Maravi

Non-food inflation high despite economic growth- BoZ

Non-food inflation high despite economic growth- BoZ
By Fridah Zinyama
Thursday October 25, 2007 [04:00]

Bank of Zambia (BoZ) has observed that non-food inflation has always been high despite the country's economic growth. Commodities like transport and communication, rent, fuel, lighting and household goods are always on the high side. The central bank indicated that inflation for items like clothing have been on the high side because the textiles industry in the country is very small and Zambia depends on expensive imports of material.

"Zambians like superior quality clothing and are willing to pay the price for such quality," the bank noted.

BoZ indicated that three factors that contribute to high non-food inflation include high transportation costs, expensive tastes, and a negligible textiles industry.

"Given that Zambia has a negligible textile industry, the manufacturing of clothing, footwear and furniture is on a very small scale and due to diseconomies of scale, too highly priced for its quality," BoZ observed. "To meet the demand and the superior taste of Zambians, these items are imported."

BoZ stated that fuel was also expensive due to the country's positioning and its poor road infrastructure.

"The regional sources of the bulk of Zambia's imports are South Africa and Zimbabwe; however, with the decline in the latter economy this implies that the regional hegemony supplies a larger share of imports and most of it has to be transported into Zambia by road," the bank indicated.

"A poor regional road network, fuel shortages in Zimbabwe, interruptions in fuel supply from the Indeni refinery, and high international oil prices all contribute to inflated transportation costs, which are passed through to the Zambian consumer."

The bank noted that the current construction and rehabilitation of the road network, the plans to upgrade the railway through Malawi to Nacala and connect Tanzania Zambia Railways (TAZARA) to Burundi, Rwanda, Uganda and DRC were expected to reduce transportation costs in the medium to long term as well as reduce the prices of imported goods.

"To make further inroads into the high prices, Zambia's dependency on imports must be reduced through the development of more value added activities, including a local textile industry," noted BoZ. "Zambia is currently a producer of cotton but exports most of it in its raw form. A larger textile industry would reduce the demand for imports and contribute to the moderation of domestic prices."

Labels: BOZ, INFLATION

posted by MrK @ 3:42 AM