Lobels Bread are reported to have closed their Kwekwe plant due to lack of foreign currency which has led to failure to procure key raw materials. The Kwekwe plant has only been in operation for about a year having been taken over from Plaza in 2017. Lobels is not the only company in this boat as many others have either shutdown or downscaled in the face of foreign currency shortages in recent times.
According to New Zimbabwe, employees of Lobels Bread have been informed that the company has closed due to operational challenges. This was always coming. Since the end of last year, most companies have been coming up with various survival strategies as economic challenges take their toll. Bakers recently increased bread prices to about $2.50 a loaf but government has persuaded them to reduces that price to about $1.80 according to Minister of Industry and Commerce, Mangaliso Ndlovu. The Minister assured bakers that foreign currency allocation from the Reserve Bank of Zimbabwe would be increased to ensure uninterrupted production. Unfortunately, competing demand for foreign currency has reduced such commitments to nothing but a firefighting exercise. Gold producer, RioZim who had been assured of improved payment for gold delivered have suspended their gold mining operations because government has once again failed to meet its end of the bargain. Delta Beverages is also experiencing constrained production because of lack of foreign currency.
Raw materials
The country needs about 400 000 tonnes of wheat annually to meet demand but farmers are producing only half of that. As a result, wheat has to be imported and this needs substantial amounts of foreign currency. In addition, bakers need to be viable enough to generate the money needed to cater for operating costs like repairs and maintenance of machinery. This can be costly. This is the reason why bakers had decided to pass on that cost to consumers. To its credit, government had committed to meet about 80% of Lobels’ forex needs. Evidently, there is not enough foreign currency to cater for all essential sectors of the economy. If a lasting solution is not found, bread shortages may increase and those with the bread will charge higher prices. One suggestion would be to allow bakers to source their own foreign currency but the first step would be to decriminalise the parallel foreign currency market so that businesses and individuals buy and sell their forex legally. Although bread prices may rise without government subsidy, competition will serve to normalise the prices. No one will charge astronomical prices if the product is readily available on the market. Even if companies want to charge in foreign currency, they should be allowed to do so but forex should be accessible to all.
The current trend of company closures and suspension of operations calls for the development and implementation of sustainable interventions. Ad hoc foreign currency allocations have failed to do the trick. Government cannot continue to incur huge losses while trying to subsidise and keep industry open. Now may be the best time to dump the 1:1 misconception and accept where the market is taking us.
