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Eric Bloch Column

Govt responsible for most shortages

TO an ever-increasing extent, all sectors of Zimbabwean society are experiencing pronounced shortages, or total non-availability of a greater number of products, commodities or services. The resultant losses for commerce

and industry, agriculture and mining are immense, while the discomforts for the populace are intensifying.

Whensoever the complaints provoked by those shortages become vociferous, the government unhesitatingly seeks to deny any culpability for the creation of scarcities. Instead, as has been its wont for many years, whensoever it fears being the recipient of criticism and blame, it attributes the causes of the complaint to others.

Thus, when there are shortages of sugar, cooking oil, maize meal and other staple foodstuffs, the government unhesitatingly accuses the sugar refiners, oil producers and millers of deliberately withholding supplies from the market. Allegedly, the motivation for so doing is to fuel the development of black market demand for the commodities, for no purpose other than to achieve higher prices and, thereby, increased profits.

In like manner, when there are scarcities of petrol and diesel, the government has frequently accused the independent fuel importers of diverting foreign currency allocated to them to externalisation of funds unlawfully, or of hoarding imported supplies so as to create shortages in order to alienate support of any of the populace for the ruling party, or for other machiavellian purposes against the national interest.

And the government has no qualms at blaming the monumental scarcity of foreign exchange, which in turn occasions massive shortages of innumerable imported products, upon the private sector in general, and upon the operators in commerce, industry and tourism in particular.

Inevitably some are guilty of withholding much-needed foreign exchange by unlawfully externalising that critical resource, either resorting to transfer-pricing on exports or imports, or by smuggling foreign exchange across borders, or by hiding that foreign exchange in their safes, cupboards, mattresses or elsewhere.

However, more often than not, the devastating shortages are directly the result of the government’s acts of commission or omission. One of the recurrent actions of the government which is a major catalyst of shortages is its endeavours to prevent rising prices.

Although it is extremely commendable that the government wishes to contain inflation, its methodologies of doing so are counterproductive. When it applies price controls with heavy-handed, ill-considered legislation, or it applies intensive, authoritarian pressures upon producers, wholesalers and retailers, it does so because of a genuine, but usually ill-informed, belief that price increases are driven only by the avarice of the producers and marketers.

Usually that is not the case, for the producers and marketers know full-well that if they overprice their goods, competitors will under-cut their prices in order to capture the sales.

Stimulation of competition is the most effective way of minimising price increases, but the government has repeatedly evidenced an inability to accept such a concept, for it is so greatly imbued with a conviction of omnipotence that it believes that dictatorship methodologies are the only effective economic tools. It is ardently convinced that regulation is more effective than motivation, that conviction being substantially founded upon total distrust of any other than those as constitute the government.

In an environment where inflation is intense producers are faced with no alternatives other than to increase prices so as to compensate for ongoing cost escalations, or to discontinue production. With the sole motivation of remaining economically viable, and thereby to avoid insolvency or liquidation, those engaged in the production and in the marketing of goods, must move prices upwards, at least commensurately with inflation.

Moreover, they are often adversely impacted upon not only by inflation, but also by soaring unit cost as a result of unavoidable decreases in production volumes, due to erratic availability of foreign exchange to fund imported manufacturing inputs, or due to shrinking market demand. Fixed costs, such as rents, salaries, finance and the like have to be recovered from much reduced production and sale volumes, thereby sharply increasing costs per unit, and therefore necessitating price increases.

When the government prevents those necessary price increases, through regulatory measures or other pressures, the producers have to hold back their goods until they are permitted the increases, failing which they face unsustainable losses, and hence shortages develop. And obtaining the government’s consent to price increases is always untenably delayed, for on such issues the government only works at one of three speeds: slow, very slow and stop, and very often then consents to prices lower than have been sought and as are necessary.

If the government would abandon its dogmatic philosophies of controls and price regulation, and would allow prices to be driven by market forces and competition, many shortages would disappear. That would also counter black market trading, which is usually at prices very much higher than those which the government refuses to consent to, or is tardy in giving requisite consent.

The fuel scarcities are partially occasioned by inadequate availability of foreign currency but, to a much greater extent, brought about by the government’s obdurate resistance to greatly required price increases. Not only has the international price of crude oil risen by 80-100% over the last 12 months but, in addition, exchange rate movements have significantly increased the transportation costs of bringing fuel to Zimbabwe, and the fuel distributors’ operating costs have risen very markedly as a result of inflation.

These factors are ignored by the government, for its awareness that increases in fuel prices inevitably force increases in prices of almost all goods and services and its desperation to contain inflation override other economic needs, and results in the government refusing fuel prices escalation to necessary levels, as a result of which the fuel importers and distributors cannot afford to import and distribute fuel, save if substantial losses are incurred.

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