Home » Business » ’Engineering, Metals Sector Has Great Potential’

ZIMBABWE’S engineering and metals sector has potential to generate $14 billion per year if recapitalised, a study by the Zimbabwe Economic Policy Analysis Research Unit shows.

“The sector according to estimates from the diagnostic study has the potential to contribute over $14 billion per annum in revenue to the economy,” it said in its latest report on the industry. An investment of $14,5 billion was found to be adequate.”

The engineering and metals sector are divided into eight major levels, namely miningraw material extraction, metalmineral processing, metal forming, metal fabrication, machineequipment assembly, product distribution, retailing and end market. But the latest study mainly focused on metalmineral processing, metal forming, metal fabrication and machineequipment assembly where most of the core actors are centred. Other sectors in the business enabling environment were also assessed.

Zeparu noted that the engineering and metals sector could become a backbone of the Zimbabwean economy if supported by export oriented policies and adequate financial mechanisms.

A combination of sound policies, injection of funds for recapitalisation and a sound business operating environment would be prerequisites for the revival of the sector.

The study results showed that the sector was generally not competitive globally. It had an overall trade deficit of about $3,3 billion for the period 2008 to 2012, translating into an average deficit of about $660 million per year. It also revealed that the exports constituted 41 percent or $7 billion of trade against 59 percent or $10 billion imports.

The overall trade deficit was attributed to the engineering goods sub sector which had a trade a huge trade deficit of about $8,1 billion despite a trade gain of $4,8 billion for the metals and metal products sector.

While the metals and metal products contributed about 94 percent ($6,7 billion) of the exported engineering and metals commodities, engineering goods constituted 82 percent ($8,6billion) of imports.

“The main exports were precious metals, base metals, ores and iron and steel, whilst the main imports were vehicles and components, machinery, boilers, equipment, parts, etc. and electrical and electronic machinery and parts,” said Zeparu. “The trade figures therefore showed that the engineering sector has almost collapsed while the primary production is flourishing.

“The resuscitation of the engineering sector as well as an export led industrial growth to maximise value addition and beneficiation and a turn around the trade deficit must be done urgently.”

The non-operation of ZISCO was the major missing link in the chain, said the study, depriving the metals and metal products sector of over $3 billion in revenue per annum.

But the resuscitation of the iron and steel production alone had the potential to turn the trade deficit into gain.

“The operating environment was very tough for the players with the main problems being working capital constraints, political instability, lack of financing mechanisms, antiquated machinery, corruption, low demand on the market, high production costs, stiff competition from imports and labour issues amongst others.

“More work was also required on downstream actors to ensure compliance to environmental laws. Power and water shortages and a dysfunctional rail network also worsened the operating environment leaving the sector on the brink of collapse.”

The analysis of gross output, intermediate consumption and value added for the period 2009 to 2011 revealed that the engineering and metals sector produced about $1,9 billion to gross output and a value added of about $1,1 billion or $367 per year.

The overall value added was about 58 percent, implying that the actors involved in value addition performed well. The metals and metal products contributed about 79 percent or $1,5 billion and 82 percent or $900 million of the engineering and metals sector gross output and value added respectively, said the report.

The mining of non-ferrous metal ores and manufacture of structural steel products and tanks, contributed over 95 percent of the metals and metal products gross output.

“General purpose machinery, vehicle body manufacturing and electrical machinery were the main contributors to engineering goods gross output. These results again showed the dominance of the primary metals and metal products over value added engineering goods in the Zimbabwean manufacturing sector,” says ZEPARU. The high percentages of value added showed that the domestic manufacturing sector has great potential to spearhead the national economic recovery and growth.

The study also revealed that the iron and steel, PGMs, chrome, automobile and the foundry sectors were strategic subsectors for sustainable economic growth of the Zimbabwean economy.

The diagnostic study showed that the engineering and metals sector was severely distressed with a very low average capacity utilisation of about 28 percent.

PGMs are performing well with capacity utilisation of over 80 percent. On the other hand, the automotive sector capacity utilisation was below 5 percent. The study also revealed that about 31 percent of the sampled actors at different levels of the value chain had ceased operations. The sector was therefore threatened with total collapse unless urgent interventions were implemented.

Information was obtained from Chamber of Mines, ZimStat, Zimbabwe Iron and Steel Company (ZISCO), Engineering Iron and Steel Association of Zimbabwe (EISAZ) and Engineering Council Zimbabwe (ECZ) amongst others. Comparative analysis and benchmarking was done through desk review of similar studies done in countries such as China, South Africa, Zambia, South Korea and India amongst others.

Source : The Herald

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