Cocktail of measures to end rapid price hikes
The raft of measures removing duty on imported basic goods and allowing shops and other Zimbabwean business to keep 100 percent of the foreign currency they take in at their tills, announced by Finance and Economic Development Minister Professor Mthuli Ncube on Thursday, should stabilise the local currency and end the rapid price hikes.
Key among the interventions was the scrapping of import duty on basic commodities, and the removal from Monday next week of the 15 percent foreign currency surrender requirement on domestic sales. Interest rates are to rise and the foreign exchange auction market fine tuned through a “pre-announced envelope, on a pure Dutch auction basis”.
Long-term borrowing, whose funds are usually invested in boosting the manufacturing sector, will continue to attract lower interest rates. Speculators borrow money to buy foreign currency on the black market and then try and make a profit when selling it a little later. Last year a drastic jump in short-term rates to 200 percent killed that since the interest payable was more than any profit that could be gained.
Efforts will also be made to promote the growth and committed use of the Zimbabwe dollar in domestic transactions through ensuring that levies and fees charged by its agencies are paid for in the local currency. The local currency is seen as critical in ensuring reduced production costs, among other benefits. During dollarisation a lot of local industries was severely damaged or closed by keeping local costs and prices higher than those of neighbouring producers.
Prof Ncube announced the measures after prices of most goods were increased in response to the loss of value of the Zimbabwe dollar against the US dollar, especially on the black market. The foreign currency exchange rate had been creeping up steadily maintaining a low premium over the interbank rate until it reached around US$1:$1 400 for illegal dealers selling foreign currency, while the interbank rate had drifted to about US$1: $1 100.
Now, the black market rate has been moving very fast with some producers using much higher rates as they apply speculative guesses as to what the rate might be in a short while, resulting in large price increases, even for products produced using local currency or foreign currency obtained from the auction system or through banks.
In an interview, economist Dr Proper Chitambara said: “Some of the specific measures like the retention of foreign currency earnings is a welcome development, which will provide relief to economic agents as this 15 percent surrender requirement was effectively a tax on proceeds from domestic sales in foreign currency.
“So it was actually discouraging banking, it was eroding incomes, it was also indirectly increasing money supply and increasing the cost in prices within the economy.”
Dr Chitambara also said the plan to enhance the foreign exchange auction system, was welcome although “the specific measures have not yet been announced”.
“But if it could be allowed to operate on a purely Dutch Auction system, which is more market leaning, that would be positive.
In terms of lifting of restrictions on the import of basic goods, he said the move will promote local cross-border trading, improve the supply of basic goods to market and therefore enhance consumer welfare. However, he said the move may harm the local manufacturing industry which may not be able to compete with cheaper imports.
Writing on his Twitter handle, economist Mr Persistence Gwanyanya said people should not take for granted the power of Government, to sort out the economy.
“A reflection of value for money audits and consequences therefrom is instructive. The exchange rate, which was talked of reaching US$1: $1 000 by August immediately strengthened to US$1: $750 to 800 after implementation of these audits in the same month of August.
“The parallel rate premiums fell from 140 percent in May to 10 to 20 percent by November 2023. Now, the Government has intervened again to deal with the rapidly deteriorating stability situation. Commendably, the interventions are focused towards the formal business sector, which seems to be bearing the biggest brunt of market volatilities,” said Mr Gwanyanya.
The removal of import permits on 14 selected basic commodities, he said, will ease the import of the commodities by especially formal businesses. “The formal businesses are also set to benefit from the removal of taxes and duties on these products though are very low. Removal of import restrictions and duties and taxes is necessary to restore competitiveness of formal businesses who are currently affected by smugglers, mostly in the informal sectors.
“Importantly the measures will result in increased competition on mainly pricing and quality, all to the benefit of the final consumer,” he said.
However, economist Mr Eddie Cross said the measures “will not stabilise the local dollar”, adding that the lifting of import restrictions “will make life much more difficult for local industry”.
“We need to use our own currency and abandon the dual currency system, stop the RBZ printing money and then get the banks to sell hard currency inflows on the interbank market,” said Mr Cross, stressing his solution to the continuing bursts of instability through the use of two currencies.
In a statement yesterday, Buy Zimbabwe chairman Mr Munyaradzi Hwengere said they acknowledge the measures announced to address resurgent macroeconomic instability and stabilise local currency volatility, including the removal of all duty and taxes on imported basic commodities.
“We support Government’s focus and fight against inflation and the protection of the consumer from rampant price hikes. Buy Zimbabwe is, however, concerned that some of the measures announced such as the scrapping of duty on imported products will reverse the industrialisation gains scored by the Second Republic in the last few years.
“This includes the rise in capacity utilisation by industry to 66 percent and the increase in the amount of shelf space taken in wholesale and retail outlets by local good to about 70 percent. All these developments have been a result of the unwavering support given to local industry which has responded by deepening and accelerating local value chains to boost output and create jobs, pride and wealth for Zimbabweans,” said Mr Hwengwere.
He proposed that there be an emergency meeting next week with wholesalers and retailers, to formulate a response to the measures announced by the Government.
“It is our firm belief and conviction that if local industry continues to receive support from Government, Zimbabwean companies will not only provide products which are cheaper and competitive, but can also satisfy local market demand and the export market.
“Buy Zimbabwe remains committed to the production, promotion and preference of local products and services to create and preserve jobs, wealth and pride,” he said.
But a consumer, Mr Michael Gwatiringa, said the decision to allow importation of goods duty-free was welcome as local manufacturers and retailers are abusing the Government’s trust in them.
“How do prices of locally produced goods go up when the forex rate has gone up. Most local manufacturers are getting forex from the auction system and I don’t see where they get their prices. They are just deliberately making life difficult for consumers as they make super profits,” said Mr Gwatiringa.