Duty increase dangerous

Some imported goods being offloaded

By Daniel Chigundu

 MARKET watchers Tetrad Securities have warned government on the dangers associated with increasing import duty as it embarks on efforts to revitalise the country’s crumbling industry.

In its weekly market watch Tetrad said while clamping down on imports through duty increase will be good for local industry, the move is inflationary and will only serve to increase prices of goods.

“… regarding the influx of imports coming through the normal channel we are of the view that increasing duty is not a sustainable measure to ease the industrial challenges.

“Our view is that with the local industry capacity utilization shrinking, hiking import duty will be inflationary.

“This is explained by the fact that Zimbabwe is a net importer of most goods mainly from South Africa; hence hiking duty will only increase the cost of accessing imports.

“An increase in imports will ultimately see the consumer feeling the impact through increased prices which with static and declining disposable incomes will see citizens becoming worse off.

“The only long term solution to the challenges being faced in the sector is recapitalisation,” said the report.

Tetrad added that recapitalisation is the only sustainable root compared to protectionism in the form of hiking import duty; arguing that retooling will help corporates to buy updated plants and equipment which will improve quality whilst lowering overall costs of production.

Former Prime Minister Morgan Tsvangirai had also expressed concern over what he termed “absolute equipment bought in 1963” which he had said must go.

Economists are also of the view that with the current status quo, Zimbabwe cannot compete with imported goods as the country is relatively a high cost producer compared to regional peers.

Thus recapitalising will be a step in the right direction.

The only impediment however to solving the recapitalisation woes in the sector relates to how long term affordable capital can be unlocked considering the illiquidity in the economy.

Zimbabwe is facing serious liquidity challenges since the adoption of the multi-currency regime in February 2009 at the consummation of the now defunct inclusive government.

So dire is the financial situation in the country that banks are literary refusing to finance businesses on long term basis arguing that they have no capacity owing to the unavailability of the lender of last resort, a role normal played the central bank.

Bankers Association of Zimbabwe president George Guvamatanga has even made it abundantly clear that banks have no money of their own to lend on long term basis highlighting that majority of deposits are “money of call” and can be demanded at any time.

Former Minister of Finance Tendai Biti was in the process of trying to privatise the lender of last resort role when his term came to an end.

Zimbabwe is also said to be lacking clear economic policies and investor protection laws which are critical drivers in attracting foreign capital.