REPORT ON THE TEXTILE INDUSTRY

IN ZIMBABWE

BY

TENDAI MELODY CHIGOGO

SAXION UNIVERSITY OF APPLIED

SCIENCES

STUDENT NUMBER: 476006

DATE: 3 NOVEMBER 2019

INTRODUCTION

The textile sector is very significant not only to the government of Zimbabwe but also to several
countries throughout the world. It is a major contributor to economic development by way of
increased incomes, exports and foreign currency and a major source of employment to most
countries[ CITATION Kea08 \l 1033 ]. The Global textile market size highlights the importance of
the sector based on the expansion of its market size, currently, the compound annual growth rate
is forecasted at 5.1% for the period 2016 to 2021[ CITATION She18 \l 1033 ]. While the global
market size is valued at about USD925.3 billion in 2018, this expansion has been brought about
by the increasing apparel demand in developing nations [CITATION Ano19 \l 1033 ]. The textile
sector is also highly favoured by most developing country governments because of its ability to
employ many people. The [CITATION Int19 \l 1033 ] states that the textile sector employs millions
of workers worldwide and the sector can contribute to economic and social development
significantly.

This industry report analyses Zimbabwe’s textile industry which is based on the dependency
theory. This report considers the textile industry’s contribution to the economy as well as to the
Zimbabwean population. It addresses the historical development of the textile industry as well as
the strengths, weakness, opportunities and threats of the industry. The report concentrates on the
legislative and environmental aspect. Finally, it proffers recommendations on how the industry
can avert the problems identified as a result of the legislation and environmental factors. The
following chapter will thus address the literature review.

LITERATURE REVIEW

Zimbabwe is a beautiful country located in Southern Africa, it scooped 2014 best tourism
destination in the world [CITATION Eur14 \l 1033 ]. The textile sector in Zimbabwe was established
as a result of the government’s failed attempts on obtaining meaningful mineral deposits in the
late 1920s, as such, they had to look for an alternative window of opportunity hence the
evolution of the textile sector[CITATION Ano11 \l 1033 ]. The textile industry is popularly known
as the textile and clothing manufacturing sector and it comprises of three main components
namely spinning, ginning of cotton and transformation of lint into yarn, fabrics and finished
garments[ CITATION Ano11 \l 1033 ]. Kadoma textiles, Spinweave and David Whitehead are the
three major textile players in Zimbabwe[CITATION Kan06 \l 1033 ]. These textile manufacturers
and other players in the industry are operating at below capacity. According to a 2015
manufacturing survey, capacity utilisation declined by 2.2% to 34.3% from 36.5% [ CITATION
Mak15 \l 1033 ]. Zimbabwe produces cotton; which is used locally to manufacture fabrics and for
exports. [CITATION Ben \l 1033 ] states that Zimbabwe produces the most lint in Southern Africa
totalling about 111 000 metric-tonnes from 236 000 farmers followed by Tanzania. The textile
sector proved to be very popular in Zimbabwe as it has a low skill requirement and it requires
low capital machinery[CITATION Int19 \l 1033 ]. The textile sector used to employ about 35 000
employees, but this has since changed and it employs a paltry 6800 employees [ CITATION Chi14 \l
1033 ].

The textile sector is a sub-sector of the manufacturing sector in Zimbabwe [ CITATION Ano191 \l
1033 ]. The manufacturing sector’s gross domestic product (GDP) was valued at USD $31
billion in 2018 and it grew by 5.3% in 2017[ CITATION Res17 \l 1033 ] . This shows that the textile
industry is of paramount importance to the economic growth of Zimbabwe because of its
significant contributions. This growth is illustrated below by the volume of manufacturing index.

Figure 1: Textile & Ginning Manufacturing Index

21% 19%

19%

21%

20%

2016 2017 2018 2019 2020

Source:[CITATION Res17 \l 1033 ]

From figure 1 above, one can see that the textile sector has been expanding since 2016 and it is
forecasted to keep on growing in the year 2020 by a further 1%. Thus, significant growth in the
textile sector generally equates to economic growth. Zimbabwe’s economic growth was
estimated to have grown by 4% in 2018 as reported by the[CITATION Afr17 \l 1033 ].

