There is need for the government to address the issue of the rising cost of industrial inputs so that the reduced inflation rate has an immediate economic impact.

In December last year, the Central Statistical Office announced the end-year inflation rate stood at 9.9 percent; a figure that should inspire the private sector, particularly financial institutions to commit resources in medium to long term investments.

However, manufacturers and other productive sectors of the economy have hardly celebrated the inflation rate drop as most of them ended the year on higher-than-normal costs. These costs impacted significantly on the profitability of most companies, particularly in manufacturing. Associated with the rising costs are the prices of raw materials, interest rates and the devaluation of the currency for the first part of the year. If this inflation rate has to be sustained at single digit, it must be managed at production-cost level and not by monetary policy alone.

A number of companies still believe the realistic inflation rate is around 12 percent as they mainly consider the cost of inputs. The inflation rate as captured by the CSO mainly focuses on final consumer prices and not so much on the prices of raw materials and other inputs such as interest rates that are absorbed by industry.

Generally, manufacturers pass on this cost to consumers, a situation that has now been made difficult by cheap imported manufactured goods mainly from China. The local companies are presently absorbing much of this high cost of inputs for them to remain competitive.

At the close of the year, it was clear there was disparity in performance between at macro- and micro-economic levels of the country. The growth rate, inflation rate and even the interest rates ended positively while the companies registered low profitability, increased input costs, reduction in head-count and high gearing levels, mainly through bank-overdrafts. This disparity in performance can be attributed to the focus on trading, with the external economy having had a huge impact to the economy while manufacturing contributed lower than expected in real terms.

For 2010 to register a growth rate that has an immediate impact on poverty and creation of employment, the government will need to address the various bottlenecks facing the manufacturing industry in particular. One of these bottlenecks is the rise in input costs estimated at 16 percent per annum (as opposed to the 9.9 percent in consumer prices). This factor alone makes it cheaper to import finished products and market them inland than to produce them within Zambia. Let us make production a profitable venture.