High prices dampen consumer demand

0
3716

High prices have triggered low demand on locally-manufactured products, with consumers going for cheap imports, analysts have said, as capacity utilisation dropped to 45,1% this year.

By FIDELITY MHLANGA

Low demand alongside the cost and shortage of raw materials and foreign currency shortages were cited in the 2,3 percentage points drop in capacity utilisation to 45,1% this year, according to the Confederation of Zimbabwe Industries (CZI) 2017 survey released last week.

Last year, capacity utilisation was 47,4%. Post dollarisation, industrial capacity utilisation reached its peak at 57,2% in 2011, before sliding to 44,2% in 2012, 39,6% in 2013, 36,3 % in 2014 and 34,3% in 2015.

Confederation of Zimbabwe Retailers president, Denford Mutashu told NewsDay last week that low demand on locally-manufactured goods was stemming from the high price of local goods, prompting consumers to go for cheaper imports.

“The depressed demand on locally-manufactured goods, is not that people have stopped high consumption patterns. People are still consuming locally-produced goods, but my thinking is that there are alternatives. People are going for cheaper alternatives. What we need as an economy is that for the demand to be stimulated goods have to be affordable,” he said.

Locally-manufactured commodities are rendered pricey due to the cost and shortage of raw materials, foreign currency shortages, and antiquated machinery and breakdowns. The survey showed that 40% of the equipment used by firms was 20 years old.

According to the survey, there was scope for close collaboration between the ministries of Industry and Commerce and Agriculture, or merging of the two in light of value chain developments, as 48% of the respondents indicated that foreign currency shortages have negatively affected the supply of their raw materials. Price of raw materials related to foreign currency shortages was also cited as a major factor affecting the supply of raw materials.

Results showed that in 2016, 84% of raw materials were sourced locally, while in 2017, 64% were sourced locally. The decline in the raw materials sourced locally points to the pressure on foreign currency requirements and the need to shift to local raw materials where possible.

The survey noted that the government must facilitate long-term affordable funds, incentivise importation of capital equipment via tax breaks and duty reduction, eliminate duty on importation of capital and improve local procurement.

The government, the report said, must support raw material supply in the form of tax rebates, restrictions on export of raw materials which are in short supply locally, foreign currency allocation for raw material, restrictions on cheap substandard imports and address security of tenure.

Buy Zimbabwe chief economist Kipson Gundani said the survey failed to capture the formal micro-enterprises in which billions of dollars are believed to be circulating.

“Unfortunately this is a survey on 300 companies, but we do not have 300 companies in this country. We have thousands and I don’t think the survey captures the

micro-enterprises which are now significantly producing. These micro-enterprises could be formal and informal, but there is great production happening. It is estimated that about $7,4 billion is circulating in that particular sector so it means there is serious production happening there, but I don’t think this survey captures it,” he said.

The survey also showed that challenges of porous borders and corruption are still affecting the economy and need urgent attention.
Zimbabwe Economic Society president Lovemore Kadenge said government needs to stamp out corruption as it was militating against the growth of business in the country.

But CZI president Sifelani Jabangwe said smuggling was affecting the uptake of local products.

“A lot of goods are smuggled at night. That is why we indicated corruption as one of the reasons affecting capacity utilisation. When people buy those goods from the black market they won’t buy anything from the formal market. It is there goods that are depriving the demand of locally manufactured goods,” he said.