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It doesn't matter how much sense it makes to ordinary Zimbabweans: Zimbabwe will not formally adopt the rand, the central bank governor says.

John Mangudya has told the state-controlled Sunday Mail that he's ruling out "rand adoption". 

Here are his reasons:

Zimbabwe uses the rand already

In theory this is true: you just don't see the rand very much these days.

Mangudya says the rand has been part of the multi-currency basket since 2009 (other currencies supposed to be accepted in major supermarkets include British pounds, Botswana pula and Chinese yuan). "We continued to use it [the rand] until such a time when some unscrupulous dealers started rejecting it," he told the paper.

The reason why the rand stopped being welcome in Zimbabwe - certainly in the capital, perhaps less in Bulawayo - was two-fold: the rand lost value so there were quarrels over the exchange rate of the day and Zimbabwe brought in bond coins, which meant there was much less need for rand coins as change.

The rand will get "externalised" too

The authorities have been laying a fair amount of blame for Zimbabwe's ongoing cash crunch on people, both local and foreign, "externalising" hard cash. The definition of that includes retailers buying goods from outside Zimbabwe for sale inside the country, apparently. Mangudya says there's no guarantee that won't happen to the rand. "What guarantee do we have that if we adopt it as our major currency it won't suffer the same fate of externalisation and hoarding? Worse still, it only takes a few hours to reach South Africa," he said.

What's really important for Zimbabwe is local production

Finally! However much the authorities bluster on about hoarders and externalisers of hard currency, the main reason for Zimbabwe's cash squeeze is that local production is low.

"We have always said that the fundamental problem of this economy is not about currency but localised production, stimulating exports and discouraging imports of finished products at all cost," the central bank chief told the Sunday Mail.

Mangudya did not discuss the reasons why local production is so low. Some of those are to do with high labour costs, very little foreign investment from outsiders worried about indigenisation and how they'll get their money out of the country. But the lack of local production is a huge issue and not one that on its own the rand will be able to sort out.

 

Source: News24

Zimbabwe’s mining companies say local banks are delaying processing of foreign payments by three months as the country battles a shortage of dollars, which could threaten production.

Mining accounts for more than half of the southern African nation’s export earnings, which amounted to $1,3 billion in the first nine months of 2016. Zimbabwe, which is battling a banknote shortage, last year imposed a priority list for foreign payments and banned non-critical imports to manage the little available foreign currency.

On the list, payments for critical inputs for the productive sector are given high priority but a Chamber of Mines economist Pardon Chitsuro told a Parliamentary Committee on Finance that miners were facing delays of up to three months to have their payments processed.

“We have been facing a crippling foreign payments gridlock with delays of up to 12 weeks impacting negatively on production….we continue to appeal to the reserve bank to prioritize the mining sector in light of its centrality in terms of generating foreign exchange,” he said.

Bankers Association of Zimbabwe (BAZ) president Charity Jinya told the committee that an increase in the volume of transactions had put a strain on the banks’ systems. “Delays differ from bank to bank but depending on the priority, it can be well beyond a month behind before the request is processed.”

 

- The Source

Zimbabwe has been guaranteed of continued power supply from South Africa’s power utility, Eskom, despite a power trading deal coming to an end, Energy Minister Samuel Undenge has said.

Zimbabwe has been importing 300 megawatts from its neighbour since December 2015 to help reduce rolling power cuts that decimated its industry and mines, but that deal is ending ‘soon.’ The two parties are negotiating to extend the arrangement, Undenge told journalists after a meeting with Eskom officials in Harare on Monday, adding that South Africa had “assured continued support.”

“The utilities are working out the details. It is a commercial arrangement, we are going to pay for what we import. There are various modalities of payment that are being discussed and as Zimbabwe we are going to honor our obligations….we will pay up what we owe,” he said.

Last year state media reported that Zimbabwe’s power utility Zesa, had run up a $12 million debt forcing government to step in with a guarantee to pay after Eskom had threatened to cut supply.

South Africa’s ambassador to Zimbabwe Mphakama Mbete who was also present at the meeting on Monday told journalists that the negotiations were progressing well. ‘We are hoping out of this there will be stronger consolidated bilateral energy collaborations which will strengthen our economies on a long term basis.”

As of March 2, Zimbabwe’s power output including imports was at 1,350MW against demand of 1,400MW.

