Price controls backfires in Zimbabwe

MANUFACTURERS and retailers have reportedly deliberately stopped supplying basic commodities such as mealie-meal, cooking oil and sugar, resulting in shortages as government's pricing regulations begin to backfire.

Last week, President Emmerson Mnangagwa used the Presidential Powers Act to ban retailers from selling goods at exchange rates above 10% of the prevailing interbank rate, with those violating the ban liable to a fine of up to $20 million.

The local currency has been trading at 366 against the greenback at the interbank rate and 750 on the parallel market.

Despite government pronouncements, the prices of basic food stuffs have been spiking upwards, with bread going up from $640 to $690 on Sunday.

A snap survey by NewsDay yesterday revealed that bread, mealie-meal, cooking oil and sugar were now in short supply. Some retailers are demanding US dollars only for the goods.

Confederation of Retailers Association of Zimbabwe president Denford Mutashu said forex shortages were hindering them from restocking.

"Our supply is constrained, especially when one pays in local currency, which predominantly most retailers do. They have no capacity to attract hard currency through their sales. During this weekend, we went around most formal shops in Harare and surrounding areas and money changers were loitering around the front of shops offering to pay for customers who want to buy using US dollars at a higher rate than the interbank rate used in shops," Mutashu told NewsDay.

"One of the consequences is that the retailers will not have hard currency for them to be able to restock. Finance minister Mthuli Ncube said government was not ready to use price controls, but directed retailers to stick to the interbank rate when the parallel market rate is spiralling has been interpreted as a price control measure. The measures have done more harm than good as it has helped to flourish the business of the illegal money changers," he added.

National Bakers Association of Zimbabwe president Denis Wala attributed the bread price hike to the rise in flour prices last week.

"The price of flour had gone up by 26%, which had resulted in bakers increasing the bread price. There is also a need to consider that the price of fuel has gone up. If the Reserve Bank of Zimbabwe (RBZ) had not intervened, the price of bread would be even higher. However, it is still too early for us to comment on the accessibility of the foreign currency, including the availability of fuel in local currency. On the causes of the price hike in flour, the millers would explain that," he said.

Grain Millers Association of Zimbabwe president Tafadzwaa Musarara refused to comment, referring questions back to the bakers.

Economist Prosper Chitambara said manufacturers preferred to supply goods to the informal market, where they can be sold in US$.

"Even if the government would avail foreign currency this, would not stop the price of bread from going up. Global prices of wheat are increasing and this has a direct influence on local prices," he said.

"On the issue of shortages, we are in a very challenging high inflationary environment. This is because manufacturers and those formal retail shops find no incentives in using the formal interbank rate as prescribed by government. The suppliers would rather prefer to supply to the informal markets, where they are paying in US."

Economist Godfrey Kanyenze said: "The economic environment is highly polarised. There is a disconnection between the market and the government. Even if government comes up with policies to regulate, the market will reject the policies if they feel that what the government is doing is not favourable to business. The social contract between the government and the market is broken and that needs to be mended before any other measure is put in place. The confidence in public institutions is very low."

In his weekly column in the State-run Sunday Mail this week, Mnangagwa threatened to improvise "new strategies" to deal with businesses that are failing to comply with measures put in place to curb inflation.

"We have tried moral persuasion which some businesses mistake for weakness. We may now devise new strategies which ensure the consumer is respected and benefits from opportunities availed to the markets by government through benefiting corporates," Mnangagwa said.