'Protectionism inflationary'

HARARE - Government's move to introduce protectionist measures may exert inflationary pressures on the economy, says ZB Financial Holdings (ZBFH).

This comes as Finance minister Patrick Chinamasa, in his 2014 budget, said government would impose protectionist strategies, including increasing import duty on finished products, to guard against continued flooding of imports.

“Government will be instituting measures to manage imports as well as maintenance of an even playing field with regards to cheap imports,” he said.

He added that while the modest support measures introduced by government have gradually yielded positive results, particularly on the poultry, fruits, cooking oil, prepared foodstuffs, beverages and other products, such imported finished products as dairy, vegetables, soaps and refrigerators have remained on an upward trend, regardless of the potential for local production.

As part of the measures, the Treasury chief hiked duty for 22 products to levels of around 40 percent from between five and 15 percent.

Goods such as dairy products, wheelbarrows, plastic products such as buckets and plates, PVC pipes and steel products which include cast iron pots and galvanised steel sheets are included.

To encourage productivity and competitiveness of local products, Chinamasa scrapped duty on raw materials for a number of sectors such as dairy, rubber, clothing and textile.

However, he noted that “short-term protectionist measures can lead to short-term gains at the expense of the medium-term recovery.”

“The effectiveness of such measures could also be affected by the lack of capacity.”

Zimbabwe’s manufacturing sector is currently producing at below 40 percent capacity.

However, ZBFH noted that “in terms of inflation, while the country can still achieve single digit inflation in 2014 as envisaged in the budget, the increase in import duties on some finished products and a number of other protective measures designed to support the local industry may ultimately work against lowing domestic inflationary pressures.”

Economists said inflation will most likely remain under control this year with the underlying core rates projected to trend sideways or down throughout unless there are fundamental changes in the economy.

Low or moderate inflation is generally attributed to fluctuations in real demand for goods and services.

Market analysts contend that in normal situations, a decline in the rate of inflation would be welcome.

But with the economy currently facing significant inflationary pressures emanating from — among other things —  an anticipated poor harvest this season, burgeoning trade deficit, depressed capacity utilisation, high demand for rental accommodation and increasing utility prices, observers believe the downturn in annual inflation lately is largely due to poor economic performance.

Since the re-election of President Robert Mugabe and his Zanu PF party in July last year, the economy continues to face challenges such as erratic power supplies, liquidity constraints, depressed industrial capacity, among other constraints.

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