Tobacco output for 2016/17 season is expected to remain flat at 2,2 million kilogrammes, similar to the previous season despite an increase in growers of over 12,000 to 82,000 farmers, but prices are likely to be depressed, officials said.

The tobacco buying season opens on Wednesday next week with sales four auction floors, Premier Tobacco, Boka Tobacco, Tobacco Sales Floor and Premium Tobacco Zimbabwe.There are also several companies that have contracted farmers.

Tobacco Industry and Marketing Board (TIMB) chairperson Monica Chinamasa told journalists after touring auction floors that the above normal rainfall which continues to hit parts of the country has minimal effect on the overall output.

TIMB also introduced an e-marketing auction system to promote fast sales and to reduce corruption which it said was caused by the interaction between the farmers and the buyers. “E-marketing which they (tobacco floors) have been practicing with farmers, is going very well. Farmers can monitor sales from their screens (phones) as sales will happen in real time…Buyers will be able to bid for the tobacco, which will enable the price to go up,” said Chinamasa.

TIMB spokesperson Isheunesu Moyo told The Source that prices are influenced by the quality of tobacco. “Average price was $2,95 for the last two seasons, highest on contract floors was going as high as $6,35 and $4,99 on auction and it is likely to be the same this season,” said Moyo. Moyo added that the country was still exporting tobacco from the previous season. As of December, the country exported 164,5 million kgs of tobacco valued at $933,6 million.

Tobacco is Zimbabwe’s second largest foreign currency earning commodity after gold. Moyo said about 99 percent of 2016/17crop will be exported to China, South Africa and Germany.

 

- The Source

President Robert Mugabe’s government announced a late Monday afternoon deal to hand its employees $180 million in 2016 bonuses, only just managing to head off a planned strike.

With an election due next year, the Mugabe government is keen to keep a lid on passions, at whatever cost.

As news of the bonus deal broke, statutory pension fund National Social Security Authority (NSSA) announced the government had given it treasury bills worth $181 million, primarily to clear arrears for the three years when the state could not remit its contributions to the fund as an employer. It is no secret that government has been struggling to meet payroll and, equally, not surprising that it has defaulted on its employees’ pension contributions and medical insurance.

Last year, it took government six months to eventually pay off all 2015 government bonuses. Even so, this came at a price as government defaulted on the June payroll, triggering a civil servants’ strike that was seized upon by some anti-government activists to create the biggest protest against Mugabe in recent years.

The situation is similar this year, with payments staggered over five months to August. There are compelling arguments against the payment of automatic bonuses to a bloated workforce of a government President Robert Mugabewhose fiscal position is, at best, fragile. But that’s not an argument a wasteful government which splurges on luxury cars and avoidable foreign travel can make.

Finance Minister Patrick Chinamasa, who has fought a losing battle to at least suspend the bonuses over the past two years, put on a brave face on Monday as he told reporters “government will certainly mobilise the resources.”

Recent history points to one obvious source of funding: paper. Government paper.

Money on trees. Literally.

As it has done with reckless abandon since 2012, government will issue treasury bills, mop up cash from the domestic financial market and crowd out the productive sector, as Chinamasa himself admitted during his 2016 mid-term budget statement. At the time, the Treasury chief had also warned about a runaway budget deficit as government was a third into $1.2 billion budget deficit for the year.

For a government which had virtually no domestic debt between 2009 and 2011, the explosion of local borrowings from around $300 million in 2012 to $3.7 billion by October 2016 is alarming.

The bulk of the debt is in the form of government paper which, according to central bank governor John Mangudya, currently stands at $2.1 billion. Analysts have criticised the government for going into overdrive with its treasury bill issues, worsening a liquidity crisis that has hobbled the economy.

Not that government will listen to any advice to curb its appetite to spend, or institute the necessary reforms that will see it moving away from the current ridiculous situation where 97 cents out of every dollar the state raises go towards employment costs. Last year, Mugabe’s Cabinet publicly rebuked Chinamasa for proposing 25,000 job cuts and suspending bonuses among other cost-reduction measures which he said would save $355 million over two years.

As Zimbabwe heads to next year’s election, government’s instinct will be to spend more, not less. And, over the years, Mugabe has shown that he is not averse to making bold, costly promises to segments of the electorate he views integral to his electoral ambitions. But there are limits to kicking the can down the road each time you’re faced with difficult decisions.

