|HIGHLIGHT OF THE WEEK : In our issue number 211 of the WFSB, we predicted that with various Government officials such as Minister of Finance, the Reserve Bank of Zimbabwe Governor and even Cabinet having expressed dismay at the wave of recent price increases, described in some quarters as “pricing madness,” Government was likely to be forced to act. Further to this, in recent weeks, hostile anti-business rhetoric has escalated, with more Government officials including President Emmerson Mnangagwa, Vice-President Constantino Chiwenga and Foreign Affairs Minister Sibusiso Moyo coming out guns blazing over price hikes, and making threatening remarks against corporates. Business has been accused of profiteering and wantonly raising prices and their pricing regimes have been characterised as “financial terrorism”. Captains of industry however say Government must stop blaming them for the price increases as they are a mere reflection of its own policies. They argue that prices of basic commodities only shot through the roof after Reserve Bank governor John Mangudya announced the separation of RTGS and Nostro FCAs. Price again rose sharply after Mangudya’s February 20 monetary policy statement which devalued the official exchange rate from 1:1 to 1: 2.5, after maintaining artificial parity for too long.
Recent events are seen as history repeating itself and Government going into its default, scapegoating mode. “If you go back to 2004, businesspeople were called economic saboteurs. Government has a knack for blaming either sanctions or business whenever there is a crisis. When you float the exchange rate and when there is no foreign currency, the prices will go one way – up. It’s not rocket science” says Economist Godfrey Kanyenze.
Below is a chronicle of recent pronouncements by various government officials in respect of the pricing conundrum.
8 April 2019: Reserve Bank of Zimbabwe Governor Dr John Mangudya slammed businesses for wantonly raising prices of basic commodities based on the movement of the exchange rate, saying it was not a significant factor to determine the value of products.
18 April 2019: President Emmerson Mnangagwa in his Independence Day speech: “Government is alarmed by the recent wanton and indiscriminate increases of prices which have brought about untold suffering to the people. This conduct by stakeholders in business, industry and commerce is inhumane, unethical, unpatriotic and goes against the grain of economic dialogue which the Second Republic has espoused. Government remains determined to restore the purchasing power to all workers”
24 April 2019: Vice President Costantino Chiwenga at the ZITF: “I want to give a stern warning to those practicing financial terrorism in the country. We will react accordingly as government and nobody should claim that they were not warned. We’ll take very strict measures. The market-based framework for the determination of the exchange rate is expected to facilitate financial sector stability, contain inflationary pressures and build public confidence.”
1 May 2019: Public Service, Labour and Social Welfare Minister Sekai Nzenza in a statement to mark Workers’ Day: “As we embark on this transitional journey, we call upon business to exercise restraint on raising prices. The price hikes are hurting. This is why the President has launched the Transitional Stabilisation Programme which has five key pillars. No one wins as the workers revert back to business to ask for more and we eventually get locked in a vicious cycle of price and salary hikes.”
24 April 2019: Finance and Economic Development Minister Professor Mthuli Ncube addressing industry and commerce executives during the International Business Conference (IBC) ‘Where is pressure on the exchange rate coming from? Before we knew that it came from the fiscus, we were monetising the fiscal deficit and then money supply would grow, but now where is the pressure coming from? Clearly it is speculation and that speculation is not a good idea, we know who is driving it. Our job as Government is to make sure that our fundamentals that determine the value of a currency are still strong. We are not careless in terms of how we spend and we make sure the value of the currency is preserved, but you (business) should meet us halfway… Please, it is bad economics, very bad economics where you tie price increases directly to the exchange rate. Good economics says tie prices around a consumption basket, you don’t earn your salary to go and buy US dollars. So, inflation thinking should be hinged around consumption basket and not US dollars.”
Threat of Price Controls
Government has brandished price controls as a possible weapon to deploy against business in order to curb the price increases, although as a matter of policy, it has said it does not want to go that route, which has previously led to shortages and hyperinflation. Confederation of Zimbabwe Retailers (CZR) President Denford Mutashu cautions against any attempts to control prices.
“Price controls usually work for a short period before the unintended consequences set in… Price controls may seem to work in the short term, but in the long term the damage is irreparable. One way of containing price controls is to come up with a package that assists manufactures in foreign currency sourcing,” he says.