46% from the same period last year.

Most of the increase was due to imports of consumer goods, he added.

"This indicates that the country is still reliant on imported goods as capacity utilisation has not reached levels that will result in import substitution."

Zimbabwe's economy has shown signs of recovery since the formation of a power-sharing government last year by long-time rivals Robert Mugabe and Morgan Tsvangirai.

The compromise government was aimed at mending the economy ravaged by high inflation and easing political tensions in the wake of a bloody presidential run-off election.

But most factories which pulled down their shutters at the height of the economic crisis remain either shut or operate way below their capacity.

The bank urged government to "promote production by the local industry and avoid de-industrialisation through overreliance on imports of finished goods," Gono said.

Finance Minister Tendai Biti said in a budget review two weeks ago that industry was operating at 37% of capacity, compared to 10% in January 2009.

The potential of local industry has been hamstrung by lack of capital, old equipment, erratic power supplies and high import duties on raw materials.- Reuters