24 November 1999

Zimbabwe: Shoe-making sector finds its feet in domestic market

Harare — Zimbabwe's troubled shoe manufacturing sector has recovered its domestic market share in the past year mainly because of the depreciation of the local currency, First Merchant Bank of Zimbabwe (FMB) said in its latest quarterly review of the country's economy.

The liberalisation of the economy in 1991 resulted in an influx of cheap shoe imports into the country which caused the closure of some footwear manufacturing companies. But analysts say the depreciation of the Zimbabwe dollar, which has lost 134 percent of its value to the American greenback since 1997, has played a part in the industry's recovery.

The depreciation of the local dollar had led to a significant increase in the cost of importing footwear, resulting in a decline of imports during 1999. This enabled the local footwear industry to fill in the resultant gap.

"The footwear industry has suffered a number of casualties in recent years as subsidised footwear imports at prices that were frequently below local production costs affected the competitiveness of many shoe factories," the FMB said in a report for the quarter ending in September.

"Most came under severe pressure to increase productivity and efficiency to remain competitive. More recently, the exchange rate changes in 1997 and 1998 added so significantly to import costs that the local firms were able to recover a large part of their former domestic market share."

The report said the local footwear manufacturing industry had also been able to increase its exports in the past year, though it did not give an expansion figures in both cases.

However, Zimbabwe's harsh macroeconomic climate has continued to have a negative effect on the industry, with producer costs estimated to have risen by about 65,8 percent in the 12 months to June 1999.

The industry has also seen sharp increases in its wage bill in the past two years because of the country's high inflation, which has eroded workers' buying power and forced them to demand higher cost of living adjustments. Zimbabwe's annualised inflation soared to a new record high of 70,4 percent in October, up from 69,7 percent in September, with debilitating effects on both local companies and workers.

Because of the high operating costs, the industry has had to hike shoe prices, which increased by an average 5,4 percent a month from May to August this year.

"However, over a more extended period, average price increases have been sustained at figures well below the average for all consumer goods," the FMB report said, noting that price increases of consumer goods were 55 percent in the first seven months of this year.

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