Zimbabwe: Power Challenges Threaten GDP Growth

Source from:  The Herald (Harare) 12 February 2008 02/13/2008

Despite forecasts of real GDP growth this year, the erratic power supplies, and other operational limitations faced by companies may lead into economic recession, the Herald Business gathered this week. Companies have and continue to lose significant production time to electricity shortages, and several of them have already reported severe losses, and sharp drop in productivity. Sectors worst hit have been that of agriculture (tobacco and wheat), manufacturing and mining. The three sectors combined provide more than 50 percent of Zimbabwe's GDP. Rough estimates suggest output in these industries has declined by almost half, as a result of low electricity supplies, and the general shortage of raw materials, foreign currency etc. Analysts and industrialists polled by Herald Business this week estimate that GDP would fall further this year, particularly if the power outages were sustained, and the attendant problems in industry persisted. Finance Minister, Dr Samuel Mumbengegwi has projected a growth of 4 percent in the economy in 2008, building hope on the anticipated growth in agricultural productivity. "The situation in industry at the moment is very dire," explained Harare industrialist, Mr Patterson Sithole, who is also former president of the Confederation of Zimbabwe Industries. "Power cuts have affected an industry that is already struggling with various operational constraints. Most companies have scaled down production, particularly those on 24-hour shifts. "The state of affairs in industry is really unacceptable. Zesa must sort out issues of capacity because industry needs an efficient and sustainable power plan." There are genuine concerns that even when companies are now spending more in alternative energy sources such as DC or AC generators, these were stopgap strategies that at best, would work in the short-term. Mr Sithole said such investments were costly, and would only fuel expenses through extra and unplanned expenditures related to the purchase of new equipment. Due to power outages, most industrial equipment is now operating on a "start and stop" basis, which is damaging. Companies would spend more on repairs and maintenance of equipment that have been subjected to serious electricity shocks. Also, the cost of keeping up generators was considerably higher. Most generators run on fuel - petrol or diesel - which now cost at least $10 million per litre on the open market where it is readily available. ZB Bank economist, Mr Best Doroh said: "The electricity situation is serious and it would have negative impact on the economy. It would be worse if the current power outages were sustained over a long period of time. "Companies have lost several man hours, and we estimate that production will continue on the decline, due to this (power shortfall) and other factors." Zimbabwe is in the middle of a severe power crisis that, on two isolated occasions this year, has plunged the whole country into darkness for, as much as 24 hours in each instance. Power company, Zesa Holdings Ltd has struggled to supply the minimum 1 500 megawatts of power that the country needs daily. On a number of times, Zesa has been switched off by some of its external suppliers; it has also failed to generate sufficient power from local sources due to regular breakdowns at its power stations, and generally, the company has not invested in big power generating projects since 1987. And because of the power cuts, the tobacco crop has been badly affected and farmers are predicting giant losses. Last year's irrigated tobacco crop is currently in the curing season, which takes place usually in closed structures with ventilation and artificial heating. Heat and humidity are controlled to remove moisture from the leaf and this drying process fixes the characteristic orange-yellow colour used for cigarettes. It usually takes a 4-6 days to cure the tobacco. If there is a power outage then the quality of the crop will be affected resulting in low prices. In worst case scenarios the crop may rot. In the mining sector, industry heavyweights like Metallon Gold Zimbabwe, the biggest gold producer here, estimates that output will fall by as much as 50 percent this year owing to the shortage of electricity. Operations at Redwing Gold Mine, Metallon's biggest subsidiary and contributing nearly 50 percent to cumulative company production will be suspended for many months to come due to water logging. The company has not been able to pump the water out because of erratic power shortages. In industry, average capacity utilisation within industry has risen to around 65 percent from as low as 10 percent, thanks largely to the Bacossi facility, a low financing strategy employed by the Reserve Bank in 2007. Enditem