Stable currency is key to manufacturing industry growth

Martin Mapfumo

The manufacturing sector plays a catalytic role in a modern economy and has many dynamic benefits crucial for economic transformation. According to the DTI (2017) and Bhorat (2017), there are very few, if any, cases in economic history where a country has achieved sustained and sustainable economic development that has not been led by manufacturing.

According to Cho and Yamawaki (2009, the manufacturing sector has spurred meaningful economic growth and development and has become the sustainable backbone of rapidly growing economies. For instance, from the 1950s on, the main focus of industrial policy by the Taiwanese government was the promotion of the manufacturing sector through supporting the export activities of small to medium-scale enterprises (SMEs); more examples include Singapore, Brazil, India, and Nigeria, among others.

The manufacturing sector is an avenue for trade expansion, a vital source of innovation and competitiveness, and it makes outsized contributions to exports and productivity growth.

The manufacturing sector is a very prominent and valuable industry and can contribute immensely to economic growth, job creation, and export earnings. It can thus be said that the manufacturing sector is a wealth-producing or wealth-creating sector in the economy.

However, it must be noted that for the manufacturing sector to bring positive outcomes, manufacturing firms should adopt strategies that make them competitive. For manufacturing firms to achieve a competitive standing, there must be an environment that gives them a competitive edge both locally and globally.

The Reserve Bank of Zimbabwe (RBZ) introduced a new currency called Zimbabwe Gold (ZIG), which is anchored by a composite basket of currency and precious metals, mainly gold, to stabilise the economy, bring back customer confidence and trust, and serve as a means of storing value.

For manufacturing companies to operate in a stable economy where there is no prolonged inflation or deflation, a stable currency will encourage economic growth, and interest rates will remain low. This helps encourage investors to borrow funds to increase their investment. With increased investment, the economy will grow.

In macroeconomic management, exchange rate policy as an important tool derives from the fact that changes in the rate of exchange have significant implications for a country’s balance of payment position and even its income distribution and growth. Stable prices help to ensure that the economy is growing, jobs are safe, and you can feel confident that the money in your pocket will be worth roughly the same tomorrow as it is today.

A competitive currency is one factor that largely determines the presence and development of the manufacturing sector in any economy. The Government of Zimbabwe has also formulated informed policies that align with the actual needs of the manufacturing sector in this volatile, uncertain, complex, and ambiguous (VUCA) environment.

Government recently commenced the process of developing the new Zimbabwe National Industrial Development Policy (ZNIDP) for 2024–2030.

Dubbed the Triple Helix, the Government, industry, and academia are regarded as critical elements for creating an ecosystem that drives the growth and development of a vibrant domestic industry and economy in general.

Triple Helix is a term used in the field of innovation and entrepreneurship to describe the relationship between academia, industry, and government in driving innovation and economic development. The concept suggests that collaboration and interaction between the three sectors can lead to more effective and dynamic innovation systems.

The envisioned ZNIDP is expected to entail provisions and strategies to grow the manufacturing sector by at least two percent per year until 2030.

With the introduction of the ZiG, the growth and improvement of the manufacturing industry will be key to driving more use of the local currency and encouraging more exports.

Zimbabwe has been having too many imports coming in, in relation to its exports. It has distorted the balance of trade for a long time, leading to the devaluation of Zimbabwe's previous local currencies. The devaluation of the Zimbabwean currency has had an impact on the everyday lives of Zimbabweans because the value of a currency is one of the biggest determinants of a nation’s economic performance and its gross domestic product (GDP).

If Zimbabwe maintains a balance between exports and imports, its GDP, exchange rate, interest rates, and level of inflation can be influenced by the balance.

Zimbabwe will become prosperous when we transform raw materials into a variety of finished goods of higher value (value addition). Our country’s prosperity lies in diversifying and increasing the manufacturing sector as fast as possible, aided by a more stable currency.

For the manufacturing companies to witness effective and efficient growth as well as expansion, the Zimbabwean currency must be stable, therefore preventing the closure and decline of some manufacturing companies.