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Taking Stock Kudzanai Sharara
The latest wave of price increases come at a time the Zimbabwean consumer was already experiencing a decline in disposable income and will certainly add a lot of pressure on households’ discretionary income. Following the liberalisation of the exchange rate, incomes and subsequently the purchasing power lost value in US dollar terms. Although some employers have tried to cushion employees by increasing wages and salaries, none could have done it at a scale that can 100 percent compensate for the lost value.
So, whichever way you look at it, disposable incomes eroded by changes in the exchange rate before inflation pressures, which are also detrimental, can be factored in.
How it will affect the retail sector
Revenue for the retail sector are certainly going to come under pressure. As we have highlighted on this column before, clothing retailer Edgars Stores Limited suffered significant drop in sales volume following price hikes in October throughout to December last year.
The retailer’s numbers showed a sharp 37 percent drop in sales volume for the last three months of the year, which traditionally is peak season, with consumers always finding an excuse to spoil themselves. But not last year, as disposable incomes were severely distressed following price hikes.
The same phenomenon was experienced at fast consumer goods producer, National Foods, where the last three months of the year were characterised by a significant increase in inflationary pressures.
Said National Foods: “In response, pricing regrettably had to be adjusted substantially in most categories in order to maintain viability. These price changes led to reduced volume momentum over the October to December quarter where volumes grew by only 11,7 percent compared to 18,4 percent for the half year.”
In a statement accompanying its results, Dairibord also pointed out that “aggregate demand is expected to slow down in the medium term” while another listed entity Truworths said “inflationary pressures will continue to erode consumer purchasing power and confidence”.
Because consumer spending makes up roughly the bulk of the economy, there is need to pay a lot of attention to the way consumers feel at the moment.
The statements made by these listed entities should be of major concern to economic players, and should come as a call to action that whatever decisions are to be made, they should be aimed at addressing our challenges and this must include the pricing regime.
The pricing method of just aligning prices to the exchange rate, without putting much thought into the positives that have come with the liberalised exchange rate does not cut it. To give an example, Edgars Stores Limited managing director Linda Masterson, said the new exchange rate had made its manufactured merchandise competitive. The reason being labour and other local costs are now relatively cheap in US dollar terms.
“One of the things that have happened, the distortions in the economy, since October, is that we have become more competitive as a nation for exports. Our wages were high in the region and that has been somewhat corrected by the distortions that we have had in the market,” said Masterson.
These are the positives that economic players should consider before putting up prices that at the end of the day no one can afford. Reducing the import component in our production is very critical as it will allow business to price its products without necessarily factoring in or focusing on the exchange rate.
As one analyst puts it, the current trend points to a recession as inflationary pressures will kill any growth prospects. A good example is the 2019 National Budget Statement growth projections of 3 percent, how does it stack against the high inflation of 59 percent in February, real growth is no longer attainable. Even the projected national revenues to be collected by Zimra, their value and the impact they will have in the economy is already reduced.
The Reserve Bank of Zimbabwe governor Dr John Mangudya has already noted with concern that demand for goods and services is going down.
Appearing before a Parliamentary Portfolio Committee on Public Accounts, Dr Mangudya said his major concern was that the demand for goods and services had gone down.
“There is no capacity for companies or firms to be able to increase their prices. Right now there is resistance in terms of purchases,” he said.
“I see shops now trying to promote their products and in my Monetary Policy Statement (MPS), I stated that I was more worried about going into recession and when that happens, it will be very difficult to get out of it,” Mangudya said.
These are tell-tale signs that everyone should play close attention to and act accordingly.
Bongani Ndlovu