• Electricity in Zambia is already marred with erratic supply.
• Increasing the price of electricity increases operating costs of manufacturers significantly.
• Clear impacts of fuel and electricity price hikes are increases in cost of production.

Zambia Association of Manufacturers (ZAM) says the anticipated looming price hikes for fuel and electricity will be a hindrance to meeting the inflation targets in 2022.
Association President Ashu Sagar told Money FM News in a statement that fuel and electricity are key raw materials in the manufacturing sector and account for large costs in many production processes and supply chains, therefore hiking the price will significantly increase the operating costs of manufacturers.
Mr. Sagar noted that the increase in the cost will inevitably be passed on to consumers in order to ensure the manufacturers remain profitable, contribute to government revenue and survive.
“Electricity in Zambia is already marred with erratic supply, therefore increasing the price of electricity coupled with downtime from load management increases the operating costs of manufacturers significantly. Additionally, the increase in the price of manufactured products will be exacerbated by the increase in the transportation costs, which will be induced by the fuel price hike.”
“The clear impacts of the fuel and electricity price hikes are increases in the cost of production, cost of transportation and price of locally manufactured products. Therefore, the Zambia Association of Manufacturers foresees these price hikes as a hindrance to meeting the inflation targets in 2022. Having been subjected to a turbulent period during the Covid-19 pandemic coupled with an unstable economic environment,” Mr. Saga stated.
He said the Association is of the view that phased removal of subsidies on fuel and electricity will allow manufacturers and consumers to have a smoother transition into higher costs.
Mr. Sagar added that if the removal of subsidies entails the reintroduction of the standard rate of Value Added Tax (VAT) on fuel, it could cushion the costs of manufacturers despite the pump price increase because manufacturers would claim back 90% of the VAT on the cost of diesel.
“Further, we would suggest the following measures with regard to these 2 cost factors: Electricity: Ensure that the Cost-of-service study is completed for Zesco, address the issue of power purchase agreements on 2 fronts- the agreed tariff and the fact that these are negotiated in USD while power is sold in Kwacha. Advise on the current status of tariffs paid by the mining sector. If these are below the purchase prices this would entail providing power at below that of other sectors.”
“Fuel: Provide for a framework that allows Oil Marketing Companies to participate fully in the procurement and distribution of fuel, i.e. liberalize the sector so that competition can ensure cost effective delivery and government should only be involved in the strategic reserve and setting a range of pump prices. Following from this, strengthen the CCPC to ensure no cartel develops that may hinder the competitive supply of fuel,” he suggested.
Recently, Finance and National Planning Minister Dr. Situmbeko Musokotwane disclosed during a joint press briefing with International Monetary Fund (IMF) staff in Zambia that government has made a conscious decision to reduce expenditure on some subsidies, such as fuel and electricity, and shift the money to priority areas such as investment in health and education.