Industry decries flooding of duty-free goods
IN order to avoid price controls on the ever rising prices of goods locally, Government sought to deal with the issue in a diplomatic way. As a result, the fight between Government and industry took an unlikely turn last week, the former opened up for the importation of duty-free goods as a way of improving access to affordable basic commodities.
However, industry and analysts argue that this is a bad move that will reverse gains that had been made in the past years.
“Government has opened up the importation of basic commodities by citizens through the lowering of import tariffs and other accompanying measures. Those with free funds are, with immediate effect, permitted to make use of these funds and other resources to import basic commodities,” the statement read.
The view from Government is that industry has been trying to arm-twist it by holding it hostage and creating artificial shortages, while industry is saying Government is being predatory and not helping business to reduce costs.
Industry has argued that imports will hurt local industry which has been struggling to come back to its feet after a gruesome decade in which imports dominated local markets.
Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza said, “Foreign currency shortages have been a perennial problem for us as industry because of long settlement time on the auction market and this is being overlooked by Government when they accuse us. Just this past week, we were boasting of the highest capacity utilisation in 10 years but in a flash, Treasury has decided to reverse all that.”
Matsheza believes that in order to be competitive, the country needs to work on structural problems that have increased costs of doing business by at least 15-18 percent.
“Businesses are running on generators up to 18 or so hours, and then buy water to produce as council is not availing water to industry. Logistical costs are increasing by the day as delivery fleets need to be repaired earlier than scheduled due to bad road networks,” he added.
In disagreement was Citizens Consumer Council president Tinotenda Fusire who said “Local manufacturing industry has always been shifting goalposts every year. Government has a duty to protect the consumers from greed and profiteering industrialists and retailers. It is true that local basic products are 70 percent on the shelves. The question is why so expensive?”
A portion of economists and analysts agreed with industry in that the decision to let imports come duty free will be detrimental to the economy.
Economist Tinevimbo Shava said, “The decision to lower import tariffs for certain goods is not welcome as this will result in the flooding of cheaper and more competitive products which will then threaten local manufacturers, reversing whatever was gained in the last three or so years.”
Industry and some analysts believe the move will result in a decline in industry capacity utilisation, which currently stands at a 10-year high level of 56,25 percent in 2021.
Arguments in other corners of industry are that, unemployment figures may rise as manufacturers attempt to reduce costs to make prices more attractive as lack of meaningful lending platforms means that businesses cannot borrow to satisfy immediate working capital needs, relying instead on internal sources of cash.
“The move is not only bad for industry, but it might backfire for Government as it may result in further depreciation of the local currency and inflationary pressures,” Shava added.
The new import measures will most likely increase the demand of foreign currency to fund basic commodity imports. As a result, the ensuing supply-demand gap will further suppress the local currency and ramp up the parallel market rate which currently sits between 400 - 450 to the US dollar.
Local research firm Morgan & Co. said “This move will definitely culminate in further inflationary pressures and a persistent cycle of depreciation of the local currency.”
Other economists believe the move will result in a slowdown in inflation as a result of reduced duty, but will certainly hit government revenues. Economist Professor Tony Hawkins said, “The move will surely result in a slowdown in inflation as local prices will have to deal with new lower prices from neighbouring countries. However, the move will also be detrimental to Government as it will reduce government revenue for the budget.
The professor said he did not believe in what industry was saying that they will close since duty is a small composition of their final price.
“In all this, industry is exaggerating the impact of this move, yes it has effect on their operations, but duty is not that a huge cost for them that they can cry of heavy disruption in the economy,” said Hawkins.
In agreement with Hawkins was economic analyst Namatai Maerekera who said, “These measures are a result of believed greed and profiteering by the local industry. Government tried its best to nurture and protect local industry. Production is at 70 percent due to government support for re-tooling, imposition of import tariffs on the basic products and access to forex at the auction.”
“If industry is crying today of being weak and unable to be competitive, with the African Continental Free Trade in place, are they saying they are not ready to be part of the agreement and compete regionally. They always boast of exports but they complain when others want to export to this country,” he added.
CZI has said it is engaging Government, so that they reach a compromise and iron out the problems between them.