Import duty on commodities fuels price hikes

on some imported basic commodities.
Duty was reinstated on groceries, which include salt, cooking oil, flour, maize-meal and shoes, whether new or used.
This saw year-on-year inflation rate spiking 3,3 percent driven mainly by both food and energy inflation.
Food inflation rose on the back of price increases on imported products mentioned above.

This marks a defining moment for a nation which had forgotten about the hourly price increases during the hyperinflationary era.
Who is to blame for the recent spate of price hikes? Is it the shop owners, traders, manufacturers or the Treasury boss?
According to Consumer Council of Zimbabwe, the food basket is slightly above US$504 and questions remain hanging notably amongst the urban populace on whether this figure is representative of the real cost of living.

When Minister Biti reintroduced duty on retail products mostly those that constitute a significant percentage on the consumer price index, he had a belief that it was a policy action to support the local manufacturing industry which is currently recuperating from a decade-long recession.
A lot of business conferences were held where captains of industry were bemoaning competition, which was emanating from cheap imported products.
Some would frequent the Treasury offices to try convincing the staff on the ground on why they needed the restrictive measures to be reinstated.

It’s only two years ago there was a fallout between the Grain Millers’ Association and the Finance Ministry, the argument rested on the flooding of local markets with mealie-meal produced from genetically modified grain.
The battle remains the same save for the fact that groceries have also been included in the mix.

In normal circumstances, the reintroduction of duty should have helped push our local products in the market considering the downward pressure the greenback has been facing from the South African rand.
In essence, it makes US dollar exports much more competitive hence correcting the trade deficit notably between Zimbabwe and its major trading partner who happens to be South Africa.

The duty reinstatement by the Treasury has exposed the snail’s pace of economic recovery.
If the Zimbabwean economy is not yet in a position to produce sufficient retail commodities to satisfy local demand, what of capital goods?
This probably explains why Zimbabwean banks are accumulating an average of US$86 million per month in terms of deposits.

This is almost equivalent to US$3,5 million per bank. The ever widening fiscal deficit which is expected to dip beyond the official US$700 million is explained by the dominance of non-productive sectors in the economy since very little VAT or corporate tax is amassed from the sluggish economy.
It is unfortunate that ordinary Zimbabweans are exposed to the dragging recovery, blaming the recent price hikes solely on Treasury is certainly unjustifiable.

This could be testimony that the nation is confusing economic stabilisation with recovery. It is advisable to maintain levels of duty on struggling economies like that of Zimbabwe and other developing countries since it forms one of the major sources of revenue for such governments alongside tax and property ownership.
The alternative cum optimal way to expand fiscal space lies in widening the revenue base and this includes introducing protectionist measures.

Most of the expatriate business people in the country are selling either Chinese or South African goods. There is virtually no private investment and continuously keeping the borders porous to trade will continue acting as a threat to domestic recovery.
In spite of having the lowest inflation rate in sub-Saharan Africa, this could not translate to low cost of living if a purchasing power parity comparison is made with the regional economies.

This is because this economy has been enjoying “borrowed deflation” or inflation due to the dominance of cheap, imported goods.
A “cash till economy” has been created with all the money supply in the country’s velocity of circulation having a higher propensity towards South African production.
Instead of complaining, the Confederation of Zimbabwe Industries and other business representative bodies must rally their members to increase their capacity utilisation as this is the only panacea to the seemingly demand pull inflation threatening the 4,5 percent year-end target.

The high loan deposit ratios of banks are also not a reliable indicator of liquidity inducement into the economy. This is mainly because a bigger chunk of those funds are allocated to distribution in the form of trade or import finance.

This is not going to assist the restive pillars of the economy which are the mining and agriculture sectors as the presence of antiquated production equipment cannot be resuscitated using short-term funds currently available in the economy.

This, in my view, is going to be a very difficult summer for the Treasury department as it tries to balance between fiscal expansion and satisfying the expectation of Zimbabweans. Implementing austerity measures will be a bitter pill to swallow for a populace whose belts are already tightened.