This is why Zimbabwe’s current path to financial ruin is worryingly familiar.

The economic meltdown which reached its peak in 2008 was the outcome of a series of poor decisions — price controls, unrestrained money printing — by a government which insists on turning economic orthodoxy on its head.

 

- The Source

Tourists have added their voice to growing concerns over the heavy presence of Zimbabwe Republic Police (ZRP) details on Zimbabwe’s, roads, with over half of respondents in a Zimbabwe National Statistical Agency (Zimstat) survey saying they felt harassed.

The harassment also includes confrontations with officials from the Department of Immigration and the Zimbabwe Revenue Authority (ZIMRA)’s customs office, according to the visitor exit survey (VES) released on Tuesday.

The VES polled 38,680 foreign tourists over a 12 months period between 2015 and November 2016.

Harassment by the police constituted the highest percentage of the reasons not to recommend the country to potential tourists, at 43.2 percent, followed by harassment by ZIMRA officers at 14.7 percent.

Harassment by Immigration stood at 8.7 percent, according to VES, which recommended immediate action against ruthless treatment of tourists by public officers. It noted that even though the number appeared small, it had affected revenue inflows into the country.

“In order to retain reputation of Zimbabwe being a hospitable nation there is need to ensure continuous training of frontline personnel who interact with visitors creating the first and last impressions on the destination such as Immigration, customs and police,” Zimstat said in the report. Zimstat did not ask tourists the type of harassment they received at Zimbabwe’s 10 ports of entry, including airports.

But there has been outrage by tourism industry players in the past nine years following the heavy deployment of police officers on the roads. They are reportedly harassing motorists including tourists and using sharp metal objects to destroy wheels of motor vehicles to force drivers to stop on roadblocks. The smashing of windscreens is a common occurrence.

The police force is reportedly generating millions of dollars per year through vehicle enforcement, which has been condemned by senior judges in Zimbabwe. The Zimbabwe Council for Tourism (ZCT), which represents the country’s major tourism players, condemned the groundswell of harassment and warned that the industry had lost substantial revenue due to the actions of the police.

Industry estimates say the industry, which generates about $800 million per annum, could easily breach the $1 billion mark if a range of hurdles, including the frequent security checks, were addressed and enough financial resources were deployed to finance marketing. The Ministry of Tourism and Hospitality Industry was allocated $2 million for the 2017 fiscal year.

“We don’t have to beat about the bush in terms of the damage that is done by (police) roadblocks to the product,” said ZCT chief executive officer Paul Matamisa. “If you are going to Bulawayo and there are 20 roadblocks you spend time stopping on 20 roadblocks. In other countries you do not see so many roadblocks on roads to tourist resorts. That has to be dealt with effectively. They are doing tremendous damage to the tourism industry,” he added.

A police spokesman at the meeting said the police had received numerous complaints of public harassment on highways and had started taking measures address the problem. He said, however, that the ZRP has not specifically received complaints pertaining to foreign tourists.

“We take seriously the complaints. We investigate each and every complaint that comes to us. We have set up a customer care service spearheaded by our public relations department to teach our officer how to handle the public,” said the spokesman.

 

- The Source

Over the last three decades there’s been some progress towards institutionalising multiparty democracy in sub-Saharan Africa. Despite this elections in the region rarely result in changes of government.

A recent survey by Afrobarometer – a non-partisan African research network – sheds some light on why this is the case. The survey, which involved 9 500 interviews conducted in 2014/2015 in Botswana, Mozambique, Namibia, South Africa and Zimbabwe, found widespread support for multiparty politics.

But the results also show that opposition parties face major obstacles to winning majority support. These include the fact that they aren’t trusted as much as governing parties and that very often they aren’t seen as a viable alternative to the dominant ruling party.

All five countries are governed by parties that emerged from liberation movements and have been in power for decades since independence. Although some of these incumbents have lost some electoral support in recent years, opposition support has not been high enough to unseat them.

The trust question

The latest findings mirror the results of a survey in 36 African countries in 2014/2015 which found that opposition parties had the lowest levels of popular trust among 12 types of institutions and leaders. While trust in ruling parties was 46%, it was only 35% for opposition parties.