THEORETICAL FRAMEWORK

The textile industry in Zimbabwe just like many industries in developing economies is premised
on the dependency theory. The dependency theory was coined by Raul Prebisch in the 1950s,
Prebisch believed that economic development in developed countries always led to troubles in
poorer countries[CITATION Fer08 \l 1033 ]. He argued that poor countries export raw-materials to
rich countries which then manufacture those raw materials into useful commodities which they
resale to the poorer countries as such the richer countries remain rich whilst the poor countries
remain poor[CITATION Fer08 \l 1033 ]. This is exactly the case in Zimbabwe and most developing
nations as they are well known for exporting raw materials without adding any meaningful value
to it. For instance, Zimbabwe exported 93% of cotton lint in the 2015/16 season amounting to
about 12 223 metric tonnes, it also exported cotton that had been processed in the form of yarn
and this accounted for only 2089 metric tonnes in the same period [ CITATION Est17 \l 1033 ]. This
shows that there is a huge disparity in terms of raw materials for export and finished
commodities and unless that divide is fixed the textile industry will always be stagnant. This
situation is not sustainable in the long run as it is just a means to an end and the income
generated from such deals is usually insignificant and does not result in continued riches.

The subsequent chapter looks at the macroeconomic environment affecting Zimbabwe’s textile
industry. Emphasis is placed on the effect of legislative and environmental impact on the
industry.

MACRO ANALYSIS

The macro analysis is an analysis of the economy as a whole[ CITATION Slo12 \l 1033 ], but for the
purpose of this report, the legal and environmental factors are assessed. The legal environment
can not be discussed in isolation to the economic environment. This is mainly because most of
the enacted legislation is as a result of the changes in the climate. Such changes include the rise
of a conscious customer[ CITATION Dob19 \l 1033 ]. This customer demands products that are
environmentally friendly as such they want to know how a product was manufactured and how
that product will be disposed of in a bid to protect the environment [ CITATION Dob19 \l 1033 ].
Legislations have also been brought about by issues of poor working conditions for textile
workers, for instance, the Bangladesh factory fire[CITATION Int19 \l 1033 ]. Another reason for the
legislation is to try and protect the infant industry from unfair trade practices that pose as a threat
to the success of an industry. Such legislations include the anti-dumping act [ CITATION Wor191 \l
1033 ].

Most of the legislations implemented by Zimbabwe emanate from world bodies such as the anti-
dumping act, trade tariffs, quotas and multi-fibre agreements [CITATION Wor19 \l 1033 ]. The other
laws emanate from the regional bodies such as the Southern Africa Development Commission
(SADC), Common Market for Eastern and Southern Africa (COMESA) of which Zimbabwe is a
member of[ CITATION Zim19 \l 1033 ]. The major laws affecting textiles in Zimbabwe are the
Interim Economic Partnerships Agreements (IEPA) which is duty-free and in some instances
quota-free market access to the European Union for all exports from Southern and East Africa,
and trade tariffs by SADC and COMESA [ CITATION Zim19 \l 1033 ]. The IEPA has had a huge
impact on textile manufacturers in Zimbabwe, this is because for one to participate in this zone,
their company must be properly registered, and the goods should adhere to European Union
standards. This then meant that the textile players in Zimbabwe produce goods that are in
accordance with the international standards organisation and invest in state-of-the-art machinery
to meet the quality and market demands.

The government of Zimbabwe also introduced the Clothing Manufacturers Rebate (CMR) in
2015 as a way of protecting the textile manufacturers. This rebate allowed the manufacturers to
import raw materials duty-free and VAT-free as on the condition that these materials are not
manufactured in Zimbabwe[ CITATION Muw19 \l 1033 ] . This was a step in the right direction
because if done well, it will result in an increase in capacity utilisation as well as enhanced
quality products. This move was well received by most manufacturers as it enabled them to
source raw materials cheaply from other countries. However, the CMR resulted in increased
transportation costs and warehouse cost as all the products had to be received in a bonded
warehouse. The additional cost is generally passed to the consumer. The government also failed
to properly monitor the beneficiary of the rebate, hence the system was abused by many who
would re-sale the fabric, engage in transfer pricing and understate their invoices as such this
deprived the government of millions in tax[ CITATION Dzi19 \l 1033 ].
The government also introduced the control of goods act for import which barns the importation
of several products including cotton woven fabrics unless one applies for a special
license[CITATION ZIM16 \l 1033 ]. This move was aimed at encouraging textile manufacturers to
buy cotton products locally to boost the local cotton industry. The textile manufacturers in this
field had a mixed reaction to this law, with others arguing that it was detrimental to production as
most of the textile companies were operating below capacity and as such it was going to push the
cost of the product up. However, for the textile manufacturers, it meant an anticipated increase in
demand.

