TAURAI MANGUDHLA
Local producers face imminent viability challenges emanating from a price squeeze after the government scrapped import duties on basic commodities such as mealie-meal and flour.
Last month the government removed import duty on wheat and maize among other basic commodities, hoping to mitigate the effects of last season’s drought on the cost of living and quality of life.
Mealie-meal, which paid a 25% duty, and wheat flour in packages of more than 50kg, was among the products exempted. A 50 kg packet of wheat flour used to pay a 20% duty while smaller packs paid 10%. Industry is already concerned that opening the borders to basics without paying duties will put serious pressure on prices for local products.
While the consumer will be smiling all the way, due to cheaper alternatives, local producers stand to bear the brunt. Given that the bulk of Zimbabwean producers import raw materials, their ability to compete with foreign markets is limited.
Zimbabwe is expected to import about 800,000 tonnes of maize, half of its annual maize requirements, for the current season following last season’s severe drought that decimated the agricultural sector. Currently, based on government statistics, Zimbabwe requires 1.8 million tonnes of maize most of which will be imported from the SADC region.
The bulk of wheat flour is imported as the winter crop suffers from the lack of capital and erratic power supplies which make irrigation difficult. The cost structure for local business has been altered by erratic power supplies which has forced business to resort to fuel generators.
The rising fuel costs add the overall production costs and results in price hikes. If for whatever reasons, individuals start importing basics at no costs, the consumption of local products will dwindle. Denford Mutashu, the president of the Confederation of Zimbabwe Retailers, told Business Times that removing duties on basic commodities would help consumers who could now also import basic commodities on their own using their own funds.
“This short-term measure, especially leading up to the festive period, is noble and should be extended to school uniforms, books and all school equipment in the wake of the anticipated increases of school fees in January 2020,” Mutashu said.
“SMEs and individuals should be able to bring in uniform material and books duty free, and punish profiteering monopolies and cartels in some of these key sectors.”
Batanai Matsika, Morgan and Co’s head of research, said the impact of the removal of duties is that it will increase competition for locally produced products thereby exerting downward pressures on prices.
“Generally, food stuffs from neighbouring countries like South Africa are highly competitive from a price point of view, and the removal of duties will mean they can land cheaper in Zimbabwe. The negative impact however is that local food producers would lose market share,” Matsika said.
