Measures on basic commodities to cripple local manufacturers

BROKERAGE firm, Wealth Access Securities (WAS) has warned that the recent measures to improve the availability of basic commodities were likely to cripple manufacturers, resulting in a decline of capacity utilisation.

Last month, Finance minister Mthuli Ncube announced measures to allow importation of some basic essentials. Government also incentivised farmers for early delivery to the Grain Marketing Board (GMB).

Part of the government measures includes suspension of import duty on 15 basic commodities for a period of six months. These are rice, flour, cooking oil, margarine, salt, sugar, maize meal, milk powder, infant milk formula, tea, petroleum jelly, toothpaste, bath soap, laundry bar, and washing powder.

On incentivising the early delivery of grain to the Grain Marketing Board, the government has taken the position to pay maize farmers 30% of the amount due on grain delivered in United States dollars and 70% in Zimbabwean dollars. The USD component will be calculated at the prevailing willing-buyer, willing- seller rate, that currently stands at US$1:ZW$304,42.

“We believe the above measures will go a long way in helping the common man in accessing the basic commodities at a cheaper price than is currently obtaining. However, there are implications to our local manufacturers who will have to compete with cheaper imports thus threatening their viability,” WAS said in its latest update.
“The supply demand pressures will further suppress the ZWL and fuel the parallel market rate, which is currently at around ZW$450 to the US dollar. Thus, culminating in further inflationary pressures and a persistent ZW$ depreciation.

“These measures will also increase the demand for foreign currency to fund the importation of the above-mentioned basic commodities. The recent depreciation of the ZW$ on the RBZ auction market is a red flag which needs to be monitored since the premium with the parallel market rate has reduced significantly.”

The brokerage firm said lowering import tariffs would likely result in the flooding of cheap products from neighbouring countries threatening the viability of the local manufacturers.
“We forecast a decline in overall industry capacity utilisation from the current 56,25% in 2021, which was the highest in the previous 10 years,” WAS said.

“These measures could actually work against the desire to contain inflationary pressures, and restore the purchasing power of the local currency, with the primary goal being to increase the domestic and external competitiveness of the economy and create and preserve jobs.”

WAS added: “South African exporters are set to benefit more as most of our local products are sourced from Zimbabwe’s biggest business partner. Moreover, consumers are likely to choose imported products over domestic products.

“We are of the view that retail companies both listed and unlisted like Pick n Pay, OK Zimbabwe, Choppies and Spar will have to deal with a decline in margins due to stiff competition from the informal sector”.

WAS said OK Zimbabwe was likely to feel the heat since its target market was the middle to low-income earners with approximately over 50 stores countrywide.

However, the drawbacks may be countered by its flagship Bon Marche stores, it said.
WAS said Meikles TM Pick N Pay was less likely to be affected given the segment it serves and also it was already importing more than 80% of its products.

“The retail informal sector has been thriving lately as it prices and sells its products mostly in US dollars, thus, they have more pricing power. To add on to this, this policy shift may present an opportunity for an increase in the informalisation of the economy,” it said.
Researchers said grain delivery to the GMB would likely increase and strain foreign currency reserves since this money would be needed to import.

“The 30% USD incentive will likely cushion farmers and incentivise them to sell their grain to GMB. However, those with a ready market paying them in hard currency will not be moved by this policy given that the official exchange rate has been wiping out the USD component due to the devaluation of the ZWL by the authorities,” WAS said.

“It can be clearly noted that the USD component is declining to less than US$50 as the official exchange rate continues to depreciate. Moreover, this partial payment in USD may present a further strain of foreign currency reserves. The Reserve Bank of Zimbabwe has taken a stance to allocate USDs which are available on the auction, we see this policy not being sustained for too long.”

Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button

Get our latest downloads and information first. Complete the form below to subscribe to our weekly newsletter.