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Zimbabwe: Price Slashes Could Spark New Round of Empty Shelves
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Financial Gazette (Harare)
27 March 2008
Posted to the web 27 March 2008
Shame Makoshori
Harare
ECONOMIC analysts have warned that government's directive this week that companies revert to prices prevailing before this month's civil servants salary hikes could result in another round of shortages of basic commodities.
Government engaged business in a grueling battle for control of commodity prices this week after President Robert Mugabe, who is seeking re-election for a sixth term, condemned companies for increasing prices ahead of elections on Saturday saying the price increases were meant to force his government out of power.
In the past two weeks since government announced a 754 percent increase in civil service salaries, producers and retailers had significantly raised the prices of basic commodities, most of which had been going up daily.
For instance, the price of a two litre bottle of cordial that cost $15 million two weeks ago had increased three fold to $45 million this week, while the price of a loaf of bread shot up to $25 million on the illegal parallel market, from about $6 million. The price of a soft drink, which cost $4 million a fortnight ago also raced towards $10 million.
While the business community has cited higher overheads as the reason for the price increases, President Mugabe has alleged the increases are meant to create social discontent and consequently unseat his government from power.
This week, he threatened to make companies suspected to be at the forefront of the price increases the prime targets of takeovers under the recently enacted National Indigenisation and Empowerment Act.
The controversial Act empowers the government to compel foreign-owned companies to cede at least 51 percent of their shareholdings to local businesspeople.
President Mugabe has reiterated that he was not making idle threats, insisting the takeovers would be implemented after the elections.
On Tuesday, on orders from President Mugabe, the Ministry of Industry and International Trade and the Reserve Bank of Zimbabwe met the business community and gave unequivocal directives for the slashing of prices to pre-civil servants salary adjustment levels.
And after the meeting, the Confederation of Zimbabwe Industries (CZI) vowed to comply with President Mugabe's instructions.
CZI President Callisto Jokonya said the industrial body was law abiding and would tell members to revert to approved prices.
"As a law abiding organisation, CZI is calling upon its members to comply with the laws of Zimbabwe, including the respect of and adherence to officially approved pricing of commodities by both the manufacturing and retailing sectors," the CZI chief said.
"We cannot be held accountable. We do not have control over the distribution chain. We are not security forces, but the government should arrest anybody breaking the laws," he told the journalists. But economic analysts said President Mugabe's directives were political rhetoric meant to improve his image ahead of the polls.
They said forcing companies to reduce prices could further fuel the black market, where prices are much higher than in the formal retail outlets.
"The timing of the price slashes is political," said independent economic analyst John Robertson.
"The President wants to demonstrate that he has massive authority, but...I suspect that he is not going to find the results he is looking for," said Robertson.
"(The price reductions) will not improve his image. Even if the CZI wants to comply its members will not comply because this will mean (losses for manufacturers )," said Robertson, arguing that selling goods at a discount on the cost of production would result in company closures.
"You and I will not get what we want from the shops even if the prices are low. When prices went down last year, the people did not get the goods. This is going to be repeated," said Robertson.
Another banking sector economist who declined to be named agreed.
He warned that the government's frequent threats to arrest businesspeople would not stop the price increases and inflation.
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"We will see more firms shutting down, not completely but just closing their plants to reopen after the environment has improved," the economist said. We are looking at the total depletion of goods from the shops.
There are companies with positive prospects about Zimbabwe's future who will continue producing at a smaller scale until after the elections so that they are seen to be supporting the government. Yet they are not; they will just be monitoring the environment because no one can support this chaos."
"Trends and history have shown that the government cannot end hyperinflation through price controls. Many governments have tried that and they failed," he said.
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