Stuck in a spiral of decline

PRODUCERS and consumers must be in a quandary about price controls introduced by the Ministry of Trade and International Development in November last year.

The then minister, Herbert Murerwa froze the prices of most g

oods for six months. He said he was protecting consumers following frequent and unjustified price increases by producers and manufacturers.

The price freeze covered a wide range of products that included basic goods such as sugar, cooking oil, beef, milk, salt and bread. It also covered items from the agricultural sector, motor industry, newspaper industry, education sector, building industry and technology sector.

While the idea to introduce the price freeze was seen by some as helpful, it has led to bureaucratic growth and corruption, and inevitably spawned shortages which have in turn fuelled a burgeoning black market.

This is invariably the product of any system where price controls are unmatched by input-cost controls.

The items included on the price control list suddenly disappeared from supermarket shelves only to reappear in such places as flea markets, and in several cases outside major supermarket doors.

The ministry had repeatedly promised that it would “continuously monitor” the price controls and ensure that all regulations were adhered to with culprits being brought to book.

There has been criticism that price controls do not work in the first place because monitoring is very difficult to carry out. This is exactly what has happened in Zimbabwe.

While the current environment of inflationary costs and commodity shortages has led to a dramatic fall in standards of living, the price control regulations have also produced new opportunities for wealth for some in the form of massive profiteering.

It has also resulted in disruption of major operations and huge losses at companies whose products have been controlled.

National Foods Ltd for example last year made a $43,4 million loss from operations. Natfoods blamed price controls, saying if the controls restricted selling prices to inappropriate levels, the company would be unable to generate sufficient cash for the replacement of stocks.

Zimbabwe Sugar Refineries last year made a $167 million loss. The company said better results would have been achieved if government had not imposed price controls, which restricted selling prices of sugar at the August 2001 level. ZSR said it was selling refined sugar at below the cost of production during the second half of the year under review.

The list of firms making huge losses because of price controls continues to grow.

Dairibord Zimbabwe Ltd (DZL), whose chief executive officer Anthony Mandiwanza heads the Confederation of Zimbabwe Industries, got a smacking from government for trying to by-pass price controls by coming up with smaller sachets and charging more for them. DZL obviously could no longer stomach producing millions of litres of milk at a loss.

Unlike other firms who have managed to get away with it, DZL was slapped with a $1,5 million penalty.

This week the new Industry and International Trade minister Samuel Mumbengegwi announced that he was reversing some of the price control amendments — again ostensibly to protect consumers from “unscrupulous business practices”.

The minister said government had extended price controls on basic goods, introduced price monitoring on essential commodities, and decontrolled prices of other products.

He said prices of basic goods such as maize, maize meal, wheat, flour and bread would continue to be controlled with prices being gazetted today (Friday).

The minister said essential products such as agricultural chemicals, agricultural implements, seeds, cement, sugar, salt and tyres would have their prices “monitored”.

Producers of these products would “fix” prices after “consultation” with the ministry.

We seem to have heard this before.

In fact these are the same words used by Murerwa when he introduced the controls in the first place.

Given their abject failure, it is difficult to understand what the Tripartite Negotiating Forum has agreed on regarding controls.

Have industry and commerce agreed to an unworkable system that is designed to meet the populist needs of the government at the expense of the economy? Have they given their consent to this damaging prescription that will force companies to the wall?

Government is controlling this and decontrolling that almost on a monthly basis which is resulting in confusion not only to the producers but — worst of all — the consumers.

We wonder what the true price of milk, bread, salt, tyres or beef is now?

The price crisis seems here to stay. Unless the players can come together and make a fair decision on what the right price is for a commodity considering production costs etc, all the loud talk about “monitoring this” and “heavy fines for culprits” is just hot air.

No price-control regime that is pitted against market realities can ever survive for long. The world is littered with examples.

Compounding the situation in Zimbabwe is a government mired in conspiracy theories as Mumbengegwi’s silly accusations at a Zimtrade exporters conference on Wednesday show. He blamed exporters for forex problems.

The problem is evident to everybody else: a regime locked in the mantras of the past and completely unable to respond to the demands of a modern market economy.

The current crisis is rooted in a stubborn refusal to address macro-economic distortions. So long as delusional ministers pursue dirigiste policies that fail to recognise economic realities, we will be stuck in a spiral of decline.

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