The country’s only toothpaste maker—Merken— is in danger of going out of business following the government’s decision to allow the unfettered entry of the products it manufactures into the country, a new report has warned.
Merken was accorded national project status by the Ministry of Finance and Economic Development following recommendations from the Ministry of Industry and Commerce after the closure of Colgate-Palmolive in Zimbabwe.
Colgate-Palmolive, a US business previously Zimbabwe's leading toothpaste manufacturer, ceased operations in the country citing corporate prohibitions on dealing in the parallel foreign exchange market.
To preserve the brand on the local market, Colgate continues to distribute goods in Zimbabwe from its centralised production facility in South Africa.
In a bid to protect the local currency and address the widespread price spikes, Finance minister Mthuli Ncube recently suspended duty on all basic commodities including maize meal, rice, milk, flour, salt, cooking oil, sugar, petroleum jelly, toothpaste, bathing soap and washing soap.
But a joint study by the Competition and Tariff Commission and National Competitiveness Commission to investigate the cost drivers to the recent price hikes showed that suspension of duty on basic goods will destroy local industry.
It, therefore, called for its removal.
“Ever since the government liberalised the importation of basic commodities, it was followed up by measures to restore duties to protect local industry from collapse,” the report reads in part.
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The report said high import dependency on critical raw materials by local manufacturers means that they are likely to compete with the same companies that supply them with raw materials in the market for finished goods.
It is, therefore, likely to lead to reversal of the gains registered over the past few years in terms of improvement in industry capacity utilization levels.
“For instance, prior to the government making these policy pronouncements, the Competition and Tariff Commission had on 14 April 2023 received a request to protect the toothpaste industry from a surge in imports,” the report said.
“While the Commission was still in the process of its investigations, the government liberalised the importation of toothpaste, which is against the application submitted by a local manufacturer.
“It is worth noting that in this instance, the local toothpaste manufacturer is the only manufacturer in the country competing against imported products.
“The company only enjoys a mere 2% of the market share while 98% is held by imported brands.
“Therefore, the liberalisation measure is likely going to lead to closure of the local entity since it's already failing to compete with imported products.
“This exposes the country to overreliance on imported toothpaste, a situation, which can be unsustainable in future.”
The report noted that the same applies to the country's washing powder manufacturers that have been complaining about intense competition from imports.
The washing powder manufacturers have been in the process of requesting a remedy due to the threat imposed by imported washing soap, it said.
“The implication on other products might not exactly mirror the case of toothpaste discussed above,” the report added.
“However, there is no doubt that increased import competition will likely lead to reduction in local production of maize meal, toothpaste, washing soap and that will reduce capacity utilisation levels of the local industry.”
The report indicated that products such as cooking oil, rice and salt were unlikely to be affected since they were largely imported.
The inquiry noted that the anticipated increase in imports of basic commodities will lead to an increase in demand for foreign currency in the economy as traders take advantage of the duty free import window.
It said foreign suppliers are also likely to take advantage of this window to further increase their exports into Zimbabwe in order to access the greenback.
The net effect, the report notes, will be an increase in outflows of the United States dollar as what transpired between 2014 and 2017 which led to foreign currency shortages in the country.
“There is also a likelihood of further depreciation of the Zimbabwean dollar as parallel market activities will increase as consumers exchange their Zimbabwe dollar for foreign currency to purchase imported goods. The net effect of this policy will likely be acceleration of dollarisation in the country,” the report said.