This was an improvement over the situation more than a decade earlier when trust levels in opposition parties was much lower.

Figure 1: Trust in opposition political parties| 5 countries in Southern Africa | 2014/2015

Respondents were asked: How much do you trust each of the following, or haven’t you heard enough about them to say: Opposition political parties? (Percentage who say ‘somewhat’ or ‘a lot’) Afrobarometer

In Namibia and Mozambique levels of trust in opposition parties were found to be at the highest levels ever. But in Zimbabwe trust in the political opposition declined sharply after 2008/2009. Similarly, the proportion of Zimbabweans who said they felt “close to” an opposition party dropped from 45% in 2009 to 19% in 2014.

This dramatic reversal of fortune provides an important lesson for opposition parties in the other four countries. First, the opposition Movement for Democratic Change, led by Morgan Tsvangirai, was unable to leverage its role in stabilising the country when it was part of the Government of National Unity (GNU).

Secondly, infighting and increasing fractionalisation may have further shaped public opinion about its viability as a party.

Unequal

There’s a much more lopsided distribution of power and resources for opposition parties in countries with dominant governing parties than for those in competitive party systems. This, coupled with a lack of governance experience, makes it difficult for opposition parties to be seen as credible alternatives.

Take the example of Botswana. The Botswana Democratic Party, in power since independence in 1966, is the region’s most enduring dominant party. It has even adopted the slogan There is still no alternative. Although the party has been able to maintain a majority of parliamentary seats, its share of the popular vote declined to 46.7% in 2014, the lowest level of any of the dominant parties in the region.

Afrobarometer’s 2014 survey, which took place a few months before the election, showed that 44% of Batswana agreed that the political opposition presented a viable alternative vision and plan for the country (Table 1, below).

Table 1: Perceptions of opposition viability | 10 countries in southern African | 2014/2015

Respondents were asked: Please tell me whether you agree or disagree with the following statement: The political opposition in [your country] presents a viable alternative vision and plan for the country? (Note: This question was not asked in Swaziland.) Afrobarometer

In Botswana’s “winner-takes-all” electoral system, a large part of the opposition’s success in the 2014 election was due to three parties forming a coalition - the Umbrella for Democratic Change (UDC). This reduced vote splitting. A recent decision to expand the coalition to include the country’s remaining major opposition party, the Botswana Congress Party, has led to speculation about the chance of an opposition electoral victory in 2019.

Similarly, in South Africa, the opposition’s strong showing in the 2016 local elections has bolstered its optimism about its prospects in the 2019 national and provincial polls.

This success suggests that confidence in the political opposition may have grown since the 2015 Afrobarometer survey. It could also reflect widespread dissatisfaction with the governing African National Congress and political institutions, leaders and performance on a range of key policy areas.

But public dissatisfaction with government performance doesn’t necessarily translate into perceptions that opposition parties could do a better job, as Figure 2 shows. This is particularly so in South Africa and Zimbabwe. While eight in 10 citizens in the two countries report poor government performance on their top policy priority (unemployment, only 37% say that another political party could solve the problem.

Figure 2: Poor government performance on most important problem and opposition ability to solve problem | 5 countries in southern Africa | 2014/2015

Respondents were asked: In your opinion, what are the most important problems facing this country that government should address? - Thinking of the problem you mentioned first, in your opinion, how well or badly would you say the current government is handling this problem, or haven’t you heard enough to say? (Percentage who say ‘very badly’ or ‘fairly badly’) - Thinking of the problem you mentioned first, in your opinion, is there any other political party that could do a better job in solving this problem? (% who say ‘yes’) Afrobarometer

Role of opposition parties

What role should opposition parties play?

Only a minority of citizens in the five southern African countries with dominant parties agree that the opposition’s primary role should be to

monitor and criticise the government in order to hold it accountable.

This is true even among respondents who are opposition party supporters (Figure 3, below). In South Africa there’s even been a decline since 2008/2009 in support for opposition parties playing a “watchdog” role.

