daniel chigunwe
Over the last couple of months, there has been a dramatic surge in prices of many consumer goods, including basic food items, without any underlying changes in the economic fundamentals and this needs to be fixed.
The Government, as yet, is not making any decrees or taking unilateral action.
Led by the Ministry of Industry and Commerce, the authorities have engaged industrialists and retailers with two major goals: to find out why they are pushing up prices, which includes who is doing the pushing; and what can be done to stop this.
The Cabinet has made it clear that it wants the private sector to be part of the solution, in fact to lead the solution, which makes sense since the problem originates there. Government is ready to consider what it needs to do to make the solutions work.
It is in many ways difficult to understand how some price increases can be justified, or at least justified at the level they have been occurring, unless we assume some very dubious underlying premises for these. In the early weeks of the new year, Zimbabwe seemed to have reached a very stable situation with exceptionally low inflation.
This was based largely on fundamentals, that is on the underlying economy that drives market forces, rather than on any manipulation by authorities or any problems of supply and demand.
On one side we had been enjoying a long period of a surplus of foreign currency inflows over outflows, so the amount of available foreign currency should have no longer been a problem.
There was admittedly a division of the inflows into roughly three baskets: the retained foreign currency by net exporters, the surrendered foreign currency by exporters, and the free funds and diaspora remittances.
But the barriers between the three were being broken down, largely by pushing all retentions by both producers and retailers to 85 percent, which meant that those with foreign currency had to start spending it locally.
That in turn had seen the percentage of local transactions in foreign currency rising to around 70 percent of all transactions. The moves had also ensured that far more businesses in the economy were earning their own foreign currency, instead of relying totally on auctions and the banking system.
At the same time, the black market in foreign currency appeared to have been tamed and its importance was rapidly diminishing, which was even more important.
A set of straight-forward market measures, rather than Government decrees, had hammered this market. High interest rates for borrowers had stopped speculative borrowing, since that was just a way of losing money.
A lot of the excess money supply of local currency, an excess generated almost totally within the private sector since the strict fiscal discipline in Government for four years had removed that source, was mopped up by the sale of gold coins, a move welcomed enthusiastically by what everyone hoped was a large responsible majority within the private sector.
The premium offered by the black market had sunk to around 20 percent over the official rate, which itself was generated by market forces within the banking system.
With wholesalers and retailers allowed to use a 10 percent margin over the mid-interbank rate, and once banking charges and transaction taxes were taken into account, the black market premiums were trivial over the “till rate”.
The margin within the black market between what dealers paid and what they received was also slashed. Estimates suggested that the black market was now dealing with less than 10 percent of all foreign currency dealing, making it even less important.
At the same time it was obvious that the fundamentals would continue operating positively for stability.
Everyone was aware that Zimbabwean farmers were producing so much more that some major import requirements were eliminated or drastically reduced, and the mining sector was growing so fast that exports were dramatically increasing.
In fact people were wondering why, in the circumstances, the interbank rate had not stabilised to reflect the growing positive gap between inflows and outflows, but its steady and relentless climb, although modest, was predictable and could be taken into account.
The everything exploded. The black market rate, which some regard as something with divine authority instead of a small side issue, rose fast, and besides the premium the gap between the buy and sell rates rose, expanding profits for dealers and speculators.
Some, although not all, of the price rises appeared predicated on this black market rise. But a lot of the price rises cannot be explained by just the black market rate.
It appears from what some have said that some industrialists were using what they predicted the black market might reach in a month or two, a prediction that cannot be based on fact or on anything, but throwing dice.
We have even had sudden surges in US dollar prices.
This can be seen more easily in those supermarkets that mark prices in US dollars, and it would be interesting to find out why some manufacturers think a 30 percent jump in the US dollar price can be justified.
What is probably happening here is that the producer works out the real US dollar price. They then convert to Zimbabwe dollars at the black market rate for buying US dollars.
They then convert back to US dollars at the interbank rate and get the new higher US dollar price. So when a consumer uses local currency they pay at a sort of double black market premium. And this is happening even when all the ingredients come from Zimbabwean farmers processed by Zimbabwean industries.
Yet none of this should be happening. The Government is concentrating on the 14 most important basic commodities. These are mostly processed food, with very high percentages, on average, of Zimbabwean-produced raw materials.
Since Zimbabwean farmers grow all our grain except rice, we should expect that costing in the agro-industrial sector should be very predictable and grain-based products should do nothing more than follow the prices paid to farmers.
Even in dairy and cooking oil, the percentage of raw material from Zimbabwean farmers is increasing fast, and that should also generate predictable pricing that can be worked out months in advance.
We hope that by putting in place an inter-ministerial working group to interact with the manufacturers and retailers, that some solid price statistics from the GMB and other sources for local raw materials will form the basis of discussion, and that manufacturers should be able to explain how variations from those farmer prices, with accepted historic processing and profit margins, can be justified.
It is likely that industry, rather than commerce, will have the major explanations to make since retailers are largely just the messenger, rather than the originator.
But we still need to examine how some artificial shortages are created when producers of all 14 products, and almost all others, can meet any conceivable demand.
Millers for example are complaining about their products ending up in the informal sector tuckshops instead of on formal sector shelves, where they send them.
The planned meetings to find solutions should not accept vague statements, but should be based on the best and most solid evidence, with detailed figures presented and examined so that every factor, justifiable and speculative, can be assessed.
We are not looking for people to blame, but we looking for solutions and any dubious activity eliminated.
Online Reporter