Shilling woes lower Q2 industrial output

SHILLING depreciation and unstable power supply are to blame for slowing down of manufacturing sector growth in this year’s second quarter.

The sector contribution to GDP decelerated to 6.9 per cent in the Q2 of this year compared to 10.1 per cent of similar period last year. The shilling depreciated by over 20 per cent in the first half of the year, following high demand amid low supply US dollar.

The erratic power supply which were noticed from June this year lowered industrial output thus its contribution to the economy. The Confederation of Tanzania Industries (CTI), Director for Policy and Research, Mr Hussein Kamote said yesterday that shilling remained a key factor for the sector slow growth.

“The shilling depreciation increases manufacturing costs as most of our industries import intermediate inputs and spare parts,” Mr Kamote told the ‘Daily News’ in an interview.

To reverse shilling depreciation trend, BoT then, introduced tight monetary stance involving cutting commercial banks’ net open position to 5.5 per cent from 7.5 per cent of liabilities, increase banks statutory reserve requirement from the current 8.0 per cent to 10 per cent of total deposits.
CTI Director said manufacturers also are facing another challenge as some goods are entering the economy without paying import duties thus make them cheap compared to local products. “Unstable electrical supply also had its toll, but not so heavy compared to shilling,” Mr Kamote said.

“The sector contribution in this quarter (Q3) to GDP will be poor since power supply was rampant,” he said. The sector, according to Mr Kamote is sensitive to erratic power supply since manufacturers incur a number of extra costs to maintain smooth output.

The 6.9 per cent growth was attributed to general increase in the production of industrial goods, noticeably from non-food industries such as textiles and apparel. Others are chemical products, furniture, rubber and plastic products.

National Bureau of Statistics (NBS) reports for Q2 GDP contribution by sector shows that electricity and water increased by a growth rate of 5.3 per cent in the second quarter compared to 2.0 per cent in the corresponding quarter last year.

“The reasons for electricity growth were attributed to an increase in electricity generated from hydro, thermal and gas plants,” NBS said.

The report shows that electricity generated in second quarter was 1,588.1 million Kwh compared to 1,489.0 million Kwh generated in the corresponding quarter in 2014. “Though, electricity supply has somewhat improved in recently days it is too late to correct the lost production time in this quarter (Q3),” Kamote said.

/Daily News.

John Mziray • 4 hours ago

Have you wondered whether or not the shilling,s depreciation may have been attributed to among other things the high level of corruption and money laundering in the country culminating into poor products and services?

It goes without saying that when you have more local money supply that is not matched to production of qualitative goods and services, the economy may be undermined, due to corruption and money laundering, poor quality of goods and services, and the likelihood is that you may have a lot of local currency in the economy and little or less competing products and less exports to external markets due to poor qualities of products and services that cannot compete in external markets?

The quality of goods and services tend to be of low quality but their prices tend to be very high and difficult to market in external markets and as a result drive the value of the local currency down compared to other currencies .... the shillings value is not only low compared to the dollar but lower to her neighbor's, the Kenyan shilling!

Although the shilling may be low due to other factors attributed by international market structures, that I believe needs to be corrected but Kenya is also a victim just like Tanzania is, but the value of her shilling is better!

However, Tanzania can reverse this culprit by taking serious steps to regulate the economy starting with stamping out corruption, money laundering, reduce imports and increase exports in order to regain the value of her shilling!