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Zimbabwe: Case for Basic Commodities Imports

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Following the announcement of import duty suspension on some basic commodities by the Permanent Secretary in the Ministry of Finance and Economic Development, Mr George Guvamatanga on May 16, there was a loud outcry from the expected quarters, who cited fears of the move affecting industry.

The reaction demonstrated that those who cried the most did not have a full appreciation of the challenges that Zimbabwe is facing and were selfish or out rightly dishonest with the nation on the matter.

The key basic products which resulted in the suspension of import duty were salt, cooking oil, rice, flour, sugar, margarine, mealie-meal, milk powder, infant formula, tea, petroleum jelly, toothpaste, bath soap, laundry soap and washing powder. People use these goods in their day-to-day lives.

Among those organisations which were not happy with the move was Buy Zimbabwe, whose general manager, Alois Burutsa commented that the “development is likely to reverse the industrialisation gains that had been made by local industry in the supply of basic commodities.”

Other stakeholders questioned the rationale of Government opening the floodgates for imports at a time that products manufactured locally occupied 75 percent of the available retail space.

It is only last week that the Confederation of Zimbabwe Industries (CZI) announced that last year the country’s capacity utilisation rose to 56,25 percent.

This was the highest since 2011 when the figure reached 57 percent.

It is against this background that many latched onto the discourse to emotionally slam Government over the move without much forethought.

A background of malpractices

Many chose to be conveniently forgetful of the background to the decision. Over the past few weeks, consumers have watched helplessly while basic commodity prices shot through the roof.

No self-respecting Government would fold its arms and watch while its citizens are being subjected to usurious prices by manufacturers and retailers.

The case for Government intervention was even more compelling especially in view of the fact that most manufacturers were benefiting from the Reserve Bank of Zimbabwe (RBZ) affordable foreign currency auction to source raw materials only for them to peg their product prices at the black market rates. This made basic commodities unaffordable.

Other manufacturers starved the formal retail chains, which charge for their goods mainly in local currency, in favour of the informal and small traders that are popularly known as matuckshops in downtown Harare and other cities and towns.

These traders charge for their goods in foreign currency only. This is in spite of the fact that Zimbabwe uses a multi-currency system, which includes local currency.

The malpractice is also in spite of the fact that most Zimbabwean employees are not principally remunerated in foreign currency. The attractiveness of the US dollar caused the shortage of some products in the mainstream retail supply chain.

Correcting a culture of greed and profiteering

The decision to allow basic commodity imports came a week after Government suspended lending by financial institutions through an address given by President Mnangagwa on 7 May 2022.

This was necessitated by the fact that some businesses and individuals were borrowing from banks to fund their affordable foreign currency applications at the RBZ.

On being allocated the foreign currency, they would offload it on the black market and cream-off a decent profit.

Some would use such borrowings to buy foreign currency on the black market as a store of value and repay the loans whose value would be depreciating owing to inflation.

The effect of such a surfeit of money chasing after the US$ on the market resulted in the exchange rate going up. The soaring rate was then used by manufacturers and retailers to justify their unaffordable high prices.

The lending ban was reversed on 17 May 2022 to enable the economy to operate normally while the RBZ continued to deal with the culprits.

It is against the foregoing that Government suspended import duty on some basic commodities to avert shortages. It seems that the only stakeholder which seemed to understand Government’s position was the Confederation of Zimbabwe Retailers (CZR).

Its president, Denford Mutashu correctly explained that “the waiver (of import duty on some basic commodities) is meant to strengthen supply of key basic commodities that retailers and wholesalers have been struggling to access from local suppliers. Most shelves were getting empty on products like sugar and cooking oil, a scenario that left our sector in limbo.”

Given the greed and propensity for profiteering displayed by some manufacturers despite Government support, it is laughable that CZI president, Kurai Matsheza commented that Government should have suspended import duty on raw materials instead of the 15 basic commodities.

“The imported goods will be on our shelves. So the productive sector out there will be very busy filling our shelves here. So if you look at the value chains that are involved, they are killing our economy. So I don’t think that helps at all,” Matsheza said.

Some players in the economy are known for abusing arrangements such as the foreign currency auction initiative. What is the point of rewarding such entities with concessions like reduced raw material import duty for their economic sabotage, outright greed and indiscipline?

It is time that RBZ and other relevant bodies blacklisted such organisations so that the ordinary Zimbabweans, who are the intended beneficiary of initiatives like the foreign currency auction, do benefit.

Misunderstanding the Russo-Ukraine conflict and effect on economy

It appears that most Zimbabweans, including industrialists, are underestimating the effects of the ongoing Russo-Ukraine conflict. One basic commodity which has been affected by the conflict is cooking oil, the bulk of which Zimbabwe and other countries imported from Ukraine as crude cooking oil.

This has seen the price of the product going up to between US$5 and US$7. In some countries such as the United Kingdom, things are worse. Retailers are limiting quantities being sold to customers to ensure that there is enough of the commodity to go round. In India, the Government has banned the export of the commodity.

The fact that the war has not yet affected Zimbabwe as badly as it has elsewhere does not mean that things may not worsen.

If other economic players choose to prioritise profit and look at the future myopically, Government will not subject Zimbabweans to preventable effects of the war by planning short-sightedly.

No one can tell when the conflict will be over or how long it will take Russia and Ukraine to resume normal production to supply the world with critical raw materials again.

The decision to suspend duty on some imported basic commodities is, therefore, spot on as it allows those citizens who have foreign currency to complement local products with imported ones until the global crisis spawned by the Russo-Ukraine war is over.

Hypocritical hollering

The outcry over the suspension of import duty on some basic commodities was disproportionately loud as if the importation of some products was new.

The uproar was hollow and hypocritical in that local retailers depend on distribution companies for the importation of some product lines. For example, since the Bulawayo-based textile company, Merlin Limited went under some years ago, Zimbabwean mothers have taken to using disposable diapers.

Different brands of the product are imported by a number of distribution companies who supply them to different retailers.

The products, which are supplied by distribution companies to the local market range from basic necessities such as toothpaste and diapers to luxury goods like perfumes and jewellery.

The distribution companies are an integral part of the country’s supply chain of different products and product lines.

Following the closure or the on-and-off production of some products by some multinational manufacturers such as Unilever, distribution companies play the key role of ensuring that popular brands remain available.

In 2005, Colgate Palmolive Zimbabwe, which was known for brands such as Choice beauty soap, Colgate toothpaste and Cold Power washing powder among others moved its operations to South Africa citing “declining macro-economic circumstances.”