In his mid-term statement on Tuesday, Biti announced the reintroduction of customs duty on rice, maize, maize meal, flour, cooking oil and salt citing an improved supply by local industries.
“The supply of most basic commodities by the local industry has significantly improved, hence I propose that the suspended duty on the remaining basic commodities be reinstated,” Biti said.
“The reinstatement of duties on maize meal and cooking oil will improve the value chain from the farmers to the industry through contract farming, increased capacity utilisation, stimulate local production of stock feed and also enhance employment levels.”
He acknowledged that local flour milling companies have the potential to meet local demand but require financial support and ample time to refurbish their plants, in order to produce efficiently.
But analysts warned last week that such a move would trigger a price increase on goods.
Financial group, Tetrad said it does not expect the move to achieve “the intended objective of increasing productivity of local manufacturers but rather to perpetuate production inefficiencies which will result in even higher prices to consumers”.
“The lifting of duty exemptions on maize meal and cooking oil will have an inflationary effect, which may create pressure for further salary increments for civil servants,” it said in an analysis of Biti’s statement.
Witness Chinyama, head of research at Kingdom Financial Holdings Limited said the reintroduction of duty on basic commodities had to be looked at in two aspects: on the part of consumers and local manufacturers.
“For consumers it means that prices will go up and for local producers they would be happy because they cannot compete with imports due to high production costs,” he said.
He said local producers felt some protectionism would allow them to produce more.
Chinyama said in the short term, prices would go up but there were hopes that in the long term capacity utilisation would be improved.
Local products are not competitive, not because of imports but due to obsolete equipment and undercapitalisation which increases the cost of production. In addition, the enablers, power and water are erratic. With power cuts prevalent in the country, a number of companies are investing in generators, which is another cost to the company.
They pass on the cost to the consumers through price increases.
Chinyama said government has to invest more in capital projects to provide an enabling environment for businesses.
A snap survey by Standardbusiness showed that local products were beyond the reach of consumers and hence their allegiance to imported products.
What this means is that it would increase financial pressure on the already burdened Zimbabwean workforce where the majority have not tasted a meaningful salary increment since the use of multi-currencies in 2009.
Experts say at least 20% of the budget should cater for capital expenditure.
In the first half of the year, allocation to capital expenditure was a mere 7,6% of the revenue generated as the country pays the price of a high level recurrent expenditure.
Against the 2011 budget allocation of US$550 million for capital expenditure, total disbursements in the first half of the year were at US$101, 6 million.
“The low disbursements are a reflection of the disproportionate level of non-discretionary recurrent expenditures which dominate available monthly revenues,” Biti said.