HomeBusiness DigestState cannot disregard market forces

State cannot disregard market forces

Shakeman Mugari

AS Zimbabwe’s economy falls apart, cracks are emerging in government’s stop-gap measures that have given way to market forces, analysts say. They say government has begun

to toe the market’s line after discovering the futility of a command economy.

The analysts said government, under mounting pressure, had begun backtracking on its populist policies on price controls, devaluation, fixing of interest rates and fuel pricing.

There is also a growing indication that government has finally realised the power that the market wields on the economy.

“There is a clear indication that the government cannot continue to disregard market trends and this shows in virtually all policy plans the state has introduced in a bid to halt the economic decline,” said economic commentator Eric Bloc.

Price controls now seem out of favour as government has silently allowed companies to review their prices in line with galloping inflation and production costs.

The bulk of products that had disappeared from retail shops have begun reappearing on major supermarket shelves, selling at much higher prices.

Maize-meal this week reappeared with exorbitant price tags.

The government has decided to monitor commodity prices as opposed to control, a move analysts say was a massive leap towards real economics.

The Minister of Finance and Economic Development Herbert Murerwa last month told Parliament’s Public Accounts Committee that government was working towards a proper and viable pricing mechanism.

“Government is aware of the distress in most companies and there is an urgent need to address the pricing matter to ensure the profitability of business in Zimbabwe,” he said.

The commitment was then followed by the removal of price controls on sugar and other basic commodities.

Analysts say price controls have died a natural death.

They said government would, however, want to maintain minimal control as a populist measure to win over a disgruntled populace.

Faced with imminent closure parastatals have also begun defying government directives by acquiring foreign currency on the parallel market.

Government also sanctioned the Zimbabwe Electricity Supply Authority and the National Oil Company of Zimbabwe moves to acquire the greenback on the parallel market despite its claims that this was illegal.

In March the two monopolies began securing foreign currency on the parallel market to import fuel and power.

The emergence of the parallel market has shown that if government fails to set the right prices for its currency, the market will do so instead.

While government sets the Zimbabwe dollar value at $824:US$1 the market continues to use a rate that is 200% higher.

On the fuel front government has also made a policy turn-around by allowing the black market to thrive.

Analysts say government has finally accepted the black market.

It now allows filling stations to sell fuel at prices well above the gazetted tariffs. Government is also expected to shift further from its policy by announcing the deregulation of the fuel sector, which would effectively strip Noczim of its monopoly.

Sources say government is eager to deregulate the fuel industry.

“The government has given in to calls to deregulate the industry,” a fuel industry source said this week.

“The government, however, wants the Libyan-backed Tamoil-Zimbabwe deal to first establish itself before opening the industry to more companies.”

Most companies have begun importing their own fuel using scarce resources.

During Simba Makoni’s stint as Finance minister President Robert Mugabe vowed never to devalue the Zimbabwe dollar.

However, as the situation worsened his government devalued the currency by more than 1 400% this year.

Pressure has now mounted on government to further slash the dollar’s value and it is certain government will comply with business’ demands.

An analyst with TN Financial Services says government is facing mounting pressure from the business community.

“We might be seeing a gradual shift towards market policies,” the analyst said. “The initial devaluation merely indicates the state is moving towards rationality and that is what rules the market.”

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