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Relaxing price controls "too little, too late"
IRIN News
August 24, 2007

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HARARE, 24 August 2007 (IRIN) - Businesses say the Zimbabwean government's about-turn on price controls this week, allowing manufacturers and retailers to increase the prices of basic commodities, is "too little, too late", and most are sceptical about whether the decision will restore a normal flow of goods onto the market.

The government's reversal followed marathon meetings with businessmen, who warned that more companies would go under if goods and services continued to be provided at below-cost prices; many have already closed shop, saying they could not afford to restock.

Government announced this week that retailers would be allowed a maximum markup of 20 percent and charge Value Added Tax of 15 percent on goods, but Bulawayo-based economist Eric Bloch said he did not see the move bringing immediate relief.

"The stated increases announced by government do not cover operating costs for the firms to manufacture goods in large enough volumes to meet demand. I don't see this bringing back goods on shop shelves unless government abolishes price controls, reduces state spending and stops printing money."

He said government should take positive steps to encourage and stimulate production and value enhancing to generate foreign currency needed by manufacturers to boost production.

A director of a retail chain in Harare, the capital, told IRIN that the latest government intervention would not improve the situation. "Just about everything is in short supply - from matches, beer, soft drinks, candles, rice and meat - due to a combination of factors. In the majority of cases, many manufacturers are saying they cannot restock because they were forced to sell at way below the cost of producing commodities.

"Also contributing to the chaos is the fact that people are now generally impulsive bulk buyers because of the uncertainty of what tomorrow brings, so the few goods that are delivered are bought quickly before resurfacing on the parallel market, where they would be selling for five times their original value."

Grip of shortages

The country is saddled with crippling foreign exchange shortages and the world's highest inflation rate, officially pegged at around 3,700 percent, but in recent confidential correspondence with bank chief executives, seen by IRIN, Reserve Bank Governor Gideon Gono said inflation had shot up beyond the 7,000 percent mark in June.

The International Monetary Fund (IMF) estimates that Zimbabwe's inflation will breach the 100,000 percent mark by December this year. IMF Managing Director Rodrigo Rato visited Southern Africa this week.

"We have been emphasising with the Zimbabwe authorities the need to address [the] very extreme and deteriorating macroeconomic environment," he said at a news conference. "We are not encouraged by the responses of the authorities ... Our advice to the Zimbabwe authorities is not ... [what] they are applying."

The government has publicly accused manufacturers of scaling down production or withholding products to protest the price controls, leading to severe shortages.

Economic analysts estimate that more than 70 percent of manufacturing firms are operating at way below 30 percent capacity because they have been unable to purchase inputs and spares to refurbish their aging equipment as a result of several years of foreign currency shortages.

Elliot Manyika, Minister Without Portfolio and vice-chairman of the Price Monitoring Task Force, set up to enforce the price blitz and whip manufacturers into line, encountered a barrage of complaints about shortages of power, water, coal and foreign currency while touring several manufacturing firms in Harare earlier this week.

"For the past two years, we have not received even a single dollar in foreign currency from the Reserve Bank. We have had no water from ZINWA [Zimbabwe National Water Authority] for the past three days and unless supplies are restored, there is little we can do," said one company executive.

At a milk production company Manyika was told, "We cannot fire our boilers with the little coal we have left," and shown a small pile of coal.

"We will see what we can do," Manyika said. "We will sit down, as government, and see to it that all the challenges are addressed."

The empty shop shelves have also affected Sithabile Mguni, one of the many vendors at supermarket entrances who sell carrier bags made out of cement or maizemeal bags.

Business boomed when supermarkets started rationing and later charging for carrier bags to cut costs. Now she hardly sells any. "Customers are getting fewer and fewer. They have little to buy and no longer require carrier bags," Mguni said, pointing to the bare shelves inside the supermarket.

Businessman Taurai Madzivire said he sympathised with vendors like Mguni and wondered if her business would improve after the government's decision to allow the hike in prices.

"The question is whether manufacturers will be able to absorb the losses they incurred over the past month and half to justify increased production," he said.

"There are no guarantees that government will not launch a similar blitz once they [manufacturers] have started production. Also, the increases do not cover transport costs under current fuel shortages."

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