Despite the Finance Minister’s claims that all is well and the Zimbabwean economy is in serious trouble and continues to crumble as it faces crisis after crisis. The latest data by Confederation of Zimbabwe Industries (CZI) shows that industry capacity utilisation fell by 24.5%.
- In 2018 capacity utilisation stood at 48.2%
- This fell to 36.4% in 2019
- This is expected to fall to 27% in 2020 unless something gives.
What the heck is capacity utilisation you ask?
So you might be wondering what the heck is capacity utilisation and what on earth does it have to do with the economy? Capacity utilisation is the extent to which industrial infrastructure is being used versus its maximum capacity.
For example if we have a factory that can produce a 100 desks per day when working at maximum capacity if it produces a 100 desks per day we say the factory is utilising 100% of its capacity. If it produces 50 desks we say it is operating at 50% capacity and so on.
So why is capacity utilisation important? The thing is capacity utilisation of less than 100% usually means something is wrong and preventing the business/country from achieving its best. A fall in capacity typically means a fall in GDP (wealth) of the given country.
- It means among other things less foreign currency
- A fall in production/productivity
- Probable retrenchments
- Shortages of goods and services
- Increased trade deficit
There is a clear direct relationship between a fall in capacity utilisation and economic misery. Some claim that during 2008 capacity utilisation in Zimbabwe’s industries fell to as little as 10-0%. Nobody doubts 2008 was bad so ponder that.
What’s causing Zimbabwe’s capacity utilisation to fall?
Just about everything from runaway inflation, complex and burdensome tax regimes, acute foreign currency shortages, power shortages and crippling power cuts, fuel shortages, shortages of essential raw material etc.
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