Business / Economy
Bond coins, fuel price cuts result in basic commodity prices fall
07 Feb 2015 at 21:53hrs | Views
The introduction of bond coins and fuel price cuts have resulted in basic commodity prices decreasing by one percent, though increasing competition among retailers and an anticipated price review model are expected to spur further reductions.
Since the adoption of multiple currencies in 2009, retailers have been rounding prices up citing lack of small change.
This pushed commodity prices higher than they should have been, and significantly above those obtaining elsewhere in the region.
Information from the Consumer Council of Zimbabwe (CCZ) shows that bond coins are compelling retailers to adjust prices as change is now available.
The coins are available in denominations of one cent, 5c, 10c and 25c.
Further, the drop in the cost of fuel - though at rates lower than those experienced elsewhere across the world as occasioned by falling oil prices - has had a small knock-on effect locally.
Petrol prices were recently reduced from between US$1,49 and US$1,51 per litre to between US$1,42 and US$1,44. Diesel has fallen from between US$1,34 and US$1,38 to around US$1,30.
This has had a marginal impact on commodity prices because a US10c excise duty increase raised counterbalanced the fall in fuel costs.
CCZ executive director Ms Rosemary Siyachitema said the consumer basket for an urban family of six was at the end of January placed at US$584, down from US$590 the previous month.
The food basket alone was pegged at US$140,50, down from US$146,09.
"Although we recorded a marginal decrease of the consumer basket in January, we still expect the figure to increase from US$5 to between US$10 to US$20 because our prices in Zimbabwe have always been on the higher end.
"If international prices of fuel go down, we also expect local retailers to slash prices; they (prices) shouldn't be on the high end if other countries are reducing."
Mr Denford Mutashu - the general manager of retailer Food World - said the prices of their basic commodities dropped in January, though demand for goods remained relatively low.
"There has been a slight reduction of prices of basic commodities since the beginning of the year, but, generally, business is low due to constrained demand which means most retailers are facing losses.
"The tax increases on food imports has helped to promote the local industry. However, other goods like cooking oil may be in short supply because local companies don't have the machinery to produce adequate cooking oil to meet demand."
Confederation of Zimbabwe Industries president Mr Charles Msipa said the drop in prices was lower than anticipated because businesses absorbed the high cost of fuel in September 2014 after Government increased excise duty on diesel and petrol by USc25 and USc30, respectively.
"For manufacturers, fuel cost is not very significant because it only accounts for one percent or less of the cost drivers. The reduction of fuel prices must have directly benefited transporters compared to manufacturers because for transporters, fuel is a bigger component.
"Further, the reduction of fuel was not so significant because it was wiped by the increase in exercise duty."
Mr Msipa, however, conceded that locally manufactured goods were more expensive than imports because cost-builders were on a higher scale compared to other countries in the region.
According to the Ministry of Industry and Commerce, an analysis of cost drivers in the country showed that international trade flow pointed towards loss of competitiveness due to the pricing model.
Merchandise imports rose twice as fast as exports between 2009 and 2013, resulting in the merchandise trade deficit soaring from US$1,26 billion in 2009 to US$4,2 billion in 2013.
This huge increase in imports was driven by lack of competitiveness of domestically produced goods and low capacity utilisation which stands at 36 percent.
A study by the ministry also showed that basing on the 2013 minimum wage levels, Zimbabwe has more expensive labour compared to other countries in Sadc.
Mozambique is 42 percent cheaper while Zambia is at 53 percent.
"In Zimbabwe, the finance costs remain way above the regional ones. The study revealed that on average, interest rates were 28 percent per annum, a figure which is nearly double Mozambique's 15,3 percent and more than three times the South African rate of 8,5 percent," reads the study.
"A critical dimension for competiveness is the ability of business to transport its inputs and finished products in and outside the country easily.
"The study noted that it costs US$3 765 to ship a 20-foot container from a warehouse outside Harare to Durban and this is 20-25 percent higher than landlocked countries like Botswana and Zambia and the gap is much higher with South Africa."
Cabinet has since adopted a Holistic Cost Reduction Model (HCRM) to find ways of reducing cost-drivers and come up with a competitive pricing model.
Some of the recommendations include stamping out corruption, reducing electricity tariffs for industry, rehabilitating the National Railways of Zimbabwe, decentralising Government services as well as reducing taxes, levies and fees charged on business.
The National Pricing Structure has been transformed into a Standing Cabinet Committee to deal with price and cost drivers.
The new-look NIPC is expected to be running by the second quarter of 2015 and should come up with an implementation matrix to deal with the skewed pricing model.
