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Govt gags business | Business Times

LIVINGSTONE MARUFU

 

The government has gagged representatives of business member organisations (BMOs) from commenting on rising prices of basic commodities in what observers say is also an indication of panic as the economy implodes.

The development comes after President Emmerson Mnangagwa (pictured) on Sunday breathed fire threatening to take all the privileges that the government has given to businesses to ensure the market is stable.

Mnangagwa said he was ready to take all necessary measures to stabilise the exchange rate and halt the depreciation of the local currency.

It also emerged that state security agents were on high alert and business was under scrutiny in a desperate move to silence business leaders.

In a survey carried by Business Times, business leaders from all BMOs said they could not comment as there were engagements with the government and they could only do so after the current crisis had been resolved.

“The government has taken the price madness personally as it sent state agents to business representatives to stop what it terms reckless utterances in the public as this triggered an unfavourable situation in the country which is already on the edge. The business leaders were told to speak at their peril as if the situation goes out of hand in the country there will be no one to blame but themselves,” a source said.

The gag on business comes as a recent study revealed that the business’s behaviour emanated from the government’s policies, which have squeezed the business.

The joint study by the Competition and Tariff Commission and the National Competitiveness Commission sought to assess pricing disparities of basic commodities, investigate the cost drivers of the recent price hikes, monitor the movement of basic commodities into the informal sector, and track the impact of the removal of import licenses and duties on the basic commodities on price stabilisation.

The report recommended that the government liberalises the exchange rate to allow market forces to determine prices and attain efficiency.

This measure is unlikely to lead to increases in prices as manufacturers’ prices are pegged in US$ and indexed to the parallel market, it said.

The joint study advised the government to properly fund RBZ to purchase export surrender, which appears to be a major driver of money supply growth.

“All surrender purchases must be done in a money supply neutral manner. We recommend that the Ministry of Finance and Economic Development publish the amount that will be allocated to the Reserve Bank for this purpose and how the Ministry will raise this.

It said the government should carefully manage large payments to contractors to avoid surges in local currency liquidity and the central bank must monitor all sources of money supply growth to contain exchange rate movements.

“Exchange rate movements are heavily linked to pricing models of manufacturing companies,” the report said.

The report said there is a need for the Zimbabwe Revenue Authority (ZIMRA) to strengthen measures to combat the smuggling of imported goods into the country as this has the potential to reverse the reindustrialisation of the country.

It said ZIMRA should also undertake post-clearance audits to ensure that foreign goods sold on the local market properly follow customs procedures.

The study used primary and secondary information and data gathered from various sources which include the Confederation of Zimbabwe Industries manufacturing sector survey (2022), Trade Map, Competition and Tariff Commission, and National Competitiveness Commission, and interviews from industry players affected by the new policy.

The study finds that price increases have been witnessed in the local currency (ZWL$) terms while they have remained stable in US$ in the informal market.

The price increases were huge in May when the local currency depreciated by 34% indicating that the price increase was exchange rate induced, it said.

Zimbabwe is currently using a blended inflation rate to measure the rate of price increases but it has been observed that the US$ accounts for about 70% of the transactions in the domestic market, while the Zimbabwe dollar accounts for 30%.

The market is characterised by exchange rate disparities, which are impacting price movements on Zimbabwe dollar-denominated transactions, as the official exchange rate depreciated by 109.22% from US$1:ZWL$671.45 in December 2022 to US$1:ZWL$1 404.80 as of May 16, 2023.

Meanwhile, on the parallel market, the Zimbabwe dollar depreciated by 222.58% from US$1:ZWL$930 to about US$1:ZWL$3 000 as of May 16, 2023.

The report said prices tend to be adjusted in line with the movement of the exchange rate, as businesses follow a cost recovery model.

The report said the official rate tends to move upwards weekly on the auction market, thereby impacting inflation developments hence there was a need to liberalise the auction system to arrest exchange rate movements.

“All costs incurred by the business are being indexed to the parallel market rate, thereby adding to the cost of production which translates to high prices in local currency. Recent late disbursement of the foreign currency obtained from the auction system by the RBZ and failure to meet all their forex requirements at the same market have been cited by some stakeholders as key in determining their pricing models.

“Some stakeholders are claiming a time lag of up to one month before they can access their US$. This results in companies resorting to both their internal US$ sales and the black market for their foreign currency requirements,” the report said.

The report also noted that reliance on internally generated US$ was inhibited by the obligation to surrender part of their domestic US$ sales which has now been reviewed in the new policy pronouncements.

“Therefore relying on the auction system rate for pricing will not suffice to enable them to restock thus reliance on the parallel market exchange rate, which currently is hovering between ZWL$2950 -3000 per US$1, will be factored in the final price of the products.

“Persistent depreciation of the exchange rate induced a shock in the rate of inflation as firms index prices in US$. US$-denominated cost drivers were relatively stable as compared to those charged in the local currency, suggesting a positive relationship between the depreciating exchange rate and increases in local currency-denominated cost drivers,” the study said.

In monitoring the movement of basic commodities into the informal sector, the study found that the lower prices in the informal market are a result of local manufacturing giving discounts for US$ and attractive trading terms in cash purchases over ZWL$ purchases.

It is understood that suppliers of basic commodities charge a higher ZWL$ price to formal retailers given that it is depreciating every week both on the official and parallel market.

Recently, the government suspended import duty on a number of basic commodities as part of measures to stabilise the exchange rate and the economy.

 


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