Zimbabwe: a powerless state

Clean and shiny lightbulb with Zimbabwe as a glowing wire.(series)
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Zimbabwe has a serious shortage of electricity, but its neighbours have been reluctant to come to its aid because it has previously failed to honour its financial commitments to them

By Chris Muronzi
The prospects for Zimbabwe’s economy, which has been badly ravaged by fast-rising inflation, low disposable incomes and low exports, were already looking grim a few months ago. Now repeated power outages make the troubled country’s future look even more dire.

Power generation has dropped dramatically at the Kariba hydropower station, Zimbabwe’s primary source of electrical energy. In March output fell almost 600MW as a result of poor seasonal rains — from 1,476MW to 890MW. Late last week, according to the August 8 Zimbabwe Power Company generation report, it was producing just 250MW — and that output is unlikely to change until the rainy season starts in about October and water levels improve.

In addition, other local power stations — Munyati, Bulawayo, Harare and Hwange — were together producing less than 500MW last week. In other words, total generation stands at about 800MW, against an average demand of 1,400MW-1,600MW.

In the event of shortfalls, Zimbabwe usually imports electricity from its neighbours. But Mozambique’s Hidroeléctrica de Cahora Bassa and SA’s Eskom have been reluctant to supply the country after it failed to honour its financial commitments.

Initially, the country’s industrial areas were spared the power outages. But that has now changed: in the past 1½ months industrial hubs Harare and the second-largest city, Bulawayo, have experienced power cuts of up to 17 hours a day.

It’s put an already struggling manufacturing sector under further pressure. Reuters reported earlier this month that the power cuts alone cost manufacturers more than $200m since June — never mind the toll taken by years of underinvestment in the sector.

Manufacturing capacity utilisation — the percentage of total productive capacity being used — is at about 50%, says Zimbabwe National Chamber of Commerce chief executive Chris Mugaga. But he expects this to drop to 15%-20% in the near future.

Most manufacturing companies have been forced to use emergency generators to power their plants. It is, says Kumbirai Dube, an employee at the country’s largest tissue-manufacturing company, Softex, “the first time in more than 30 years that we’ve had to run the factory on a generator”.

Such decisions will prove costly, and potentially unsustainable, in the long run. Two weeks ago, authorities hiked fuel prices by more than 22% above the week before; and they followed this up with a 26% increase just last week. This is minuscule when compared with a 150% hike in January, which triggered violent protests.

On a year-to-date basis, fuel is up 545% this year.

Mugaga estimates the economy to be haemorrhaging about $150m each fortnight. “When we come up with that figure we are looking at many things, such as the lost hours, idle hours, future export losses and production losses,” he says. “Companies continue to pay salaries, even when they are not producing, and fixed costs such as rentals.”

It’s taking a severe toll, he says. “Most of Zimbabwe’s manufacturing companies do not mass produce. As a result, we don’t have the right economies of scale needed to manufacture efficiently and offset costs.”

Workers, too, are feeling the effect. Some companies have stopped running shifts, while others have put their workers on forced leave until the situation improves. It’s “a real crisis”, says Zimbabwe Congress of Trade Unions president Peter Mutasa. “Many workers are facing job losses. Many others are being forced to go on unpaid leave, because there is nothing for them to do as a result of the power cuts. We are going to see widespread job losses unless the situation is mitigated.”

I don’t remember a worse crisis than this in the country’s history. In the period of the [1965] Unilateral Declaration of Independence things were bad, but we had electricity

Ibbo Mandaza

Gift Chipfuwamiti, a production manager at a Chinese-owned plastic manufacturing company in Harare, says his company used to run three shifts a day. Now, there’s a single shift — from 10pm to 5am — when electricity is available. And when power is restored, late at night, the first hour is lost to heating the factory’s equipment and unclogging plastic.

The company is rotating workers on the single shift, to ensure they all receive shift wages. “Though we have managed to pay workers this month, we don’t know if we can sustain this in the long run,” he says. “There are a lot of questions around sustainability … if no solution to power shortages is found.”

While Chipfuwamiti’s company has been able to pay its workers, its inventory is fast being depleted. “If this goes on for three more weeks, we will run out of stock, as our production is limited,” he says.

It’s not just manufacturing that’s in trouble. The mining sector — responsible for 12%-16% of GDP but more than 60% of Zimbabwe’s export earnings — has borne the brunt of the power crisis.

“Electricity is critical to production. Without power, there is no production,” says Chamber of Mines of Zimbabwe CEO Isaac Kwesu. “Gold and base [metal producers] are the worst affected by the power outages. They are getting only 50% of their total energy requirements.”

Last month, Batirai Manhando, the immediate past president of the chamber, said output for all key minerals for the first four months of the year had plunged by at least 10% against the same period last year.

“The mining industry requires an uninterrupted power supply because it is a round-the-clock business. The current situation, where on average the mining sector is getting four days of power a week, has resulted in widespread output losses,” he said.

“The use of diesel generators, which are expensive to run, has led to an increase in the cost of production, negatively affecting the viability of the mining industry.”

At the time, he warned that some mines would likely have to close their operations in the near future. Since then, power cuts have intensified.

Finance minister Mthuli Ncube, too, has painted a grim picture of the sector. In his recent midterm fiscal policy review statement, he pointed to headwinds in the second quarter, “as evidenced by output losses in most major minerals such as gold, platinum, palladium, diamond, nickel, chrome and coal. The major constraints are being imposed by foreign currency shortages and intermittent electricity supply.”

But he wasn’t without optimism. He said: “Given the resilience and potential of the mining sector, current setbacks are temporary, with expected recovery in the short term on the back of firm international prices and envisaged improvements in power and forex supply.”

There’s one possible silver lining: the severity of the situation has caused the government to partially rethink its ban on using foreign currencies for local transactions, introduced in June.

“In the short term, the power supply deficit can be met only through power imports; hence it is urgent that the government capacitates Zesa [the Zimbabwe Electricity Supply Authority] to mobilise the requisite resources through appropriate [measures] and cost-recovery tariffs, implemented through a differentiated tariff scale,” Ncube said.

On the one hand, this has meant a sharp hike in electricity tariffs: from an average of Z9.87c/kWh to an average of Z27c/kWh for domestic users and the agriculture sector. Nonexporting business will pay Z45c/kWh, from an average of Z9.86c/kWh.

On the other hand, the government has given Zesa the green light to “bill all other exporters and foreign currency earners in foreign currency and ensure that the resources are ring-fenced in a special account solely for purposes of importing electricity”.

Analysts say the economic malaise is the worst Zimbabwe has yet experienced — and political scientist Ibbo Mandaza says there’s no telling how much worse it could get.

“I don’t remember a worse crisis than this in the country’s history. In the period of the [1965] Unilateral Declaration of Independence things were bad, but we had electricity. In 2008, it was [also] bad,” he says.

“But this is far worse in [that] there is a sense of hopelessness in the government and a lack of resolute leadership.”

The situation has crippled industry in Zimbabwe, says Henry Ruzvidzo, president of the Confederation of Zimbabwe Industries. “The loss of revenue runs into millions. In some cases export orders are under threat due to lack of performance.”

Ruzvidzo says there is an urgent need for solutions before irreparable damage is done. To this end, he says, discussions are under way with Zesa and the ministry of energy to find short-and long-term solutions.

In the short term, at least, the government seems to be taking steps to mitigate the fallout. Information minister Monica Mutsvangwa last week said the government has reached an agreement with Eskom for a weekly supply of 400MW. In return, it has started making weekly payments of $890,000 to offset its debt to the SA power utility.

Source: Financial Mail