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Energy challenges sinking Zimbabwe's economy

17 Dec 2019 at 07:08hrs | Views
The 2019 survey report by the Zimbabwe National Chamber of Commerce (ZNCC) on the impact of energy challenges on business paints a grim picture of the state of production in the economy. Unrelenting power cuts and fuel shortages have devastated the local economy with the value of exports and production capacity taking a huge knock. Foreign currency receipts for the first half of 2019 dropped to US$2.6 billion from US$3.4 billion same period in 2018. Capacity utilization in key economic sectors such as mining, manufacturing and tourism has dropped by 15 to 30%, while the cost of production has significantly gone up due to the use of equally scarce diesel in generators to power production lines and business operations. The Treasury department predicts that production in mining will decline by 12.3%, while manufacturing and tourism will contract by 4.3% and 9% respectively.

The 2019 ZNCC survey points that almost all producers on the local market rely on electricity to produce and 85% of them are only getting electricity for a period ranging between 6 to 12 hours per day (Less than half a day). This has resulted in massive job retrenchments to cut operational costs and fit contracted manpower to single shifts of 5 hours per day. Heavy consumers of electricity such as mines and manufacturers are feeling the heat to scale back their operations thereby managing energy related production costs. The Chamber of Mines recently warned that production could slump by at least 30% if the sector is not prioritized on electricity distribution. Zimbabwe's miners are lobbying the government to allow the sector to import its own power so as to guarantee production, instead of the current situation where they face blackouts for about 3 days per week.
In terms of the monetary losses to producers, the survey points out that business entities are losing at least Z$20 000 worth of output and Z$300 000 worth of sales in one month due to energy challenges. Other losses include loss of key customers (especially in the export market), production stoppages, reduced labour productivity and reduction of profits.

Zimbabwe is currently generating less than 650MW from three power stations (Hwange, Kariba and Munyati Power Stations) against daily peak demand of at least 1800MW in winter and 1400MW in summer. Harare and Bulawayo power stations are not generating any electricity at the moment due to equipment breakdown and lack of investment over the years. The 800MW plus deficit is closed by power imports from the region and load shedding schedules varying between 6 to 18 hours per day to different consumers. Kariba Power Station with a capacity of 1050MW can only generate less than 190MW at present due to the droughts that affect generation capacity.

According to Q3 imports data from the Zimbabwe Revenue Authority (ZIMRA), Zimbabwe is consuming 89 million litres of Diesel and 36 million litres of Petrol per month. ZIMRA 2018 data also points that the country consumed 1.06 billion litres of Diesel and 570.12 million litres of Petrol in 2018, worth US$1.12 billion. This means that average consumption per month in 2018 was 70.2 million litres for Diesel and 47.5 million litres for Petrol. The drop in the consumption of Petrol can be attributed to the decline in demand on the back of falling consumer incomes, while the increase in the consumption of diesel by close to 20 million litres per month is caused by the use of Diesel to power production and meet daily energy demands. Demand might also have gone up due to reported cases of smuggling of fuel to neighboring countries and high demand from regional truckers who pass through Zimbabwe through the north to south trade corridor. The statistics from ZIMRA show that consumption for diesel is marginally going up every month and Zimbabwe is forking out at least US$13 million (US$0.64 FOB Price) on Diesel per month in 2019 as compared to 2018. The government (through the central bank) can therefore redirect that amount of foreign currency to import at least 500MW/day of power during Off-Peak periods (10am-4pm) from Hidroelectrica de Cahora Bassa (HCB) of Mozambique. Production in the local economy has been affected by power cuts especially during Zimbabwe's working hours that run from 8am-5pm. Improved power supply during these off peak hours will shore up economic production and ZESA's incomes from prepaid metering.

In the medium to long term, the government needs to channel funding to the repowering of Harare, Bulawayo and Munyati thermal power stations while taking decisive action on overdue green energy projects such as Munyati, Gwanda and Insukamini to achieve a blend of power supplies to the national grid. The 3 renewable energy projects can be undertaken through Public Private Partnerships (PPPs) in order to improve transparency in the projects and achieve cost to productivity efficiency. To undertake these projects, consumers need to pay competitive prices for electricity which will allow the state utility to import power or pay its huge debts to regional suppliers such as Eskom of South Africa.
In line with this, ZNCC recommends that the power utility adheres to strict "Pay or get disconnected" principle to weed off free riders from the national grid and guarantee supplies to paid up consumers. It has been observed that 'free riders' are getting preferential treatment from government at the expense of paid up customers or exporters who are paying in advance.

Companies surveyed strongly feel that political interference is impacting ZESA operations through the awarding of unjustified subsidies to un-deserving consumers or shielding non-paying consumers for political reasons. They also pointed that political interference and collusion between fuel cartels and government officials is rife in the importation and pricing of fuel on the local market. To deal with both aspects there is need for independence of ZESA and Zimbabwe Regulatory Authority (ZERA) so that they carry out their constitutional mandate efficiently for the benefit of all economic sectors. Previous calls to partially liberalize the importation of fuel and allow petroleum companies with free funds to import the commodity fell on deaf ears as the government is determined to control the allocation of foreign currency and the pricing of the commodity. Business leaders also feel that Zimbabwe does not have a foreign currency generation problem but a foreign currency allocation issue, with bulk of the generated forex being channeled to government recurring expenditure and other off-shore commitments by the government. The government should therefore take the survey and its recommendations seriously to address the economic ills bedeviling production in the local market and curb further economic decline in 2020. Without deliberate efforts to fix energy challenges, the local economy will sink deeper in the coming year.

Victor Bhoroma is a freelance economic analyst. He holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on vbhoroma@gmail.com or follow him on Twitter @VictorBhoroma1.

Source - Victor Bhoroma
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