adminThere have been mixed reactions over the recent protection of the fertiliser industry.
Finance and Economic Development Minister Patrick Chinamasa increased customs duty on imported fertiliser to 25 percent, a move that was obviously welcomed by fertiliser manufacturers.
The Parliamentary Portfolio Committee on Finance and Economic Development, however, had it otherwise, charging that the import duty “should not be introduced”.
Should not be introduced!
Did you hear that?
So much for the Industrialisation Development Policy, which says: “To encourage local manufacture of fertilisers, fertiliser raw materials will be placed on zero tariffs with respect to customs duty while finished fertiliser imports will attract customs duty.”
What a voice from the wilderness!
We all obviously expect Parliament to act in the best interest of the economy. This was clearly spelt out by the Parliamentary Reform Committee of 1997, which pointed out that: “The health of the society and economy of Zimbabwe depends, in part, upon the health state of Parliament.”
Parliamentarians, on August 4, 2015, took turns to lash the move by Minister Chinamasa to protect fertiliser manufacturers and that was just absurd.
The Committee wasn’t really against protection in general.
It actually “welcomed the initiatives taken by the minister to protect the local industry”, urging that “Government should also impose stiff penalties on any imported finished products which are manufactured locally”. I liked the word “any”. Ironically, they said no to fertiliser!
It is important to interrogate the arguments cited by the Committee as we seek to place them in the milieu of reality. The Committee argued that the move “makes an agricultural input very expensive and would negatively impact this sector”.
It, however, apparently paid no attention to Minister Chinamasa’s indication, in his Mid-term Fiscal Policy Review, that “local fertiliser manufacturers have undertaken to reduce prices by about 20 percent from the current range” in return, and his assurances to monitor the sincerity of local fertiliser manufacturers in fulfilling this commitment.
No, the Committee and other parliamentarians paid no attention to any of the above.
You see, a study conducted by the Zimbabwe Economic Policy Analysis and Research Unit not long ago pointed out that the parity between the price of imported and locally-manufactured fertiliser can be matched by increasing capacity utilisation to at least 65 percent.
At that level of capacity utilisation, the research argued that the cost per tonne of ammonium will fall by US$65.
It also highlighted that reducing the interest cost on loans to 10 percent would reduce the cost per tonne of fertiliser by US$4.
Hasn’t the Monetary Policy capped interest rates to lower levels? The Committee further argued that “the overall objectives to boost production of fertiliser will not be achieved given that the manufacturing companies have a host of other challenges such as lack of working capital, obsolete equipment and high cost of production, among others”.
These are really generic challenges that just about every manufacturer is facing in Zimbabwe.
There are peculiar challenges that fertiliser manufacturers are actually facing, thanks to the current unfavourable laws and policies, which Parliament and the Executive, respectively and interestingly, have the power to change.
The peculiar challenges facing this sub-sector, as established by Zeparu — hello parliamentarians —are exorbitant regulatory charges; delay in settling accounts by Government; late announcement of Government agriculture support programmes and delays in issuing export permits, amongst others.
We don’t need money to address these things, do we?
A company like Sable Chemicals, for instance, is required to have seven licences by the Environmental Management Agency; one from the National Social Security Authority; two by the Medicines Control Authority of Zimbabwe; three by the Radiation Protection Authority and one from the Health Professions Authority.
All these licences are paid for and are supposed to be renewed regularly.
And you expect Sable to be competitive!
Parliamentarians should actually be addressing how to support this protection stance taken on fertiliser manufacturers by Minister Chinamasa by discussing solutions to some of the above issues.
In any case, this is a sector that has been identified as one of the four prioritised sectors by the IDP.
That priority should be apparent in the manner in which we police, legislate or allocate resources.
In any case, Minister Chinamasa lucidly indicated that duty-free importation of fertiliser will still be ring-fenced in cases where local production is insufficient to meet demand.
The Committee further argued that “the introduction is coming well into the preparation of the agricultural season where farmers have already taken positions”.
This one is interesting.
The Committee should actually understand that this is the best time of the year to protect fertiliser manufacturers if the protection is to have any meaningful effect.
It is summer cropping which actually consumes more than 80 percent of fertiliser. You can’t protect at a time when there is no demand for fertiliser. So, it has to be now. Remember we are still talking about local fertiliser manufacturers who have cited low domestic demand — thanks to imports — as one of their key challenges.
In the just ended season, 56 percent of the total fertiliser requirements were produced by local companies, while 44 percent was imported.
Yet, we already have more than enough installed capacity to meet national fertiliser requirement of 330,000 tonnes per annum. Given the installed capacity of 900,000 tonnes, we actually have the potential to produce excess for the export market if we are to fully utilise capacity.
With the Central Bank having already indicated that it will introduce an export facility for manufacturing exporters to purchase raw materials upon presentation of confirmed export orders, fertiliser manufacturers should be able to import potash, which is a key raw material.
The US$170 million credit facility mobilised by the Central Bank for the financing of capital projects that are necessary to enhance production is also handy.
The IDP has, after all, pledged to support fertiliser production through newer technologies such as coal gasification and coal bed methane gas.
One important thing that also has to be noted is that Minister Chinamasa doesn’t just impose customs duty willy-nilly.
There is a very meticulous process that is followed, which is kick-started with the Competition and Tariffs Commission conducting extensive researches.
This Commission exists, partly, to facilitate the competitiveness of local industry through provision of tariff relief.
When the Commission is concretely satisfied that a certain sub-sector requires protection, after conducting those extensive researches, it will then recommend to the Ministry of Industry and Commerce, which will confer with the Ministry of Finance and Economic Development.
This is not done under cowboy assumptions. It, therefore, has to be underscored that the time to protect fertiliser manufacturers is none other than now!
Online Reporter