The textile industry is also guilty of releasing its own share of pollutants. The Ellen McArthur
foundation states that 1,2 billion tonnes of carbon dioxide emissions equivalent per year, which
is at par with the emissions from the automobile industry are attributed to the global textile
industry[ CITATION Dob19 \l 1033 ] . Accordingly, the government of Zimbabwe enacted the
environmental management Act which regulates issues to do with pollution prevention and
environmental degradation[ CITATION Gov05 \l 1033 ] . This act controls the emission of poisonous
fumes into the atmosphere, water and environment through regulating the disposal of textile
fabrics, the types of dyes used and the chemical composition of fabrics. This law meant that
textile manufactures had to do away with harmful dyes, fabrics made from dangerous chemical
substances and machines that produce deadly fumes in favour of more environmentally friendly
ones.

The government also gazetted a new law which makes the importation of second-hand clothing
illegal. These second-hand clothing were threatening the viability of the sector as they were
cheaper compared to new products[CITATION Yar16 \l 1033 ]. This law was long-awaited as it
helped the already stressed market. However, companies had to try and produce garments that
also cater to the low-income earners to catch the void left by the second-hand clothes.

The customs duty on polyester knitted fabric has been increased from 10% to 40% plus an
additional USD2.50 per KG, the importation of blankets for commercial purposes has also been
banned[ CITATION New18 \l 1033 ]. This move was done in a bid to try and protect textile
manufacturers from unfair competition and to try and boost the industry. This was helpful to a
certain extent as the capacity of some of the manufacturers increased slightly but this was not for
long as the banned products always found their way into the market through cases of corruption
and smuggling of goods.

The macro analysis will pave the way to the microenvironmental analysis which is deliberated on
in the subsequent section.

MICRO ANALYSIS

The microanalysis of the textile industry will look at all the internal functions affecting the
textile industry. The microanalysis looks at factors that the organisation has no control over, yet
they are very important in terms of overall decision making [CITATION Oxf14 \l 1033 ]. The micro
factors affecting the textile players in Zimbabwe just like any other players in the world are the
ever-increasing wages and salaries. These increases eat away into the company’s profits and may
affect the business operation or even result in company closures[CITATION Zim09 \l 1033 ].

The second factor affecting the textile manufactures is the threat from increased competition
from the Asian markets who smuggle finished goods and sub-standard fabrics into the country
and selling them at a cheaper price compared to the local manufacturers [ CITATION New18 \l
1033 ]. The cheap fabric has affected the way businesses operate as their finished wares tends to
be cheaper than those from the textile manufacturers. This has forced the textile manufacturers to
reduce the price of their products so that they can enjoy a reasonable revenue, and this has one
way or the other affected their profits. These cheap imports have deprived Zimbabwe of millions
of dollars as 90% of the products enter the country duty-free thus resulting in an unfair
competition[ CITATION Chi14 \l 1033 ].

The third problem emanates from the high levels of unemployment which is currently at about
11.3% and standing at number 154 in the world comparisons ranking [CITATION CIA19 \l 1033 ].
The high levels of unemployment have resulted in an influx of small informal textile operators
who are now posing as a threat to the textile operators due to their flexible pricing negotiation
skills hence they end up fragmenting the market. These informal traders normally do not have
rent, wages or salary bills like those of the seasoned manufacturers hence the price adjustments.

Lastly, the textile manufacturers in Zimbabwe are constantly faced with ever-increasing
operating expenses which are mainly triggered by the unstable economic business environment
and the high rate of inflation. Costs such as electricity, fuel, cost of raw materials and increasing
interest rates makes business volatile. As such the textile operators have started investing in other
sources of power such as solar systems in order to move away from the increasing electricity
costs. This, however, means an unforeseen increase in operating costs of buying and installing
the new systems.

