Massive job cuts loom

Struggling Zimbabwe Electricity Supply Authority (ZESA) Holdings has extended power cuts across the country, resulting in most of Zimbabwe experiencing rolling blackouts during the past few weeks.

The power cuts have seen some areas going for days without electricity, a development that has severely affected businesses and home owners.

The Confederation of Zimbabwe Industries (CZI) said in July that factories were sometimes going for as long as three days without production because there was no power, a situation the organisation said could derail efforts to revive the manufacturing sector that is battling to emerge from a decade of unprecedented decline.

Leading gold producer Falcon Gold Zimbabwe last week announced that its operations and those of several other mining houses have been severely constrained by erratic power supplies.

Ageing power stations

In a shareholder trading update, the company said it was cautiously optimistic about the overall recovery of the countrys mining sector against the backdrop of the rolling blackouts.

ZESA has attributed the power cuts to constant breakdowns at its ageing power stations.

CZI president Joseph Kanyekanye urged the cash-strapped Harare government in July to allow private investors to operate some of its electricity plants to help boost generation and end power cuts hampering manufacturing sector production.

Zimbabwe requires at least 2 000 megawatts for domestic and industrial consumption, but the country is currently generating around 1 100MW.

The country has over the years failed to attract independent power producers despite having several power projects on the cards, which if implemented would make the country a net exporter of electricity.

An unstable political environment and lack of policies that encourage private sector investment in the sector has kept potential investors away.

ZESA has struggled to raise revenue from customers since the introduction of multi-currencies early this year as part of reforms to lift the southern African country from a deep economic crisis.

Low growth prospects

The energy utility is seeking an independent power producer to develop its Gokwe North power plant to produce 1 400MW at a cost of US$1.6 billion.

To guarantee adequate supply, Zimbabwe has long planned to add two more units at Hwange, generating 300MW each, and expand its Kariba hydro power plant with two generators, adding 150MW each by 2012 at a total cost of US$800 million.

Zimbabwe could also put on its grid 300MW from Lupane Gas project, a Greenfield project at a cost of US$300 million while ZESA jointly owns with Zambia the Batoka power project with potential to generate 1 600MW at a cost of US$1.8 billion

Respected Harare-based economist John Robertson said Zimbabwes growth prospects from 2011 are likely to remain low, partly because of power cuts and partly because longer-term bank finance will remain scarce and expensive.

These constraints have prompted the IMF (International Monetary Fund) to set its forecast for 2011 at 2,2 percent and it suggests that, if current policies are not changed, the growth rate will fall to zero in 2012, Robertson said.

The IMF, which has sent at least two review missions to Zimbabwe since the beginning of the year, has urged Harares coalition regime to implement radical changes in economic policy without delay before it can access concessionary financing.

Companies downsizing

At present, given its power shortages, high operating costs and political uncertainties, Zimbabwe will not readily attract foreign investment funding into any project that seems likely to take some years to show a return, Robertson said.

Local funds for such projects are not readily available because bank liquidity remains low.

Substantial project registration fees and new provisions that require some registration procedures to be repeated in two years have further discouraged business promoters.

He said many companies are known to be making strenuous attempts to downsize their operations.

Reports indicate that, but for the costs of funding severance packages, many more people would have been retrenched, the economist warned.

Any further job losses would worsen the economic and social crisis in a country already suffering unprecedented unemployment estimated at more than 70 percent and where low disposable incomes are impacting negatively on business profitability.