Already battered economy suffers another blow

Shakeman Mugari


POLICE last week intensified their crackdown on the business sector, arresting private-sector executives for allegedly increasing prices of basic commodities without approval.


T

he campaign, which triggered fears of a witch-hunt in the business community, also claimed a senior government official who was arrested for allegedly approving bread price increases without government authority.


There are indications that the arrests, which analysts say are part of government’s renewed drive to use price controls as a political tool to win hearts and minds, have become a fresh ground for political struggle in Zanu PF currently split over the succession issue.


Analysts say the business leaders are becoming pawns in the political chess game that has become dirty. Confusion reigns in government with revelations last week that the crackdown was carried out against Vice-President Joice Mujuru’s assurance to business leaders last month that no one would be arrested or harassed.


Industry and International Trade minister, Obert Mpofu, professed ignorance saying he was not on top of the price controls issue and alleged that a “third force” instigated the arrests of business executives.


“We are really not involved in the pricing issue. It is them in industry who are in charge and government is not in control. We don’t know what is happening. Talk to them (businesses) about the arrests, they know better,” Mpofu told this paper last week.


What is however clear is that government is seriously thinking of coming up with all-encompassing measures to control prices.


Over the past six months there has been a systematic trend which shows that government is becoming increasingly repressive and intolerant towards the business community.


President Robert Mugabe has on numerous occasions registered his anger toward businesses that hike prices of goods.


There are now concrete signs that government is planning a far-reaching project to control prices of basic commodities despite Mpofu claiming otherwise. Similar controls have failed in the past.


A confidential document in possession of this paper shows that Mpofu’s ministry is heavily involved in what is called the “Price Stabilisation Committee” whose role will be to control and monitor prices of basic commodities. The document says that a representative from the Ministry of Industry and International Trade will chair the committee that will be charged with the role of approving prices of basic goods.


A representative from the private sector will be the deputy chair of the committee, says the document, compiled by Mpofu’s ministry. It states that companies that want to increase prices will have to seek approval from the committee, which will make a decision by consensus.


“For the three controlled products, the committee will submit their recommendations to the Minister of Industry and International Trade for tabling before the National Economic Recovery Council (NERC) and Cabinet.”


The committee means that government wants to have control over prices in almost every sector.


Analysts say the new measures are a sign that government has failed to revive the economy and would want to divert attention by giving the impression that they are doing something to protect poor people by reintroducing price controls. The new measure marks the return of the price controls, which caused massive shortages of basic commodities when they were introduced in October 2003.


The price controls gave rise to the black market that thrived on people who offloaded basic commodities out of the formal onto the informal market to beat the controls. Thousands of people lost their jobs as companies were forced to downsize because of the controls. Analysts say the government seems to have learnt nothing from the destructive effects of the controls which economists agree fuel the black market and inflation.


Economic consultant Daniel Ndlela said price controls would not work and they have never worked anywhere. He said the government is refusing to accept the international trend that show that price controls cannot be used as a tool to revive an economy.


“They have never worked anywhere but here it’s worse because they are forgetting other economic fundamentals like foreign exchange rates and interest rates which they are not controlling,” Ndlela said.


Ndlela said it was “dangerous and misleading” for government to control the price of say bread on the pretext that the bakeries are getting wheat from the Grain Marketing Board at a cheaper prices.


“They are working under the dangerous notion that the end price of a loaf of bread is a function of wheat only. They are conveniently forgetting that there is labour, financing cost, spare parts and fuel which the bakeries are getting at the parallel market rate.”


The sad reality is that distortions in the market have resulted in the current situation where there is more than one price for things like foreign currency and fuel.


The government insists that fuel costs $320 per litre but businesses can only find it at more than $1 000. The official price of the United States dollar is $250 but business is sourcing it at $1 400 because of the scarcity in the market.


While some privileged companies access the cheap capital from the Reserve Bank of Zimbabwe at around 20% per annum, others get the money from the market at rates of 350%.


These distortions in the market are a result of the same price controls that government is planning to reintroduce.


A new wave of price controls could only lead to more shortages and company closures while they exacerbate the economic crisis.


Perhaps the sad irony is that Zimbabwe seems to be going back to the policies that its friends in the East like China and Russia have thrown in the dustbin. China, Zimbabwe’s celebrated ally, tried it without success from 1949 to 1979, before it started moving towards a free market.


China used to control the price of almost everything from foreign currency to rubber shoes and TV sets.


In extreme cases people found with foreign currency were put before a firing squad. The Soviet Union under the communists tried price controls for almost 60 years before they realised they don’t work.

“It’s clear that the world is moving toward market-determined prices,” said Ndlela.


“As soon as China allowed the market forces to take charge their economy started growing. Why Zimbabwe has not learnt from China is amazing.”


Other analysts say the new price controls are a sign that government has lost the war against inflation and wants to shift the blame to manufacturers.


Economic commentator Eric Bloch said price controls will sound the death knell for businesses that are already battling with massive inflation, lack of foreign exchange and the general collapse of the economy.


They will lead to more company closures.


Bloch said government was desperate for political survival and has turned the heat on businesses to give the perception that they are for the people.


“The problem is that they (government) know that controls will not work. They are trying to save the political establishment by peddling such populist policies to give an impression that they are in control when in fact they are not at all,” Bloch said.


On a broader scale it is clear that there is no consensus in government on the way forward with regard to the controls.


“There are people in government who know that these policies will not work but will never speak out because they are too afraid of offending President Mugabe,” said economic commentator John Robertson.


“For instance Finance minister Herbert Murerwa last year spoke strongly against price controls but has not gathered the courage to push for their abolition. During a parliamentary portfolio committee hearing in September last year Murerwa said price controls were causing distortions in the market.


“We should move away from price controls. They do not help. It is some of these policies that are creating additional distortions,” Murerwa said.


“We are in a globalised village. There is no country (in the world) that tinkers with this kind of thing.”


Mugabe has shown in his speeches that he is a staunch supporter of price controls. The irony is that Zimbabwe is returning to discredited and damaging policies just as it has signed up to a regional protocol on free trade and investment.