Forex shortages crippling leather sector, says Nat...

Forex shortages crippling leather sector, says National Competitiveness Commission

Audrey Galawu

The National Competitiveness Commission has lamented the shortage of foreign currency and taxation on the leather sector, citing that it is crippling the competitiveness of the value chain.

Cross-cutting cost drivers challenges such as limited access to foreign currency for retooling, importation of spares, chemicals and other critical inputs in the production process, has negatively impacted on the competitiveness of the leather sector.

In a 2023 competitiveness report, the Commission stated that business operators in the industry are hindered by financial constraints for instance, the prevailing interest rates of 150%, and the short tenure of loans, hinders the players in the industry from borrowing to finance critical expenditures.

“The sector’s predicament is worsened by the 2.5% foreign currency retention, as industry players opt not to export, as there is very little, or no incentive to do so.

“Furthermore, the 25% liquidation requirement on all export receipts results in loss of value for exporters due to exchange rate variations, thereby further affecting competitiveness of the value chain.

The 2% Intermediated Money Transfer meant to target informal enterprises, has also become a cost multiplier in formal business operations that is negatively affecting the sector.

“Late payment of Value Added Tax refunds by Zimra, taking an average of 21 days, is also financially constraining the sector, as the funds are locked up for that period instead of being used to generate more income.,” reads the report.

NCC Director, Brighton Shayanowako said the leather sector in Zimbabwe used to be a vibrant industry in the last two decades, however, it is now characterised by poor performance due to technical, financial and ecological challenges which are negatively affecting production, productivity and competitiveness.

“The sector used to be competitive, producing 17 million pairs of shoes per annum at its peak, of which 6 million, worth US$30 million were exported per annum.

“Currently, less than 1 million pairs are being produced whilst the demand for shoes stands at 14-15 million pairs per annum.

“Challenges affecting the sector include high cost of funding, antiquated machinery, multiple regulatory charges, and lack of coordination and collaboration across the value chain,” he said.