Figure 3: Support for opposition ‘watchdog’ role| 5 countries in southern African countries | 2008-2015

Respondents were asked: Which of the following statements is closest to your view? Statement 1: After losing an election, opposition parties should monitor and criticise the government in order to hold it accountable. Statement 2: Once an election is over, opposition parties and politicians should accept defeat and cooperate with the government to help it develop the country. (Percentage who ‘agree’ or ‘agree very strongly’ with Statement 1) Afrobarometer

This suggests that opposition parties might put off potential voters if they are seen to be constantly criticising the ruling party rather than contributing to the country’s development. Opposition parties might do better if they highlight their policy platforms and gain citizen confidence in their plans and capabilities.

This is a crucial insight for opposition parties in the region as it runs counter to the opposition’s conventional role in Western democracies.

Rorisang Lekalake, Research Fellow at the Centre for Social Sciences Research (CSSR)/Afrobarometer Assistant Project Manager for Southern Africa, University of Cape Town

This article was originally published on The Conversation. Read the original article.

The central bank says it is putting in place a $70 million nostro stabilisation facility to quicken the processing of outgoing payments by banks after the amount held in offshore accounts dropped by two thirds as the country deals with persistent cash shortages.

The southern African country’s banks have $250 million in offshore accounts and $120 million in physical cash while $600 million is estimated to be circulating in the economy, the RBZ said in a monetary policy statement on Wednesday.

Zimbabwe introduced a surrogate currency — called bond notes — in November last year to tackle a crippling shortage of currency but banks are unable to pay for imports because they do not have dollars. The shortage of cash has seen the value of point of sale (POS) transactions growing by 68,6 percent in 2016 to $2,9 billion.

FDI, remittances fall

Diaspora remittances amounted to $779 million from $939 million in the prior year while international organisations remittances declined from $978,8 million in 2015 to $795 million this year. Remittances Zimbabwe 1
from millions of non-resident Zimbabweans have become a significant contributor to the country’s economy as the country remains a foreign direct investment (FDI) leper.

FDI declined from $399.2 million in 2015, to $254.7 million in 2016, reflecting low foreign investor sentiment in the country owing to the poor operating environment, policy inconsistency and unfavorable investment policies. The indigenisation law is chiefly blamed for scaring away investors while attempts to ‘clarify’ the law have led to more confusion. Analysts have urged the government to repeal the law altogether.

The RBZ said the drop in remittances were as a result of poor global economic performance, depreciation of South African Rand and the prevalence of informal channels of transfer despite a three percent incentive for using formal channels.

The apex bank has previously estimated that Zimbabwe gets as much as $2 billion in annual Diaspora remittances, with only a fraction of that going through formal channels.
South Africa hosts an estimated three million Zimbabwe diaspora community.

Banking sector safe, RBZ to lower interest rates

The RBZ said it will reduce banks lending interests rates from 15 percent to 12 percent per annum and also lower charges for use of plastic money.

“Measures to reduce the cost of doing business by reducing lending rates charged by banks from an upper limit of 15% to 12% per annum, and by reducing charges on the use of plastic money to as low as 10 cents for small purchases of $10 and below,” said the bank.
Banks were stable, with core capital at $1,15 billion during the quarter ended 31 December 2016, it added. 

As at December 31, 2016, all operating banking institutions were in compliance with the prescribed minimum capital requirements.

The RBZ’s special purpose vehicle, set up to clean up the sector’s bad debts, the Zimbabwe Asset Management Company (Zamco) has so far acquired a total of $812.52 million non-performing loans (NPLs) comprising of $548.66 million proprietary portfolio and managed portfolio of $263.86 million. The company is expected to clear the remaining NPLs secured by mortgage bonds by end of March.

“After these acquisitions, ZAMCO will stop further acquisitions and focus on resolution and resuscitation. This will curb moral hazard in the banking sector and is a standard practice internationally for all asset management companies formed to resolve NPLs,” said the RBZ.

Incentives for mining, agriculture

RBZ said it will revamp the horticulture finance and gold development facility from $20 million to $40 million to promote exports.

The central bank introduced an export incentive scheme in May last year to promote the export of goods and services to enhance inflows of foreign currency. These are paid out in ‘bond notes.’ Gold deliveries to its Fidelity Printers and Refineries unit is seen at 25 tonnes this year from 21.4 tonnes last year while tobacco output is expected to be higher at 215 million kilogrammes after farmer increased the crop hectarage 10 percent to 107,000ha.

However Zimbabwe’s trade deficit improved by nearly 40 percent from $3,3 billion in 2015 to $1,985 billion in 2016 on the back of import control restrictions imposed by the government and tight foreign currency control measures.

