Local industry held hostage by service providers

THE 2016 Zimbabwe National Competitiveness Report, which was produced under the auspices of the National Economic Consultative Forum (NECF), a local think tank, shows that local industry is being excessively and extortionately charged for water, power and phone bills in a development that is making the local economy extremely expensive relative to its regional com- petitors.

The 85-page draft report that was released on Friday becomes the second such installment following the inaugural report that was published in October last year.

Though the report covers a wide range of issues affecting local investors, what has become more worrying are the unreasonable sums of money that companies have to cough up to cover utility costs.

While the Zimbabwe Electricity Supply Authority (Zesa) claims that local electricity prices at US9,86 cents per kilowatt hours (kWh) are markedly lower than regional averages of US14c, it has since emerged that power tariffs currently being levied on commercial and industrial users are in fact the highest in the region.

Local commercial users are paying US12,72 cents for power but their competitors in Botswana are charged US7c, Zambia (US5,1c), Mozambique (US9c) and South Africa — the country’s biggest trading partner — US11,4 cents.

Likewise, for industrial tariffs, Zesa’s average price of US9,83 is inexplicably higher than SA’s US2,7c; Zambia US2,3c; Botswana US3,3c; and Mozambique US4,4c.

Worse still, ringfenced commercial and industrial users, which get dedicated and uninterrupted supplies from the power utility, are charged even more.

“Zimbabwe charges higher rates compared to the region for both commercial and industrial usage. Ring fenced mining and industrial users are charged an effective rate of US14,5c per KWh to avoid load shedding,” reads part of the report, adding, “Any increase in tariffs, would translate to an increase in total cost of production, making Zimbabwean production expensive than other countries in the region.

“Other countries are also benefiting as a result of the strengthening of the US dollar against their currencies.

“Hence Zimbabwe is at a disadvantage competitively compared to other countries. “In terms of electricity, it’s not only

about cost but also supply. The country is currently experiencing supply shortages as a result of decreased power generation capacity, hence frequent power outages through load shedding.”

In the six-year period from 2009, the average costs of producing power from the country’s hydro-electric power plants has been rising from US9,65 per kWh to US14c perkWh.

However, average tariffs for domestic consumers in the period have only risen from US7,53c to US9,86c per kWh.

Zesa’s recent application to review tariffs to US14c was blocked by regulator, the Zimbabwe Electricity Regulatory Authority (Zera).

Water tariffs There are similar concerns on water tariffs that are levied on consumers by local authorities, including the money that farmers and miners have to pay to the Zimbabwe National Water Authority (Zinwa), the main custodian of raw water users.

According to the report, fixed water charges for industrial users at US$ 80 industrial per 1000 litres of water are the highest in the region.

Also, miners and farmers, some of whom might have used their own resources to build dams or drill boreholes to supply themselves, pay US$ 100 per 1000 litres to Zinwa.

In constrast, Zambia charges its industrial consumers a fixed charge of US$ 2 for the same quantity.

“The reason why Zimbabwe charges are high in terms of water is due to the cost of purifying water arising mainly from highly polluted raw water from the main source. In most cases, raw sewage is being discharged into the dams and rivers in the main cities resulting in the requirement for more chemicals to treat the highly polluted water. The chemicals for purification are imported at a higher cost,” the report says.

Interest rates Businesses also have to bear the brunt of a punishing interest rate regime where interest rates on loans are punitive while interest rates attracted by deposits remain worryingly low.

Zimbabwe’s US dollar interest rates on loans of 18 percent actually compete with interest rates of 18,01 percent charged on shilling-denominated loans in Kenya and 19,5 percent kwacha-valued loans in Zambia.

However, loans on deposits hover around 6 percent.

It is believed that it is difficult for business to operate viably in such circumstances.

Added to that are the administrative taxes and levies that companies have to contend with.

The report identified the multiplicity of fees, licenses, regulatory charges, permits, and other levies such as Environmental Management Agency ( EMA) fees, Medicine Control Authority of Zimbabwe ( MCAZ) license, National Social Security Authority ( NSSA), Radiation Protection Authority Zimbabwe ( RPAZ), and Health Professions Authority ( HPA) licenses as having a huge impact on the profitability of enterprises.

Phone and data tariffs Even local mobile telephony charges were found to be uncompetitive by regional averages.

The country’s mobile cellular usage basket at US$ 20, 6 per month is more than Botswana’s at US$ 13 and Zambia’s at US$ 16,5.

However, South Africa’s basket was higher at US$ 32,6.

It is believed that the Sub-Saharan average of US$ 14,6 is nearly 30 percent cheaper than Zimbabwe’s.

Government, particularly the Office of the President and Cabinet, is using the findings in the reports to institute far-reaching structural reforms to improve productivity and provide an enabling environment for both domestic and international investors. It has been 200 days since Zimbabwe began reforms in September 2015.

As a result of the recommendations that were made in the October 2015 report, Government has managed to set up a Competitiveness Commission and the National Productivity Institute.

Reforms around taxation, insolvency, taxation, border challenges, construction permits and property registration procedures are currently underway.

It is hoped that as the country attends to the administrative and legal frameworks to improve competitiveness, the economy will be set on a sustainable growth path.