Govt’s cost cutting excites industry

Govt’s cost cutting excites industry

Govt’s cost cutting excites industry

Source: Govt’s cost cutting excites industry | Sunday Mail (Business)

Livingstone Marufu
Industry representative body, the Confederation of Zimbabwe Industries (CZI), believes Government’s move to address high business costs will improve the country’s manufacturing industry’s competitiveness.

Finance and Economic Planning Minister Patrick Chinamasa recently told The Sunday Mail Business that there is need to address various challenges to become competitive again.

High cost drivers like power, finance charges, water, taxes and levies are some of the challenges that the Government has started addressing. “Over and above challenges, businesses experience over the ease of doing business environment and also contend with a high domestic cost structure.

“In the SADC region, Zimbabwe’s business cost structures are ranked high, with some of the cost lines well in excess of 20 percent above regional comparatives.

“This is contributing to the lack of competitiveness of Zimbabwe’s exports in the region and beyond. To enhance business competiveness, Government will unpack the underlying causes of the above costs, with a view to aligning them to regional standards,” said Minister Chinamasa.

 

Mr Jabangwe
Mr Jabangwe

CZI president Mr Sifelani Jabangwe said the recent move will augment the import management programme – Statutory Instrument 64 of 2016 – to improve local industry’s competitiveness. The industry capacity utilisation currently stands at 47,4 percent but more needs to be done to match regional and African counterparts.

“If the country could reduce its electricity tariff for industry to that level of Zambia of around 6c/KwH, it would go a long way in improving its competiveness as electricity is one of the key cost drivers of the manufacturing industry.

“Besides electricity, cost of water remains high in the production of many goods in our industry,” said Mr Jabangwe.

Over the years, Zimbabwe’s goods prices were higher than most regional countries due to high cost of power, water, rates and interest rates. Industry has also called on Government to move with speed to ensure the manufacturing industry performs again. Economist Dr Gift Mugano said Zimbabwe’s lack of competitiveness can be explained from two angles – microeconomics and macroeconomics.

He said: “With respect to the macroeconomic perspective, low productivity and the general business environment is weighing down our competitiveness and from the microeconomics perspective, we are undermined by high cost drivers like power, finance charges, water, taxes and levies.

“The average cost of producing electricity per unit (kWh) from the hydro and thermal power stations is high compared to other countries due to ageing equipment and inefficiencies in power distribution. The current cost of production is at 14,62c/KwH against 9,86c/KwH, this affects sustainability of uninterrupted power supply.

Dr Mugano said finance costs in the form of high lending rates, charged by commercial banks, are also impacting the cost of business.

“This cost directly affects the demand for bank loans and subsequently on how goods and services are priced in the economy.” Kenya, Zambia and Zimbabwe also have the highest lending rates, standing at 18,08percent, 19,5 percent and 18 percent respectively while Botswana and Mauritius have the lowest rates at 7,5 percent and 8,5 percent respectively.

Zimbabwe power tariffs are USc9,86 per kwH against regional tariffs of around USc6/kwH, while industrial users pay US$30 per 1 000 litres for water against a regional cost of below US$10 per 1 000 litres. Multiplicity of other fees and charges agencies such as Environmental Management Agency (EMA), local authorities, other Government departments and high wage structures are affecting productivity.

Zimbabwe continues to face viability problems given that even when the country exports, its goods are very expensive compared to regional peers. High transport costs, given heavy reliance on road haulage, in the absence of reliable cheaper railway transport, is also affecting production costs. The resuscitation of the National Railways of Zimbabwe and Ziscosteel will help the country immensely.

In light of the intense competition for foreign direct investment, Zimbabwe is now implementing a one-stop shop. Zimbabwe’s One-Stop Shop Investment Centre is also required to take advantage of online services, in order to implement this initiative effectively.

Government, through the Ministry of Industry, Commerce and Enterprise Development, is drafting a Local Content Requirements Framework to buttress the Import Management Programme. Government is also working on an incentive framework that strengthens the backward and forward linkages between manufacturing and other sectors, such as agriculture.

These business linkages include contract farming for soyabeans, cotton and maize. The production of raw materials locally will help alleviate shortages of inputs being experienced industry wide, and also exerting pressure on the import bill.

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