“A combination of foreign currency management measures announced by the Bank in May 2016 and import management measures by the Ministry of Industry and Trade, as well as the effect of a stronger U.S. dollar on the country’s terms of trade, in part, explain the declining import bill in 2016,” said the RBZ.

 

- The Source

Zimbabwe’s government has shelved a 15 percent value-added tax on basic foodstuff which came into effect last week, following an uproar from consumers already burdened by a struggling economy, Finance Minister Patrick Chinamasa announced on Tuesday.

Faced with shrinking tax revenues and mounting government expenditure, Chinamasa had on February 1 introduced the standard 15 percent VAT rate on previously zero-rated and exempted products, including rice, margarine, meat, cereals and potatoes.

The move had seen prices of the basic foodstuffs rise, further compounding the woes of consumers in a country battling a 90 percent jobless rate and a deepening economic crisis.

In a ministerial statement in Parliament on Tuesday, Chinamasa said the tax had been put on hold.
“Following the debate that took place here and stakeholder representations, wherein concerns have been raised regarding potential informalisation due to perceived price increase, I propose to shelve the implementation of Statutory Instrument 20 of 2017 which levies VAT on potatoes, rice, margarine, maheu and meat products,” Chinamasa said.

“This will allow for further consultation with relevant stakeholders and those consultations, I will start them with this august House. I need the august House to give me guidance. I must tax something to raise money to pay for service delivery, allowances, and wages. So, we need to have guidance so that we understand and agree on which items to tax.”

VAT is the biggest contributor to Zimbabwe’s revenues, accounting for $942 million in 2016, 27 percent of total collections of $3.462 billion. VAT on local sales was $358 million, with the bigger chunk coming from taxed imports. Individual income tax, at $737 million, is Zimbabwe’s second largest contributor to revenue.

While shelving the VAT measure, Chinamasa said Zimbabwe has the longest list of VAT exemptions in a Southern African Development Community (SADC) region which has agreed to harmonise taxation matters and co-ordinate tax regimes.

However, Zimbabwe, which adopted the United States dollar as its accounting currency in 2009, is a much more expensive producer compared to its regional peers who have seen their currencies weaken considerably against the greenback over the past three years.

-This article is part of a series of studies titled “barriers to entry”, specifically looking at the expansion of regional supermarket chains in southern Africa. The article draws from studies that look at the spread of supermarkets in the region and how the market power of large firms in different sectors can hold back economic development.

Supermarkets are a key route to market for many suppliers of food and household consumable products. The growth of supermarket chains in southern Africa presents important opportunities for suppliers, as it potentially opens up much larger regional markets for them. Supermarkets can therefore be a strong catalyst to stimulate suppliers in food processing and light manufacturing industries in southern Africa.

But even the most efficient suppliers with competitively priced, high-quality products are unlikely to succeed if they can’t get their products to consumers. Here, large supermarkets play a key role. Onerous requirements and exertion of buyer power by large supermarket chains can result in small- and medium-sized suppliers and entrepreneurs failing to enter and participate in the economy.

We examined the obstacles to accessing shelf space in supermarkets in Botswana, South Africa, Zambia and Zimbabwe. The research revealed a range of costs that suppliers incur even before a single unit of their product is sold off supermarket shelves in each country.

Supplier development initiatives have been put in place by supermarkets and governments. But these have had limited success because they are restricted in scale and scope, are largely ad hoc, and don’t have a regional development perspective in mind.

There is a need for more co-ordinated, sustainable and regionally focused interventions to increase the participation of suppliers in supermarket supply chains. These should aim to reduce barriers to entry by, for example, curbing supermarket buyer power and building capabilities of suppliers.

Supermarket buyer power

Pick n PayThe formal South African supermarket industry is concentrated, with only a handful of large chains holding more than 70% of the national market share. South African supermarket chains also have a strong and growing presence in each of the other countries assessed, although recent years have seen the emergence of other African and global chains too.

Large supermarket chains therefore have considerable buyer power, and are often able to control pricing and trading terms with suppliers. This can include a range of fees such as listing or support fees paid by suppliers to get their products listed in supermarket books. These fees can be prohibitive for small suppliers. Estimates of listing fees in South Africa range from US$350 to $3,500 per year for a single product line of a basic food item on the shelf. They can go as high as $17,000 to $20,000 for prime till positions for products like sweets and lollipops for a limited time period.

