Financial distress and its repercussions on the manufacturing sector in Zimbabwe

Abstract

The study focuses on establishing the causes of financial distress and its impact on the performance of firms in manufacturing sector in Zimbabwe. The sector plays critical roles in the economy through its linkage to agriculture, GDP, export earnings and employment creation. The study was based on 140 sampled companies in the sector. The findings revealed that there is evidence that the firms in the sector are financially distressed, which is caused by; cost and shortage of capital, cost of importing raw materials, inadequate and costly infrastructure (power and water). Financial distress resulted in deteriorating company performance, company closures, job losses and failure to service loans from banks by companies. The study concluded that the majority of firms in the manufacturing sector are financial distressed and such distress has negative effects on company performance. For the solutions to the problem, the study recommended that firms should raise cheaper capital from other sources other than borrowing, invest in new technology and close under- performing units. The government should also play its part through rehabilitation of infrastructure (power and water), implementing protectionist measures to protect local firms, provide cheap and long term finance and revamp local value chains.