Reserve Bank of Zimbabwe Governor Dr John Mangudya pointed out recently that local companies were shooting themselves in the foot by overpricing goods which cannot compete with imports.
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Since the adoption of multiple currencies in 2009, retailers have been rounding prices up citing lack of small change.
This pushed commodity prices higher than they should have been, and significantly above those obtaining elsewhere in the region.
Information from the Consumer Council of Zimbabwe (CCZ) shows that bond coins are compelling retailers to adjust prices as change is now available.
The coins are available in denominations of one cent, 5c, 10c and 25c.
Further, the drop in the cost of fuel - though at rates lower than those experienced elsewhere across the world as occasioned by falling oil prices - has had a small knock-on effect locally.
Petrol prices were recently reduced from between US$1,49 and US$1,51 per litre to between US$1,42 and US$1,44. Diesel has fallen from between US$1,34 and US$1,38 to around US$1,30.
This has had a marginal impact on commodity prices because a US10c excise duty increase raised counterbalanced the fall in fuel costs.
CCZ executive director Ms Rosemary Siyachitema said the consumer basket for an urban family of six was at the end of January placed at US$584, down from US$590 the previous month.
The food basket alone was pegged at US$140,50, down from US$146,09.
"Although we recorded a marginal decrease of the consumer basket in January, we still expect the figure to increase from US$5 to between US$10 to US$20 because our prices in Zimbabwe have always been on the higher end.
"If international prices of fuel go down, we also expect local retailers to slash prices; they (prices) shouldn't be on the high end if other countries are reducing."
Mr Denford Mutashu - the general manager of retailer Food World - said the prices of their basic commodities dropped in January, though demand for goods remained relatively low.
"There has been a slight reduction of prices of basic commodities since the beginning of the year, but, generally, business is low due to constrained demand which means most retailers are facing losses.
"The tax increases on food imports has helped to promote the local industry. However, other goods like cooking oil may be in short supply because local companies don't have the machinery to produce adequate cooking oil to meet demand."
Confederation of Zimbabwe Industries president Mr Charles Msipa said the drop in prices was lower than anticipated because businesses absorbed the high cost of fuel in September 2014 after Government increased excise duty on diesel and petrol by USc25 and USc30, respectively.
"For manufacturers, fuel cost is not very significant because it only accounts for one percent or less of the cost drivers. The reduction of fuel prices must have directly benefited transporters compared to manufacturers because for transporters, fuel is a bigger component.
"Further, the reduction of fuel was not so significant because it was wiped by the increase in exercise duty."
Mr Msipa, however, conceded that locally manufactured goods were more expensive than imports because cost-builders were on a higher scale compared to other countries in the region.
According to the Ministry of Industry and Commerce, an analysis of cost drivers in the country showed that international trade flow pointed towards loss of competitiveness due to the pricing model.
Merchandise imports rose twice as fast as exports between 2009 and 2013, resulting in the merchandise trade deficit soaring from US$1,26 billion in 2009 to US$4,2 billion in 2013.
This huge increase in imports was driven by lack of competitiveness of domestically produced goods and low capacity utilisation which stands at 36 percent.
A study by the ministry also showed that basing on the 2013 minimum wage levels, Zimbabwe has more expensive labour compared to other countries in Sadc.
Mozambique is 42 percent cheaper while Zambia is at 53 percent.
"In Zimbabwe, the finance costs remain way above the regional ones. The study revealed that on average, interest rates were 28 percent per annum, a figure which is nearly double Mozambique's 15,3 percent and more than three times the South African rate of 8,5 percent," reads the study.
"A critical dimension for competiveness is the ability of business to transport its inputs and finished products in and outside the country easily.
"The study noted that it costs US$3 765 to ship a 20-foot container from a warehouse outside Harare to Durban and this is 20-25 percent higher than landlocked countries like Botswana and Zambia and the gap is much higher with South Africa."
Cabinet has since adopted a Holistic Cost Reduction Model (HCRM) to find ways of reducing cost-drivers and come up with a competitive pricing model.
Some of the recommendations include stamping out corruption, reducing electricity tariffs for industry, rehabilitating the National Railways of Zimbabwe, decentralising Government services as well as reducing taxes, levies and fees charged on business.
The National Pricing Structure has been transformed into a Standing Cabinet Committee to deal with price and cost drivers.
The new-look NIPC is expected to be running by the second quarter of 2015 and should come up with an implementation matrix to deal with the skewed pricing model.
Reserve Bank of Zimbabwe Governor Dr John Mangudya pointed out recently that local companies were shooting themselves in the foot by overpricing goods which cannot compete with imports.
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Source - Sunday Mail
