What’s baking in the oven?

Africa Moyo Business Reporter
THE baking industry — which is facing a myriad of challenges dramatised  by foreign currency bottlenecks and high power costs — has engaged Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya so that the sector is given priority.

The meeting between the bakers and Dr Mangudya took place on Tuesday last week. Bakers argue that they offer an “essential service” to the nation, and should therefore be prioritised in foreign currency allocations to ensure not only a reliable supply of bread, but also viability.

Currently, the baking industry is sweating over $16 million worth of foreign payments that have not been processed due to a depleted nostro position. A nostro account is an account held by a bank in foreign currency in another bank. Nostros are often used to facilitate foreign exchange and trade transactions.

Bakers want foreign payments to be fast-tracked so that they acquire critical raw materials and spare parts, as the sector seeks to modernise its equipment and improve efficiencies.

About, 98 bakeries have shut down operations in the last three years as bakers grapple with a combination of challenges which include “unsustainably” high electricity tariffs and obsolete equipment.

At the moment, three bakeries Proton, Baker’s Inn and Lobels seem to be enjoying the lion’s share of the market, with their products found across most urban centres, eating into what previously was a market for smaller bakeries.

National Bakers’ Association of Zimbabwe (NBAZ) president Mr Ngoni Mazango told The Sunday Mail Business last week that the difficult operating environment which is also affecting other sectors is complicating the operations of bakers. “The challenges in the sector have nothing to do with the bigger bakeries, but the economy is difficult for most of the companies, and bakers are not spared at all.

“They can’t access foreign currency (and) today (Tuesday) we had a meeting with the RBZ Governor (Dr Mangudya) talking about that and we told him that we need Government to intervene and avail some foreign exchange to the bakeries.  “Other than the foreign currency, we don’t have proper equipment; we are using Stone Age equipment so we need to retool so that we remain profitable,” said Mr Mazango.

Foreign payments are increasingly becoming difficult to process from Zimbabwe because of lack of foreign currency in nostro accounts.

Dr Mangudya says there is a mismatch between the required foreign currency and RTGS balances. RTGS balances amount to $1,8 billion compared to about $800 000 real cash circulating in US dollars, bond notes and coins, the rand, and other currencies such as the pula, euro and British pound.

In an effort to mitigate the situation, the RBZ is incentivising producers — offering between 2 percent and 5 percent payable so that they increase exports and consequently generate foreign currency.

Electricity and water charges are also impacting on bakers. Industry is currently getting electricity at 9c per kilowatt hour (kWh), which it argues is already too high.

Industry representative body, the Confederation of Zimbabwe Industries (CZI), recently said it would approach Zesa for a downward review of the power tariff to about 7c per kWh, to ensure viability.

The NBAZ — an affiliate of CZI — wants a tariff of 3c per kWh, particularly given that the sector has not increased the price of bread in the last nine years.

Said Mr Mazango: “We spoke (with the RBZ) about the Zesa tariff. The tariff is making it difficult for the industry to survive.

“The price of bread has remained constant since 2009 and we actually decreased it to 90c from $1. It is really a challenge for us and we advocate for a 3c per kWh tariff.

“We can’t afford high tariffs (when) there is (also) no water and we are having to buy the water we use.” NBAZ plans to engage Zesa over a tariff decrease soon.

Effectively, any application for a tariff will flood Zesa’s in-tray as chrome and gold miners are also lobbying for 3c and 8c per kWh.

Zesa is adamant that any further tariff reduction from the current average tariff of 9,86c per kWh, would further adversely affect their operations.

NBAZ has ruled out an increase in the bread price to minimise their losses saying that would be inappropriate at a time when citizens are grappling with various other challenges.

Only recently, Zesa renewed its bid for a 49 percent tariff hike, which would catapult power costs to 14,64c per kWh.

The power utility says it wants a tariff increase to enable it to pay for power imports and boost local electricity generation. NBAZ has ruled out an increase in the bread price to minimise their losses saying that would be inappropriate at a time when citizens are grappling with various other challenges.

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