Zimbabwe: Businesses Continue to Review Prices for Sustainability

Bond notes.
26 August 2019
guest column

The finance minister Professor Mthuli Ncube is trying so hard to contain inflation by managing salary increments for the civil service on his left hand while at the same time, his right hand is forced to allow fuel and critical government services to increase prices according to market rates.

Commendably, civil servants recently received a 70% salary increase to strengthen their buying power, but this will not be significant to feed them against the poverty datum line.

The bad factor with increased money supply pushes inflation figures up.

This pressure in the market has resulted to his latest financial solutions losing grip as most people have simply used the parallel market rates as their daily pegging prices, while around 60% of the industry have completely removed USD pricing of their products, they are still rating in the RTGS currency against the commodity.

The effect of his policy to de-dollarise the economy through statutory instrument 142 of 2019 was meant to drive local adoption of the currency while to a major extent stabilize the currency but this was not successful as the equation was not balanced on both sides.

The biggest challenge in Zimbabwe is that we have seen banks and all Beraue de change increasing but they are only buying.

There are many willing buyers not as much sellers in Zimbabwe. Few who are releasing their foreign currency to settle local debts and daily needs are releasing the USD to these markets, hence the rates will never drop but continuously rise, effectively driving inflation.

When inflation sours, the first line of defense that is weakened in every company is that of employees. They need salaries and wages that are sustainable to carry them forward otherwise they will all sing the "under capacitated" song.

The next inevitable move is prices will then have to soar, no company is operating to make a loss, every company needs a margin to maintain their business, unfortunately, in this case, the client is not King.

To afford your employees, be it in a banana farm, supermarket or industry, when you are facing daily fuel price increases, no Zesa and run away foreign currency rate, you simply have to adjust the prices of your services or products.

While it seems senseless to chase inflation figures, it's only reasonable as this makes you sustainable for that week, month or period so that you still get your returns, after every business transaction.

Unfortunately, chasing the foreign currency rates from both the official and parallel market will not sustain any business as this becomes a rat race in circles, shooting the nation inflation figures.

The consumers bear the brunt of such a scenario where they complain of sharp increases of price, but for businesses, it's inevitable.

There is no other way to sustain but review prices further up to cover for the deficit.

More price shocks are coming especially after the recent telecommunications price hikes that allowed the 100% increase, this was only but a third of the initially required price increase.

The Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ), said they could not offer the sector the 100% price increase after negotiations of three months, they have offered a 100%, which still, unfortunately, will not move the telecommunications any further.

Communication is a basic human right, and this is also a daily need, not a want when these figures keep moving, inflation does not stop, unfortunately, businesses will have to adjust, unless they close shops, which is the worst cases that we need to avert.

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