Economists warn of empty shelves
BUSINESS REPORTER
The government’s decision to enforce a ‘price control’ system for all goods sold in an attempt to slow down the high pace of inflation has drawn criticism from business leaders and economists
Apparently, the government imposed the Statutory Instrument 81A of 2024 to regulate the pricing of goods, by removing the 10% premium on forex sales.
As a result, all sellers of goods are now compelled to use the interbank selling rate or risk facing severe penalties.
The president of the Confederation of Zimbabwe Retailers, Denford Mutashu has since written to the Minister of Industry and Commerce, Mangaliso Ndlovu, expressing disquiet over the Statutory Instrument 81A of 2024, which imposes civil penalty of ZiG200 000 or an amount equivalent to the value of the foreign currency charged for the goods or services in question and accumulative penalty over a period not exceeding amount of the fixed penalty for each day – beginning on the day after the service of a civil penalty order- that the fixed penalty or any outstanding amount thereof remains unpaid by the defaulter.
“We are writing to express our strong concerns regarding Statutory Instrument 81A of 2024. While we understand the intention behind this instrument we believe that the current framework is not workable and requires significant adjustments to ensure its feasibility,” part of the letter reads.
It continues: “Our concerns are centred around the maximum exchange rate, which does not reflect a cost recovery exchange rate given the current circumstances. Specifically, banks are currently charging clients a rate around 5% above the selling rate. This week, the banks have been selling at a rate of around ZiG14.70:US$1.
“The new intermediate money transfer tax (IMTT) statutory instrument announced by the minister has increased the IMTT for forex (FX) purchases on the Willing Buyer, Willing Seller (WBWS) from 1% to 2%. This is in addition to the 1% charged by the Reserve Bank of Zimbabwe (RBZ), taking the total cost for WBWS purchases to 3%. These costs add up to an average of 8% above the RBZ selling rate.
“Furthermore, FX is not available on demand, and any time lag between receiving ZIG and purchasing FX on WBWS can result in losses for traders due to ZIG rate devaluation.
“To make this SI workable and possible for players to comply, we recommend that the bank selling rates must not exceed the RBZ selling rate and that FX purchases from the WBWS must be exempted from IMTT.
Additionally, the RBZ’s 1% admin fee for WBWS purchases must be removed and the authorities should allow an additional 2% above the WBWS selling rate to account for ZIG rate volatility if these measures are not implemented.
“SI 81A of 2024 will not be workable, and it will lead to a cat and mouse game between the regulator and businesses. We urge you to consider our concerts and recommendations to ensure a feasible and effective framework.”
Kurai Matsheza, the president of the Confederation of Zimbabwe Industries (CZI), said the market should determine the exchange rate.
“In economics, there’s a law of demand and supply hence the government should follow that for the exchange rate to stabilise. Anything outside that will affect the economy,” Matsheza said.
Economist, Vince Musewe, said government tactics show a sign of desperation and cannot drive the economy forward.
“You cannot police market sentiment. The market is a beast that can only be tamed by building trust and confidence.
“Price controls always create alternative market shortages and increased smuggling. We are not learning from history,” Musewe said.
Another economist, Professor Gift Mugano, told Business Times that too much controls on goods and prices could only worsen the situation rather than save it.
“We have been on this road of putting stringent trading rules on the market and arresting people as harassing them has not brought anything but shortages and overpriced goods in the formal sector,” he said.
He said the current situation was reminiscent of the June 25, 2007 scenario where the government made an announcement that businesses must go back to the price of June 18, 2007 which ultimately led to shortage of goods in the shops.
“Now, even without cracking down on people, just enforcing that law to force retailers to accept use only the official exchange rate without adjusting it by 10% or above, it would mean to say goods will be very expensive in the reform or retail, and no one will buy.”
“People will go to the tuck shops and the manufacturers will also push their goods to the tuck shops where they can get cash,” Mugano added.
“So there will be shortages in the formal setup and the government will lose revenue, tax revenue.”
He said the challenge the country has is that the exchange rates between the formal exchange rate and the black market rate are not aligning.
“The black market rate is higher than the official rate and one get a sense that the black market rate is clearly floating and the official rate is manipulated because it is stuck at the same point it doesn’t show you that there’s a shortage of foreign currency and I’m sure you are aware that we are getting reports that businesses are failing to access foreign currency in the banks so they already moved to parallel market to fetch forex.”
“If you look at the prices in the formal sector they are expensive because when you divide by the official rate you cannot put the price in US dollars you are dividing the small rate and the price will be high so businesses were trying to adjust this by adding the 10% that was given by the predecessor (John Mangudya) to close that gap and it was working.”
“Now, it is no longer working because they put in place control through the statutory to control the changes,” Mugano said.
According to the economist Tony Hawkins, since the launch of ZiG the authorities have stuck to their usual game plans where there are promises followed by claims of success.
“Next comes the shifting of goalposts with new SIs and additional ways of calculating inflation.
In this case we have a new twist — the conversion of an already out of date national budget into zigs which will give treasury lots of opportunities to switch spending and raise stealth tax revenues.
“The next stage-,as is happening now is threats, arrests and fines all of which confirm that nothing has changed.
How can it be a free market if anyone who trades on a willing buyer willing seller basis is breaking the law unless he trades at the manipulated RBZ rate,” Hawkins said.