In Zimbabwe, listing fees can be up to $2,500 per product line, with $50 to $100 for the introduction of additional new product lines by the same supplier. Suppliers are also often required to offer supermarkets settlement discounts for paying them within the number of days stipulated in the trading terms. This varies depending on the supplier.

Long payment periods put considerable pressure on suppliers’ cash flow and working capital which is problematic particularly for small suppliers. Local suppliers in Zambia raised this as a key reason for non-participation in supermarket value chains although it was a concern in all the countries studied.

Over and above the advertising costs faced by suppliers themselves in creating brand awareness for their products, supermarkets require them to make a host of additional payments. These can include:

  • discounts off the purchase price for indirect advertising;

  • contributing towards promotions. Our research showed that it can cost anything from $2,500 to $7,000 to promote a single product line as a contribution to the costs of the supermarket advertising through TV, newspapers and flyers; and

  • paying to participate in different promotions held by supermarkets such as Easter and Christmas promotions.

A range of other fees also apply, varying by supplier and according to industry. These include general discounts, fixed or variable rebates based on sales volumes, transport discounts and swell or wastage allowances.

Cumulatively, the various fees can add up to at least 10-15% off the price of the product sold to supermarkets, placing considerable strain on supplier margins.

Other obstacles to accessing shelf space

General access to good shelf space often comes at further costs. It is critical for successful sales that products are displayed where shoppers can easily see them. Eye-level shelf space is often taken up by Spardominant suppliers.

Similarly, access to refrigeration space is important for suppliers of cold products such as soft drinks, ice creams and frozen food. There have been competition cases [globally]

((http://ec.europa.eu/competition/antitrust/cases/dec_docs/39116/39116_258_4.pdf; http://www.ccm.mu/English/Documents/Investigations/INV019-Final%20Report%20of%20Undertaking-NC.pdf) and in South Africa that have recognised the harm to competition of dominant suppliers imposing exclusivity requirements on fridge space.

Over and above legal requirements such as compliance with national standards, food safety, labelling and packaging requirements, suppliers also have to adhere to private standards imposed by supermarkets. These can include barcoding and specific packaging requirements as well as sustainability criteria and religious requirements (such as halal and kosher certicfications).

These can also include higher accreditation standards which often involve on-going audits at the supplier’s cost.

Helping emerging suppliers

Codes of conduct between suppliers and supermarkets can be a useful way to control the exertion of buyer power.

In the UK, for example, the Groceries Supply Code of Practice was set up specifically to oversee the relationship between supermarkets and their suppliers following an inquiry by the former Office of Fair Trading.

Similarly, in Ireland and Spain, there are plans to institute voluntary or mandatory codes of conduct in the grocery sector to govern commercial relations between suppliers and supermarkets in the food chain. We recommend that such codes also be set up in southern Africa. Given the multinational nature of supermarkets in the region, these codes can be harmonised across the region.

Supermarkets can also play an active role in building the capabilities of suppliers. Almost all supermarkets in South Africa have some form of voluntary supplier development program in place. In some instances, large supermarkets have been mandated to set up supplier development programs. For example, as part of the merger between Walmart and Massmart, the merged entity was required to set up a supplier development fund. Around $16.7 million was allocated to be spent over five years to develop suppliers.

Some aspects of the program involving farmers were unsuccessful. But there have been positive outcomes for some black entrepreneurs in food processing. One beneficiary, Lethabo Milling, a new entrant producing maize meal, received around $110,000 towards refurbishing his plant. And the company was able to secure a loan from a commercial bank on the back of a guaranteed route to market through supplying Massmart stores in South Africa. Lethabo Milling also received additional support through training, waived listing fees and fast-track payments.

Successfully developing supplier capabilities in the region requires a much larger, long-term and commercially oriented approach by supermarkets in partnership with governments. This can be done through the creation of supplier development funds similar to the Massmart/Walmart programme. Funding can also come from fines levied by the competition authorities in abuse of dominance or cartel matters in each country.

Reena das Nair, Senior Researcher, Centre for Competition, Regulation and Economic Development, University of Johannesburg

This article was originally published on The Conversation. Read the original article.

  1. Opinions and Analysis

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