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Necessary moves are being made by President Mnangagwa and the Consumer Protection Commission to monitor prices, to figure out who is responsible for maintaining high prices as the Zimbabwe dollar surges 25 percent in value, and to find out who has been manipulating supplies to profiteer even more.
The need for detailed investigations is obvious, rather than just blaming the final retailer who is just as likely to be the victim of the supplier further down the chain as the final customers. Some of the required solutions may well need more than just fines imposed by the Consumer Protection Commission or criminal charges laid.
In a fair number of cases there will be need to rectify what happened, and to try and restore everyone’s position to what would have been the case if importers, manufacturers, wholesalers and retailers had all acted totally ethically and very sensibly.
To take just one example. Products by one medium-sized manufacturer show such a huge gap in prices where they are quoted in US dollars and presumably sold in US dollars, and in stores with a good reputation where they are priced in Zimbabwe dollars, that it is clear that the manufacturer was selling to local currency stores using an exchange rate of around $10 000 to the US dollar.
It may have been even more convoluted than this. One major trick was to start with the real price in US dollars, convert to local currency using the rate that a manufacturer would guess from what they heard in a bar as being likely in a few weeks, convert back at the official rate to create a new US dollar price, and then offer the option to the shopkeeper to buy this in local currency.
While this may keep the supplier within the law, since they have pushed up the price rather than just converted at what they thought was a future black-market rate, the resulting fact was a conversion at a future black market rate.
The retailer who legitimately bought stock in local currency, and for some products there were shortages generated by selling only to US dollar tuckshops, now faces a dilemma. With a modest mark-up on what they paid, they are trying to sell a product at around twice the price the retailer who paid US dollars can charge. They can either take a loss and cut their price to well below what they paid, or have it sitting on the shelves moving very little.
This is where we need action such as credit notes from that supplier, so allowing the innocent retailer to cut prices without losing vast amounts of money. This, in fact, might be the best process to deal with the forward pricing based on wrong assumptions about exchange rates or even political grandstanding. There were those who assumed that the Zimbabwe dollar would have to continue to decline in value forever. They were wrong and they need to make good.
There were other tricks put in place by some suppliers, tricks which the markets are now untangling. But you still get oddities. One essential product sees the brand produced by a State-owned entity priced about 50 percent higher than the brand produced by a pure independent business.
But besides the manipulators and speculators on currency exchange rates, there is also the problem of what is now overpriced stock bought at legitimate prices by an ethical retailer from an ethical supplier when the Zimbabwe dollar was lower in value. The retailer has this stock, for which they paid too much at today’s pricing, assuming the manufacturer is dropping prices.
When prices were rising rapidly, manufacturers were keen to issue new pricing lists and many retailers found they had to raise prices so that they had the money for replacement stock. The same could now be done in reverse, so long as manufacturers are reducing prices.
It is easy for products with and exceptionally short shelf-life to be reduced in price. Bread is one example where the stuff has to baked, transported and sold within around 24 hours. That is coming down in price, although not as fast as the Zimbabwe dollar is rising in value. There may be some built-in delay over flour stocks that have to be used up, but it could be worth checking.
There is a tendency for people to blame the retailers, but there is a lot of competition in this sector. If we took the representatives of the major supermarket chains, the owners of the independent supermarkets and the owners of the larger stores you would still need to a rent a reasonable church hall to hold a price-fixing meeting. If you included the whole retail sector you would need the City Sports Centre.
But when it comes to manufacturing we have monopolies and duopolies for many products, and very rarely more than four major suppliers for a product. New investors, interestingly, tend to charge less, sometimes a lot less, than the older-established manufacturers, showing that there is either inbuilt inefficiency or different ideas of how to grow a business.
But for some products there is a tendency for the major manufacturers to group their prices very tightly. This is why the Consumer Protection Commission needs to go beyond the retail sector and check further up the value chain. However the commission has started with the right approach, looking at the base price that retailers pay for stock and then checking that the final price reflects that.
But that base price might still be on the high side if the manufacturer is playing the fool, and that is why more detailed checks need to be made. When you hold a monopoly, or are one of four manufacturers who play gold together every week, there are temptations.
The commission can also encourage consumers to shop intelligently, that is reward the manufacturers whose brands are coming down in price and which are the cheapest, and reward the retailers who work out how to reduce prices while still remaining viable and solvent. Sometimes the price of the cheapest brand in the cheapest supermarket can be not much more than half the most expensive brand in the most expensive store, and yet the quality gap is negligible.
Manufacturers may also have their own hassles over the price their bankers want them to pay for foreign currency. The banking sector generates the interbank rate through its bids on the wholesale auctions and through the daily rates on the days when there are no auctions. The rate set by a wholesale auction for the 19 banks takes into account the bid by each bidding bank and the quantity they buy, and uses a weighted average. On the daily settings on other days each bank gives the price it buys and sells foreign currency, and the amount it deals in, and again a weighted average is generated.
All this means that half the banks are likely to be selling currency at above official rates and half below. There are some banks who, as the Zimbabwe dollar started rising rapidly in value, missed the signs and were still paying more than $7 000 for a US dollar, and are now reluctant to charge their business customers less. Banking circles are already telling them they need to take a hit, which they can afford, and everyone start working towards more similar rates.
The point is, there are a lot of dishonest people in business, and these need to be identified and hammered. But there are a lot of inefficient and lot who are at the mercy of someone else who may not be as honest as them. We need different solutions for each problem.
leeroy
Online Reporter