Editorial Comment: Delta Corporation has shown the way

REVELATIONS by Delta Corporation that the decline in volumes of some of its products will be stemmed following reduction of prices resonates with calls by Government encouraging local companies to cut prices to enhance competitiveness.

Finance and Economic Development Minister Patrick Chinamasa and Reserve Bank of Zimbabwe Governor Dr John Mangudya have been on the forefront of the call, saying the move would curb profiteering tendencies and increase volumes.

In its trading update released yesterday, Delta said the decline in volumes of some of its brands decelerated after price reduction, pointing out that the improved affordability of its brands should, over time, stem volume decline.

The country’s largest listed firm in value terms noted that the price cuts would also improve the competitiveness of its products.

While situations may differ from company to company, such as variations in production costs, we believe that most companies can take a cue from Delta Corporation.

In the current environment, it has become important for companies to thrive on volumes to sustain operations, make reasonable margins and preserve jobs.

In an environment characterised by low disposable incomes, lowering prices presents an opportunity for consumers to demand more and this would help drive volumes. 0However, for this to be effective, companies should strive to implement cost cutting measures and enhance efficiencies.

Eliminating avoidable costs increases margins, enhances profitability and consequently leaves companies better placed to lower prices.

Similarly, there is also need for complementary efforts from utility service providers such as water, energy and transport to give the companies latitude to cut prices.

The costs of enablers constitute a significant portion of the cost of doing business.

On its part, Government has already approved measures including reducing the cost of key enablers to help industry recover from the liquidity crunch and high production costs.

This was after a cost driver analysis of the economy showed that the nation’s international trade flow and its composition point towards a sustained loss of competitiveness.

Government’s decision is based on findings of a research conducted by a Cabinet committee, which identified key cost drivers as labour, power, water, finance, transport and trade logistics, tariffs and trade taxes, taxation as well as information technology.

The Cabinet committee recommended the adoption of a Holistic Cost Reduction Model as it relates to utility costs and regulatory costs such as fees, licences, permits and levies.

On labour, the Government approved reforms that are expected to bring about efficiencies in the economy and measures that will introduce productivity at the firm level. On power, the Cabinet also agreed among other things that in key productive sectors of the economy, there is need to lower electricity tariffs for industrial production.

It was further agreed that an entity whose mandate would be to promote a competitive business environment in the country would be established.

As such it is our view that Government should expedite implementation of the proposed initiatives. Thus Government and the entire business community should work together towards achieving the desired objectives.