Opinion / Columnist
Mnangagwa's sugarcandy mountain
13 Jan 2019 at 15:17hrs | Views
The decision by the Zimbabwe government to increase fuel price is insane and unrelated to the underlying causes of fuel shortages but everything to do with benefiting the ruling gang of vampire elites and the whole coterie of sycophants and supporters surrounding the President.
This is a well-rehearsed act pregnant with political expedience. The vampires are portraying themselves as attacking the problem to make the fuel available to the masses yet this measure makes everything more expensive!
Defying the market forces and imposing artificial price controls exacerbates the problem. The immediate result is more fuel shortages and increased black market activities! How could the government peg the price of fuel to the current black market rates of United States Dollar to the Bond Note yet say with a straight face that these prices are predicted on the ruling official exchange rate of 1:1 between the Bond Note and the United States Dollar? This is pure madness.
There has been an admission of a black market exchange rate of 1:3.5 between the Bond Note and the United States Dollar by the government and the immediate result is more shortages—a first-generation problem. The shortage, in turn, will immediately increase the black market rates, where the commodity is illegally sold above the controlled price—a second-generation problem or a secondary unintended consequence. On the black market, hoarding, bribery, profiteering, and shady deals will flourish as the commodity will become more and scarcer.
The President clearly stated that the reason for the fuel hike was to address fuel trade and black market activities. This is a stunning admission from the Presidency yet any measures designed to curb profiteering or hoarding only attack the second generation problems—they attack the symptoms rather than the root cause of the disease, which is the price control itself. The official price of fuel is now $1, but the fuel price on the black market from today, 1/13/2019 is USD$1.25 (4.34 bonds) and get ready for the steady rise.
Black market is the only hope for millions of jobless people trying to earn a living. A profit of 1.34 bonds creates an incentive for anyone to buy the commodity at the official price and resell it on the black market to reap a huge profit. Everyone then wants to acquire the commodity at the official price but the biggest advantage goes to the political connections. Government officials themselves engage in this practice, using their office to acquire commodities at official prices and having their wives, relatives, and cronies resell on the black market.
Black market activities retard economic growth because they do not produce wealth. Contrary to popular misconceptions, price controls do not make commodities cheap, they make them more expensive—black markets only help the well-connected and make them very rich at the expense of the masses. For the ordinary person, black markets are not viable because of the numerous hidden costs involved: storage, risks, and time wasted searching for goods and standing in line. These hidden costs render the commodity much more expensive and can only be eliminated by removing the price controls.
One other thing that left me in shock listening to President Mnangagwa's announcement was that dreaded word "subsides." Again, I have made my love for the president a public record but last night, I started wondering about the "criminals surrounding the President 2.0?" Subsides destroy countries.
Nigerians fixes the price of petrol at $2 a gallon but cannot produce enough gasoline to supply the country with petrol at that price. So to supply petrol at that price, Nigeria's government imports about US$4 billion a year of petroleum products to sell at a loss of about US$2 billion a year. But there is more to this economic madness. Since the price of subsidized petrol is only a third of the price charged in neighboring countries, much of Nigerian petrol is smuggled across the border, aggravating the already chronic fuel shortages in Nigeria. Then the same government re-imports, at market rates, what is presumably the same Nigerian fuel back into Nigeria to sell at lower subsidized prices!
Last, I honestly and earnestly offer our team of professionals for free to help Zimbabwe climb out of the mess it is in today. All we need is 3 months and I am giving Zimbabwe our promise that the country will benefit from our experience. If we fail, hey, the country can always send us packing, we will not have cost the country a penny.
This is a well-rehearsed act pregnant with political expedience. The vampires are portraying themselves as attacking the problem to make the fuel available to the masses yet this measure makes everything more expensive!
Defying the market forces and imposing artificial price controls exacerbates the problem. The immediate result is more fuel shortages and increased black market activities! How could the government peg the price of fuel to the current black market rates of United States Dollar to the Bond Note yet say with a straight face that these prices are predicted on the ruling official exchange rate of 1:1 between the Bond Note and the United States Dollar? This is pure madness.
There has been an admission of a black market exchange rate of 1:3.5 between the Bond Note and the United States Dollar by the government and the immediate result is more shortages—a first-generation problem. The shortage, in turn, will immediately increase the black market rates, where the commodity is illegally sold above the controlled price—a second-generation problem or a secondary unintended consequence. On the black market, hoarding, bribery, profiteering, and shady deals will flourish as the commodity will become more and scarcer.
The President clearly stated that the reason for the fuel hike was to address fuel trade and black market activities. This is a stunning admission from the Presidency yet any measures designed to curb profiteering or hoarding only attack the second generation problems—they attack the symptoms rather than the root cause of the disease, which is the price control itself. The official price of fuel is now $1, but the fuel price on the black market from today, 1/13/2019 is USD$1.25 (4.34 bonds) and get ready for the steady rise.
Black market activities retard economic growth because they do not produce wealth. Contrary to popular misconceptions, price controls do not make commodities cheap, they make them more expensive—black markets only help the well-connected and make them very rich at the expense of the masses. For the ordinary person, black markets are not viable because of the numerous hidden costs involved: storage, risks, and time wasted searching for goods and standing in line. These hidden costs render the commodity much more expensive and can only be eliminated by removing the price controls.
One other thing that left me in shock listening to President Mnangagwa's announcement was that dreaded word "subsides." Again, I have made my love for the president a public record but last night, I started wondering about the "criminals surrounding the President 2.0?" Subsides destroy countries.
Nigerians fixes the price of petrol at $2 a gallon but cannot produce enough gasoline to supply the country with petrol at that price. So to supply petrol at that price, Nigeria's government imports about US$4 billion a year of petroleum products to sell at a loss of about US$2 billion a year. But there is more to this economic madness. Since the price of subsidized petrol is only a third of the price charged in neighboring countries, much of Nigerian petrol is smuggled across the border, aggravating the already chronic fuel shortages in Nigeria. Then the same government re-imports, at market rates, what is presumably the same Nigerian fuel back into Nigeria to sell at lower subsidized prices!
Last, I honestly and earnestly offer our team of professionals for free to help Zimbabwe climb out of the mess it is in today. All we need is 3 months and I am giving Zimbabwe our promise that the country will benefit from our experience. If we fail, hey, the country can always send us packing, we will not have cost the country a penny.
Source - Sam Wezhira
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