DISCUSSION

They are several opportunities, threats, strengths and weaknesses in the textile industry in
Zimbabwe. These are discussed in finer detail starting with the opportunities and strengths.
Zimbabwe has a competitive source of raw materials which are of high quality. There was a 62%
anticipated increase in the cotton production for the year 2017-18 as a result of the government
free seed input support program aimed at small-holder farmers[CITATION Placeholder1 \l 1033 ].
This shows that the future of cotton fabric is certain as the cotton production in the country is
growing as such investors are guaranteed of the abundance of raw materials.

Zimbabwe has a high literacy rate of about 88.69% [CITATION Uni19 \l 1033 ]. This means that
there is a high pool of skilled workforce. This acts as an advantage as the investors will be
guaranteed of a readily available skills base that requires little or no training at all.

The other benefit of investing in the textile industry in Zimbabwe lies in the fact that it is not a
high capital-intensive industry. As such the start-up costs are cheaper as compared to other
capital-intensive industries like mining. The government has also allowed investors to bring in
their new machinery duty-free under the condition that the machinery is new [CITATION Zim10 \l
1033 ]. This move acts as an incentive to encourage textile manufactures to buy new machinery
as it is cheaper because of the duty exemption away from using obsolete machinery.

The trade tariffs and quotas allow for increased competitiveness as it guarantees the textile
manufacturers of a ready market as long as their goods meet the international standards. This is a
move that ensures the continued existence of the textile industry in Zimbabwe as it also warrants
a wider market base and an increase in revenues.

Preferential agreements such as the everything but arms agreement ensure the presence of an
expanding market. This is a good factor that guarantees the continued existence of the textile
industry in Zimbabwe. This is also guaranteed by the continued support that the industry is
always getting from the government.
Another opportunity of the textile industry stems from the fact that some of the machinery is now
obsolete as such new investors are much sought after in a bid invest in machinery and advanced
technologies.

The textile industry in Zimbabwe is not 100% perfect. Just like any other industry, it also has its
own share of threats and weaknesses which are can affect the continued existence of the industry,
these threats are discussed below.

Zimbabwe is ranked number 155 out of 190 [ CITATION The19 \l 1033 ], in terms of the ease of
doing business ranking this emanates from issues to do with intellectual property rights. These
tend to scare away potential investors as there is no guarantee of the security of their intellectual
property.

The changes in the climate are posing a serious threat to the survival of the textile industry.
Manufacturers are now required to adhere to environmentally friendly practices and products and
these generally mean reinvesting in new technology and alternative sources of raw materials as
such this tends to result in an undesirable increase in operating costs.

Textile manufacturers are constantly being faced with increasing costs of transportation. This
emanates for the removal of duties on the importation of certain fabrics. Therefore, the greater
number of textile manufacturers import their fabric from China and India. The process of
importation does not come cheap, one has to consider the freight charges involved.

The cost of living in Zimbabwe is always shooting up in line with the increase in inflation. As
such the wages of the masses are quickly eroded as such government has called for the increase
in wages and salaries. This has a detrimental effect on the profit and revenue of the business as
most businesses are struggling as a result of the economic situation hence a serious threat to the
textile manufacturers.

Another negative impact on the textile industry is the increase in competitors, the manufacturers
are being affected by competition from Asian markets as wells as small scale textile
manufacturers who operate from home. This then tends to divide the market and tends to affect
organisation’s sales and profit margins.
CONCLUSION

As seen in the sections above, the textile industry is very important to the sustainable
development of Zimbabwe. As such its continued existence is dependent on the government’s
ability to ensure a readily available and wide raw material base. The government should,
therefore, find investors and offer funding to the textile manufacturers to enable them to operate
at full capacity.

Duty exemptions, as well as tax incentives, should be given to those manufacturers who import
ginning, weaving and spinning machinery as they are only 3 major players who are operating at
below capacity currently. The government should also invite more textile giants who have the
capacity to make a variety of raw materials so that there is less reliance on imported fabrics. This
will also help reduce the costs of transportation as well as time and the risk associated with
importing the raw materials.

In conclusion, the textile industry in Zimbabwe is bedevilled by a series of negative factors but
these factors are outweighed by the positive aspects. Therefore, one should invest in the textile
industry in Zimbabwe because it is an expanding industry, that has a lot of government support
in terms of trade tariffs and clothing manufacturers rebate plus the fact that it requires a less
skilled workforce and little capital equipment is an added advantage.
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