Giant cement producer, PPC Zimbabwe, says loss of export competitiveness as a result of high production costs and cash shortages in the economy, is adversely affecting its operations and remains key risk to sustainable growth.
While the new political dispensation is undertaking steps to create a conducive investment climate under the doing business reform framework and the 100-day target, PPC has appealed to Government to increase the export incentive and cushion firms against losses incurred when exporting to the regional markets, which use weaker currencies compared to the expensive United States dollar.
“The cash shortage has adversely affected the company’s operations and remains one of our key risks. In the past, PPCZ used to export more than 100 000 tonnes of cement to the region but the figure has dropped drastically,” said PPC in e-mailed responses.
In an effort to generate foreign currency to pay for foreign inputs, PPCZ intends to resume exports to regional countries but the high cost of production has rendered PPCZ uncompetitive in the target export market.
The company said an increase in the export incentive could help to cushion it against losses incurred on exports.
The company which has been operating in Zimbabwe for more than 100 years, has invested heavily in the country and last year it commissioned an$82 million modern technology plant in Harare, adding to two existing giant plants in Gwanda and Bulawayo.
“Currently, total installed capacity exceeds demand – any further investment will be considered in line with market growth,” said PPC.The regional manufacturer said there are numerous macro-economic constraints that need to be addressed to boost viability and catalyse overall national economic growth.
The liquidity constraints being experienced in the country has resulted in dalays in paying for offshore goods and services.
“PPC procures inputs from foreign suppliers. Credit facilities with foreign suppliers have been exhausted and this presents significant concerns with regards to business continuity as a result of the inability to settle foreign obligations,” said the firm.
“We require urgent assistance concerning the settlement of outstanding foreign obligations. PPCZ has the required funds in its local bank accounts. However, it is failing to obtain the required foreign currency allocations from the banks to process the outstanding payments.”
On production costs PPC says the country’s labour and electricity, for instance, costs were the highest when compared to the region and that these induce a strain on industry operations.
“Zimbabwe imports packaging material, which is levied 30 percent duty, while duties on cement are not being applied effectively. Zambia and South Africa produce packaging locally.
“The effective cost of electricity of 14.5 cents per unit is quite high compared to regional average of 8 cents. Maintenance costs are also high compared to the region,” it said.
“To ensure that the local cement industry is competitive, we recommend that local input costs such as import tariffs be reduced as this is the only sustainable long-term solution to viability of the industry.
“We should also engage in deliberate efforts to make Zimbabwean cement competitive by addressing the high manufacturing cost base and PPC Zimbabwe continues to engage Government in this regard.”
PPC also said the market for cement in Zimbabwe was being affected by imports from Zambia despite the fact that local cement producers have sufficient capacity to meet local demand.
“The following considerations would be useful in alleviating the situation for the industry: A review of the law and possible amendment on the prohibition cement imports and related products considering the fact that in most of the cases, there is little to zero percent duty being charged on the cement related imports.
“The cessation of new import permits and managed withdrawal of existing permits. This approach has proved effective in the cessation of poultry imports,” said PPC. The Chronicle