Zimbabwe has adopted an industrial strategy which entails a reduction in foreign dependency and promotion of local productivity. The approach, known as “import substitution”, is critical for economic growth and development as it helps to curb foreign currency leakages and enables continuous funding for local production.
What this means is that the savings from producing locally can be directed to other critical areas such as capital projects and social services while providing liquidity in the economy.
The Herald Business yesterday carried a story that Hippo Valley was ready to enter the local ethanol market, but was facing challenges in obtaining an operating licence.
The company said it had the capacity to produce 41 million litres per year to supply the local market. Giving Hippo Valley the licence means Zimbabwe will have two major ethanol producers.
Hippo Valley’s intentions are a welcome development particularly given that such important players in the industry will help in reducing our fuel import bill and also the burden on consumers.
Government has said it is willing to licence more ethanol players to supply the country’s 20 percent mandate as long as they comply with partnership guidelines.
However, such intentions have to date not come to fruition as the licensing authorities have taken long to issue licences to interested players, in this case Hippo Valley.
Currently, Green Fuel, a joint venture between the Agricultural and Rural Development Authority and Macdom and Rating Investments, is the country’s sole producer of ethanol and has on several occasions faced challenges in meeting national demand for ethanol.
We believe that at a time when the country is promoting local production in light of a growing trade deficit, Hippo Valley’s intention should be taken seriously by the regulatory or licensing authorities and that all barriers causing delays should be lowered.
Zimbabwe spends a considerable amount of money on petrol imports and breaking the ethanol monopoly could help the country make huge savings from increased blending.
For a country whose central bank’s role of printing money is temporarily dysfunctional, growing and preserving liquidity from export earnings should be prioritised.
While petrol blending does not entirely substitute petrol imports, it reduces the import bill, the reason the Government is taking time to pluck out this low hanging fruit.
The Zimbabwe Energy Regulatory Authority said petrol imports during the first seven months of the year increased by 21 percent compared to the same period last year.
This was due to low levels of blending. Such a deficit in low ethanol supply calls for other players to chip in and ensure a consistent supply of the product.
In a situation where other players with capacity are seeking licences to enter the market, the Government should hastily provide licences to deserving players for the benefit of the economy.
It makes sense for Government to act speedily in support of such initiatives, not only by Hippo Valley, but other private players who might need to enter the ethanol market.
This will also be beneficial to customers, individuals or businesses in terms of competitive pricing that will resulting from increased competition. Fuel is a huge economic input, meaning a reduction of prices also cascades to costs and ultimately prices. It has been proven that Zimbabwe could save millions as a result of petrol blending.
The delays in licensing more suppliers also goes against Government’s intention to create jobs. In fact, the delay buttresses the complaints of foreign investors who say Zimbabwe should improve ease of doing business.
It is therefore counterproductive to have those already invested in the country raising similar complaints. Why are we shooting ourselves in the foot?