Duty removal to increase forex outflow
The removal of import duty on basic commodities will result in increased outflows of foreign currency as suppliers outside the country will take advantage of the window to increase their exports to Zimbabwe, a recent study by the Competition and Tariff Commission and the National Competitiveness Commission revealed.
About two weeks ago, the Government scrapped import duty on several basic commodities including maize meal and cooking oil in a bid to stabilize prices and ensures uninterrupted supplies in response to massive price hikes by local retail chains.
The free export window is for six months. While analysts have warned that this measure would hurt local firms given some products such as mealie meal, toothpaste, and washing powder are not competitive against imports, there is also a high risk that an increase in exports by foreign suppliers would lead to increased outflows like what transpired between 2014 and 2017, the study noted.
For instance, the producer price of maize is set by the Government at US$325 per tonne is higher than the US$200 per tonne currently prevailing in countries such as South Africa and Zambia. This makes mealie meal import cheaper than locally produced.
“The liberalisation of basic commodities also needs to be assessed from a foreign currency demand perspective,” the study said. “The anticipated increase in imports of basic commodities will lead to an increase in demand for foreign currency in the economy as traders take advantage of the duty-free import window.
“Foreign suppliers are also likely to take advantage of this window to further increase their exports into Zimbabwe in order to access the US dollars. The net effect will be an increase in outflows of U.S dollars as what transpired between 2014 to 2017, which led to foreign currency shortages in the country,” the study added.
The study also noted the liberalisation measure was likely going to lead to the closure of the local companies since some are already failing to compete with imported products.
In its recommendation, the study urged the Government to reverse the opening of imports in the short run to protect the gains once realized by the local industry on the following products; mealie meal, toothpaste, and washing powder as this have a negative impact on NDS1 aspirations on the domestication of the local value chain.-ebusnessweekly
