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More cash makes food expensive
IRIN News
March 18, 2008

http://www.irinnews.org/report.aspx?ReportID=77348

Harare - Extra cash in the pockets of civil servants ahead of the elections and a spiralling foreign exchange rate has pushed up the prices of basic foodstuffs and essential items by 300 percent in the last few days, said economists.

"There has been quite a spike [in prices] in the past week," said John Robertson, an independent economist based in the capital, Harare. Retailers had hiked up prices because people's spending power had increased ahead of the elections, he added.

The average salary of a civil servant went up from Z$100 million in December 2007 to Z$500 million in February 2008. Salaries were revised again last week: a government employee can now take home more than Z$4billion a month.

The spending power of farmers and transport operators, who have access to subsidised fuel has also increased: they pay Z$70,000 per litre, while ordinary Zimbabweans have to fork out Z$70 million per litre for fuel, when available.

The salary increase and subsidies have caused a chain reaction, explained Robertson. With more money to spend, consumers have prompted an increased demand for imported consumer goods in the market, he said. "This in turn created an extra demand for foreign currency as importers tried to keep up with the surge in demand." The value of one US dollar shot up from Z$40 million to Z$70 million within a day in the parallel market.

The price of a two litre bottle of cooking oil has risen from Z$45 million to Z$180 million within a week, said Dennis Nikisi, an economist, who teaches at the University of Zimbabwe.

The price of essentials such as bread, meat, milk and even medicines has been affected in a country grappling with a more than 100,000 percent annual inflation rate.

A month's supply of antiretrovirals now costs Z$1.4 billion up from Z$200 million last week.

Maize-meal, the staple food is not available in food retail outlets in the urban centres. "You can only access maize-meal in the parallel market, but even that is now becoming difficult, my sister has been trying to buy it in the parallel market for the past one week," said a Harare resident.

When available, a 10kg bag of maize-meal sells at Zim$250 million: a price only the salaried can afford.

Not everyone is a civil servant
Not everyone has benefited from salary hikes and subsidies: the poor including pensioners have been among the worst affected.

Moffat Ngulube, a 70-year pensioner earns Z$50 million a month, which could only buy him a loaf of bread (Z$20 million) and a soft drink (Z$25 million). The remainder (Z$5 million) is not even enough to buy him a bus ticket (Z$10 million) to his house in the high density suburb of Dzivarasekwa, about 20km outside Harare.

"I am only grateful that I have children working outside the country who send me groceries and toiletries for use," he said. "I cannot imagine how other pensioners are surviving."

"The welfare system has long collapsed and does not provide relief to poor people in Zimbabwe," pointed out Fambai Ngirande, the communications and advocacy manager of the National Association of Non-Governmental Organisations (NANGO).

"While the government has introduced subsidies and price controls, only the rich have managed to buy all the commodities from the formal system and flood them in the black market at even higher prices which are way beyond the reach of the majority of the people," he added.

Price controls
Morris Sakabuya, deputy minister for local government minister, warned businesses against price increases and said their licenses could be withdrawn. "We are calling on manufacturers, shop owners and even the transport sector to have people at heart and work towards improving the lives of citizens."

Government forced manufacturers to cut prices by 50 percent in an attempt to reduce inflation in June 2007. But shortages of basic foodstuffs and essential items worsened as manufacturers chose to either close down or reduce production.

After widespread objections by business, the government made some upward revisions of controlled prices in August 2007, but the move failed to boost supplies, as the cost of manufacturing was still too high.

Most shops now import commodities from neighbouring countries, particularly South Africa and Botswana, but because they have to source foreign currency on the black market to buy the goods, the items are expensive when sold locally.

The only way to curb prices would be to remove price controls, said Robertson and Nkisi.

"The prices would certainly go up initially - but it would stabilise eventually and would certainly be cheaper than imported goods," said Robertson.

NANGO's Ngirande said the government needed to engage civic society in order to form an effective partnership in combating hardships.

Most policy makers recommend targeted safety nets rather than price controls to help the poor cope with high food prices.

In 2000 the Zimbabwean government launched its fast-track land reform programme, which expropriated white-owned commercial farmland for redistribution to landless blacks, and heralded the onset of an economic meltdown.

The government blames sanctions imposed by some western countries for its economic problems.

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