By Felix Lazaro, BusinessWeek Reporter
Dar es Salaam. The private sector faces an uphill task this year due to increased production costs and anticipated revenue shortfalls as power costs increase and borrowing becomes more expensive.

Power tariffs have been increased by 40 per cent since this month the factor that will increase production costs making consumer goods more expensive.

As this will put more pressure on soaring inflation the purchasing power of consumers would be significantly eroded reducing revenue of businesses.

Due to rising inflation the central bank adopted, late last year, a tight liquidity stance, which is a monetary policy move aimed at reducing the amount of in the circulation, and subsequently reducing inflation.

But this will lead into higher lending rates to individuals and the private sector the fact that the Bank of Tanzania governor acknowledges. He said the tight monetary liquidity stance will continue this year.

“When we tighten liquidity we aim at making it more expensive for consumers to borrow from banks. That is a fact and is what were mandated to do. Other players in the economy should play their part to reduce inflation, so that we (BoT) may move to a more neutral stance and rescue our economy,” Benno Ndulu, BoT governor said last week in an exclusive interview with the state TV station, TBC1.

But Dr Honest Ngowi, a lecturer at the Mzumbe University’s Business School wants the government to think twice before continuing with the tight liquidity monetary stance. He said the government should solve power problems, not reduce money circulation in the economy, to solve prevailing economic problems.

 “I am worried by BoT measures to control inflation. Price increases in Tanzania are the result of economic structural problems partly due to energy instability which causes under production, and not the amount of money in circulation as the government tells us,” said Dr Ngowi.

The interbanking lending rates, which are rates in which banks charge each other’s borrowing, reached 35 per cent early this month from 5 per cent in last July, being the highest in more than ten years. These rates affect lending rates to individuals and the private sector. They have since gone down to 20 per cent.

Banks usually tend to lend to inviduvials and businesses at a rate more than they lend to each other. And analysts say at the current inflation rate of 19.8 per cent, banks lending rates should be expected to reach more than 20 per cent from the current average of 16 per cent.

Prof  Ndulu said the government should work hard to improve revenue collection, investment more on infrastructure, as well improving power generation to reduce the cost of production.

The manufacturing and mining sectors consumer about 55 per cent of total electricity supplied by the power utility Tanesco. Latest figures indicate that the two sectors spend more than Sh270 billion shillings annually on electricity, which is also the main source of energy for industries in the country.

But the private sector is more concerned on erratic power supply than on higher tariffs.

“Our cry all along has been erratic power supply. Tarrifs may rise, but unless electricity supply is stabilize losses to industries will continue unabated,” said Ali Mufuruki InfoTech Investment Group Ltd, chairman and CEO.

He urged the government to treat power problems as a national security issue, solving it once and for all, because it risks the very survival of the private sector.

 More dire effects, however, are on the wellbeing of Tanzanians majority of whom cannot afford basic necessities.

 “The nature of business is such that additional production costs are passed on to the final consumer. Now that try to think on how this well affect the lives of Tanzanians who face a myriad of other economic problems,” Mr Mufuruki, who is also the chairman of the CEO Roundtable Tanzania said.

Dr Ellinami Minja from the University of Dar es Salaam’s Business School also said consumers will suffer more because businesses will pass additional costs to them.

“The common mwananchi suffers most from power problems. And it is not only that commodities become unaffordable to many, some households might stop using electricity because of high bills,” Dr Minja says.

In fact extended power shortage in 2011, high fuel prices, weakening local currency and high inflation had already negatively impacted on consumer demand and slowed down economic growth.

A report released last year by the Confederation of Tanzania Industries (CTI) said power shortages cost industries about Sh31 billion in missed annual revenue. About 70,000 workers lost jobs and the government missed Sh9.5 in revenue.

“It seems to bedifficult for manufacturers to understand the reason why they can’t get energy constantly given the tariffs they pay, amidst a high potential for energy production in Tanzania. This is a strain that continues to adversely impact on the quality of investment climate, which is currently most needed in the country,” the CTI report said.

But due to these problems the economic growth slowed to 6.4 per cent in the third quarter of 2011 from 6.7 in the previous quarters. The annual target was 7 per cent economic growth last year.

Production costs would also highly affect Tanzania’s competitiveness in the region. Tanzania is implementing the East African Community Common Market, which provides for the free movement of goods and services.

“The increased electricity tariffs will adversely affect Tanzania competitiveness against others EAC states,” said Esther Mkwizu Executive Director, Tanzania Private Sector Foundation.

Tanzania’s exports value to Kenya alone increased to Sh397 billion last year from less than S100 billion ten years ago due to the Common Protocol. Analysts predict that the value of exports to Kenya could reach Sh1.8 trillion by 2015. However this might not be achieved unless electricity issues are solved.

Starting 15th January this year, manufacturers high voltage electricity users will buy 1 unit at Sh118, low voltage electricity users will buy 1 unit at Sh132 and ordinary electricity users (more than 50 units a month) will buy 1 unit at Sh221. These are do not include taxes and fees.

Power tariffs have increased by 70 per cent since 2008. In December 2010, Tanzanians saw the increase of electricity tariffs by 18.5 per cent where electricity users below 50 units started paying Sh60 from Sh49 and domestic users were paying Sh157 from Sh129.

Add this page to your favorite Social Bookmarking websites