Zimbabwe’s Manufacturing Bullish On Better Forex, Inflation Outlook

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Zimbabwean manufacturers expect to ramp up production to 61% of capacity this year, the highest level in a decade, on expected stability in the foreign exchange market and falling inflation, the main industrial body said on Thursday.

The Confederation of Zimbabwe Industries (CZI) said capacity utilisation climbed to 47% last year from 36.4% in 2019 after the government introduced an auction for foreign exchange that gave companies easy access dollars.

Local industry also benefited from increased domestic demand as imports were restricted after most countries, including Zimbabwe’s biggest trading partner, South Africa, shut borders as part of lockdown measures to combat the COVID-19 pandemic.

“Certainty and predictability has been introduced in the economy. The auction is fostering some measure of confidence and trust in the policy making and implementation process,” CZI said.

CZI, however, said most companies still faced difficulty getting working capital, high costs of maintaining businesses during COVID-19 lockdowns and loss of some export markets due to the pandemic.

The central bank expects year-on-year inflation to ease from 321.59% in February to below 10% at the end of the year, basing its forecast on a stabilising exchange rate and an economic rebound driven by better agriculture prospects.

Before the introduction of the foreign currency auction, most businesses bought forex on the black market, where the Zimbabwe dollar trades at a premium to the official exchange rate, and passed on the costs to consumers.

Manufacturing’s contribution to gross domestic product has shrunk to around 10% from 22% in 2000, before the advent of a long-running economic crisis and bouts of hyperinflation.