Power tariff hike to hurt industry

08 Dec, 2017 - 00:12 0 Views

eBusiness Weekly

Africa Moyo
Increasing the electricity tariff is not ideal at the moment as that would worsen the country’s competitiveness position, the Zimbabwe National Competitiveness Report (ZNCR) 2017 shows.

This comes as Zesa is pushing for a tariff increase of up to 49 percent from the current average tariff of USc9,86 per kilowatt hour.

Electricity and labour costs have been cited in the ZNCR as the biggest drivers of lack of competitiveness in the country.

The ZNCR — which was prepared under the auspices of the National Economic Consultative Forum (NECF) using the Global Competitiveness Indices (GCI) — says high electricity and labour costs conspire to make locally produced goods more expensive in regional and international markets.

Curiously, the competitiveness situation is actually deteriorating, dropping from 124 in 2014/2015 to 126 in the 2016/2017 period, raising questions on the work done so far to solve the huge costs associated with doing business in the country.

At USc12,72 for commercial and USc9,83 for industrial users, Zimbabwe has the highest tariffs compared to other countries in the region.

South Africa — the region’s highly industrialised nation — charges USc11,4 for commercial users while Botswana is at USc7,7; Zambia (USc5,1) and Mozambique (USc9).

Industries in South Africa are charged USc2,7; Botswana (USc4); Zambia (USc2,5) and Mozambique (USc5,1).

Coupled with water and telephone charges, the power tariff in the country becomes a drag on competitiveness.

The ZNCR 2017, says power charges push up operating costs for the commercial sector by 11 percent, farming (20 percent), industrial (15 percent), mining (20 percent) and institutions (16 percent).

The Zimbabwe Energy Regulatory Authority has already dismissed the 49 percent tariff hike application by Zesa, saying that would impact on Government’s drive to slash production costs.

Nonetheless, Zesa has relaunched a fresh bid to increase the power tariff.

Reads part of the report: “The greater proportion of electricity cost contribution to total cost of production are in farming. Therefore, any increase in tariffs would translate to an increase in total cost production since Zimbabwe is having higher tariff per unit compared to other countries in the region.

“The minimum wages continue to be a major cause of concern for employers as they continue to be negotiation based instead of being productivity based.

“Minimum wages are determined through collective bargaining between employers’ associations and workers unions (employment councils). The stakeholders in the negotiations always fail to reach consensus due to diversion of views on the level of wages in Zimbabwe especially during the Tripartite Negotiation Forum (TNF).”

Employers contend that labour is too expensive while trade unions continue to lobby for more wages and salaries claiming the existing wages were not in tandem with the living standards.

The World Bank Doing Business 2017 shows that the minimum wage in Zimbabwe is $261,75; Zambia ($211,71); South Africa ($287,39); Kenya ($247,26) and Mozambique ($132,21).

This makes South Africa the highest paying country although it has the lowest ratio of minimum wage to value added in the Sadc region.

The ZNCR 2017 shows that Zimbabwe continues to lag behind other countries in all the 12 pillars — including the macro-economic environment, financial market development and infrastructure — with rankings above 100 out of 138 countries.

Its worst rankings are in goods market efficiency (132), business sophistication (130), innovation (129), labour market efficiency (127) and financial markets development (126).

Zimbabwe’s ranking on exports as a percentage of GDP has also been falling since the 2013/14 reporting period, a move seen by analysts as indicative of the dwindling value of the country’s export earnings due to plunging commodity prices and drought which affected crop production in the 2015/16 agriculture season.

Statistics show that exports of goods stood at $2,8 billion last year, representing a 5 percent increase from $2,7 billion in 2015.

Total imports were $5,2 billion last year, showing a -13 percent decrease from $6 billion in 2015.

However, considerable improvements were noted in efficiency of legal framework which rose by 9 ranks, strength of investor protection (8 ranks), wastefulness of government spending (5 ranks), and diversion of public funds (4 ranks).

Similarly, the country registered substantial improvements in some infrastructure indicator rankings notably in quality of overall infrastructure (by 10 ranks), quality of air transport (by 8 ranks) and quality of electricity supply (by 8 ranks).

The ZNCR 2017 says there are a lot of indicators requiring attention if the country is to achieve better competitiveness rankings going forward.

“From a total of 138 countries (GCI 2016-2017 indicators) the country is the worst raked on business impact of rules on FDI (foreign direct investment) in the world and second from the worst on agriculture policy cost, property rights, country credit rating, time to start a business, venture capital availability and government procurement of advanced technological products,” reads the report.

Other factors identified as impacting on the ease of doing business in Zimbabwe include policy instability or inconsistency, access to finance, corruption, crimes, theft, poor public health, and inflation.

Market watchers say inflation is being pushed up by the firming US dollar, which is the country’s major trading currency, out of a basket of several other multiple currencies such as the rand, pula, pound and the euro.

This has worsened the country’s competitiveness relative to its major trading partners, especially South Africa and other regional countries.

Meanwhile, President Emmerson Mnangagwa is widely expected to usher a culture of policy consistency and has already cracked whip by reducing the size of Cabinet.

President Mnangagwa has appointed 22 ministers as opposed to 29 in the previous administration while deputy ministers have also been trimmed from 25 to six.

So far, only two deputy ministers have taken oath of office and it remains unclear if the number will be restored to six.

NECF believes that Zimbabwe can turnaround the competitiveness rankings if issues such as low demand, capacity underutilisation, dilapidated equipment and liquidity challenges, are solved.

In July this year, Government announced an 11-member National Competitiveness Commission Board to address cost structures that have led to non-competitive pricing and caused industry to stagnate.

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