0

A look at the Manufacturing Sector

PUBLISHED Jul 21, 2022, 3:15:01 PM        SHARE

img
imgpiggybank advisor

One of the foundational principles in the theory of international trade has to do with comparative advantage. The law is popularly attributed to English political economist David Ricardo and his 1817 book, “On the Principles of Political Economy and Taxation”. It refers to an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners. There has been several discussions on the development of the African Continental Free Trade Area (AfCFTA) and how it could benefit developing nations such as Zimbabwe. A common question has been on the key sectors that Zimbabwe should focus on and whether there is any comparative advantage in sectors such as manufacturing. Broadly speaking, the manufacturing sector in Zimbabwe has been adversely affected by (i) constrained aggregate demand, (ii) capital shortages and (iii) structural issues such as power disruptions. That said, authorities expect the sector to rebound on (i) the gradual re-opening of the economy and (ii) enhanced availability of foreign currency following the introduction of the foreign exchange auction system.

From a global perspective, countries that have a comparative advantage in the manufacturing sector have invested heavily in technology growth and efficiency. According to the World Robotics 2020 Industrial Robots Report, there was a total of 2.7 million industrial robots operating in factories around the world, representing an increase of 12%. The growth was driven by success stories of smart production and automation. According to the International Federation of Robotics, the USA was ninth in the world in terms of robot density as of 2019 and third in terms of annual robots deployed, with 33,300. China deployed 140,500 the same year, Japan rolled out 49,900, and South Korea—which has a fraction of the USA’s GDP and population—deployed nearly as many at 27,900. The USA is still second in terms of global manufacturing share, though, accounting for 16.6% of global output as of 2018, down from 29% in the early 1980s.

Robot Density in Manufacturing

Source: International Federation of Robotics

The benefits of increasing robot installations include rapid production and delivery of products at competitive prices. Automation also enables manufacturers to keep production in developed economies without sacrificing cost efficiency. In a new world order that is characterised by production processes which are driven by robots, it is difficult to envision the future of a struggling Zimbabwean manufacturing sector that has been reeling under sub-optimal capacity utilisation levels. In fact, the sector remains littered with dogs and zombie companies that are stagnant and have moribund prospects, limited cashflows and low market share. A major concern is that such companies are “uncompetitive survivors” and a barrier to productive growth given that the survival of weak companies contributes to lowering the average overall productivity. Such companies are detrimental to the economy as they lock up capital and talent that should be available to more successful and dynamic companies in other sectors of the economy.

Piggy has previously cited Turnall Holdings as a good case-study. While residential housing in the country has proved to be resilient on the back of diaspora remittances, Turnall Holdings continues to face competitive pressures. There has been a growing preference for alternative roofing materials that is lighter and cheaper amid high construction costs. There is a similar substitution effect in its concrete piping products, which are losing market share to PVC pipes. The company risks losing market share in the future considering the changing preferences to cheaper construction materials being produced by new Chinese entrants that have garnered market share. The list does not end on Turnall Holdings alone. General Beltings, MedTech and Zeco also face similar constraints. In the outlook period, stock picking in this sector is of paramount importance given the current state of the economy. Get more tidbits on the stock market by joining a PiggyBankAdvisor WhatsApp Group (+263 78 358 4745).

Originally Posted on piggybankadvisor.com


Sound investments
don't happen alone

Find your crew, build teams, compete in VS MODE, and identify investment trends in our evergrowing investment ecosystem. You aren't on an island anymore, and our community is here to help you make informed decisions in a complex world.

More Reads
The Price Earnings Ratio
Image

As a follower of the stock market, you most likely might have heard analysts or commentators referring to what are called Price Earnings Ratios (PER). In this article, Piggy would like to demystify PER ratios and also educate folks on how they can make use of this metric to pick stocks on the market.

Market Musing 7-18-2022, Dollar dropping, Earning Season is here
Image

High Volatility: VIX > 24. SPX overall is bearish, however we have been range bound for the last 3 weeks.

Stocks vs Real Estate
Image

Exploring Where to Put Your Money

Estimating Future Stock Returns, March 2022 Update
Image

Well, finally the bear market… at 3/31/2022 the S&P 500 was priced to return a trice less than zero in nominal terms.

Calm before the Storm?
Image

The biggest rally in the S&P 500 in three weeks helped lift global equities today.

The Dollar is on its Back Foot
Image

The dollar’s downside correction continues today, helped by hawkish signals from the Reserve Bank of Australia and unnamed sources who have played up the chances of a 50 bp hike by the European Central Bank on Thursday.

7 Ways of Diversifying your Personal Investment Portfolio
Image

Diversification is one of the most important aspects when it comes minimizing risk within an investment portfolio

Focus on Dividends
Image

Piggy has always advocated for individuals and households to consider ways of generating passive income.

Macro Overview for the Week Ahead
Image

Investors will focus on three types of events next week.

Feeling Risky? Marijuana Stocks May Jump From Legislation
Image

Senate Democrats Working on Bill to Decriminalize Marijuana

Paying Off Debt
Image

There are different tactics and strategies to pay off debt easier and faster. The debt snowball method is the best to use

Business and Society
Image

One great discussion topic and area of study has to do with defining exactly what a business is and what its obligations are to society at large

Frenzied Week Ending with a Quieter Tone
Image

After a frenzied week, the markets appear to be going into the weekend more subdued.

Gas Fees: Everything you need to know
Image

You've probably heard about crypto gas fees and their role in the blockchain process. In this post, we'll tell you everything you need to know about it.

The Hundred 2022| Squad & Men’s Team List The Hundred
Image

The Hundred team list 20222 London Spirit, Welsh Fire, Manchester Originals, Northern Superchargers, Oval Invincibles, Trent Rockets, Birmingham Phoenix, Southern Brave

IS VISA STOCK A BUY? WHY & WHY NOT?
Image

Is Visa stock a buy? Let's discuss why it is a strong buy and why it is not due to the pro-cyclical nature of the stock!

Is Rivian a Buy Right Now?
Image

Take a Look at the Hot New EV Release

Ledger Launches NFT Marketplace, Enterprise Platform, and other Web3 Services
Image

Ledger has announced the launch of a non-fungible token (NFT) marketplace and web3 services platform for enterprises...

Resources for Publishers
Resources for New Investors
Boosted with BossCoin