Forex crunch forces Dunlop to close once again

By Lance Guma
07 March 2006

Dunlop Tyres, Zimbabwe’s sole tyre manufacturer, has been forced to shut operations owing to a crippling foreign currency shortage. It’s the second time in 6 months that the company has been forced to make such a decision. Over 820 workers will lose their jobs with over 30 000 more in downstream industries also set to be affected.

Just last year the company halted tyre production because of the same problem, opening only after government had made available US$300 000 for their operation. Workers were invited back but only on reduced shifts, as Dunlop could not match previous production levels. This was because the forex allocation fell far short of their requirements.

Government had a special arrangement with the tyre manufacturer in which they would collect 100 percent of their export proceeds in return for favourable support in future procurements of forex for raw materials. Last year in July the company surrendered US$687 000 to the Central Bank. This is on average the equivalent of its monthly export earnings. The company however got little in return when it needed forex for raw materials and it is these shortages that have forced them to close.

Organisations that will be affected by the closure include the army, police and the Central Mechanical Department who all have huge orders for tyres from Dunlop. Ironically it will cost the country more to import the tyres than for government to support the company with the forex it needs. Industry leaders accuse government of giving them an average of 6 percent of their foreign currency requirements and this they say is hampering their operations.

A disastrous land seizure policy, corruption and economic mismanagement have all led to the country’s economy collapsing. Sectors that brought in much needed foreign currency like agriculture and tourism have all collapsed and the resulting runaway inflation has created the fastest declining economy in the world.

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