Zimbabweans should brace for excessive price hikes

Crisis-weary Zimbabweans should brace themselves for excessive price hikes and food shortages in the coming months following government's increase of duty on a number of basic food commodities.

Economic analysts say a raft of taxes introduced by Finance minister Patrick Chinamasa in the absence of donor support and foreign investment, in an economy that has been in free-fall for the past few months will help impoverish further the majority of citizens.

Faced with dwindling revenue streams, Chinamasa on Thursday announced a five percent increase in mobile phone airtime and a 25 percent import duty on mobile phone handsets.

The Zimbabwean government, which is facing a revenue crisis so severe it has been forced to stagger civil servants' pay days as businesses have closed and a slump in foreign investment, also raised excise duty on petrol from 25 cents to 30 cents a litre.

In his mid-term fiscal policy, Chinamasa increased duty on a wide range of imports of finished products, including cooking oil, poultry, soap, maize meal, flour, beverages, dairy produce, furniture, sugar, fresh and canned fruits and vegetables, among others, saying they were accelerating collapse of the local industry and unnecessarily ballooning the country's import bill which stood at $3 billion in the first six months of 2014.

Economists, however, questioned the Zanu PF-led government's wisdom in raising import duty on basic commodities at a time when the country's manufacturing industry is operating below 40 percent.

"The increase in import duty is supposed to direct Zimbabweans to buy local products, but these are not available in shops," said economist John Robertson.

"As such there would be food shortages and subsequent price increases because at the moment manufacturers are waiting for farmers to produce, while farmers are waiting to get title deeds from government for them to borrow," he said.

Zimbabwe - led by veteran nationalist leader President Robert Mugabe since 1980 - is going through an economic squeeze which is making life unbearable for citizens, with debilitating effects on industry and commerce.

Despite adopting a multiple currency system in 2009 that helped halt a decade long economic meltdown, the country is also battling to balance between reviving the manufacturing industry - brought to its knees by an influx of imported goods, ageing equipment and clogged external lines of credit - and protecting citizens from high prices.

Tax expert Tendai Mavima this week noted that while the increase of duty on finished products would raise government revenues, it would not be adequate to protect local industry.

"If the purpose is to raise revenue for government then it will be successful but if they want to promote local production, they have to introduce incentives for local industry," he said.

Mavima said Chinamasa should have put in place measures such as tax incentives and suspension of duty on the importation of vital machinery used by industry in producing local goods.

He added that increasing duty on finished goods would have the adverse effect of increasing the price of goods, further eroding the disposable income of consumers.

Mavima said government should have looked at other variables that make the local industry uncompetitive such as the high cost of labour and electricity.

"The high utility costs will make it impossible for local industry to sell their products at competitive prices. If government subsidises utility costs for local industry, it will benefit them," he said.

Christopher Mugaga, head of research at Econometer Global Capital said the latest move by government were acts of desperation which will not achieve intended results.

"These are just spruce-up measures because the situation is so bad. It's too late for such interventions work," he said.