Fuel price freeze a vote-catcher

Shakeman Mugari/Augustine Mukaro

THE government last week ordered all major fuel companies to freeze prices in a move that analysts believe is part of the ruling party’s efforts to lure voters in the upcoming parliamentary poll. The companies had raised fuel

prices in response to the sliding value of the local currency, which has been in a free-fall for the past seven months both on the auction floors and on the parallel market. The energy importers were also reacting to the upsurge in international fuel prices that have been galloping since last year.

In its ultimatum, the government indicated that it would not tolerate any fuel price increases before the election.

In a letter to petrol retailers, the Petroleum Marketers of Zimbabwe (PMZ), acting at the behest of government, demanded an immediate reversal of the price hikes arguing that this could tarnish Zanu PF’s image ahead of the month-end election. “Your actions of increasing pump prices are, inter alia, contrary to the central bank’s economic turnaround strategy and will tarnish the government’s image ahead of the forthcoming elections,” said the letter.
 
“There are in fact paradoxical to the government’s deregulation of the fuel sector.” (Quote is verbatim.)

The letter also directed that prices be pegged at $3 600 per litre for petrol and $3 650 for diesel. It further pegged the prices in the southern region at $3 800 and $3 850 for petrol and diesel respectively.

“May you please refrain from any pump price increase in future without the express and written authority of the PMZ,” the letter said.

All fuel procured through the National Oil Company of Zimbabwe (Noczim) has already been reduced to $3 350 and $3 400 per litre for petrol and diesel respectively. Analysts view this as an overt case of vote-buying, especially among the urban electorate who are largely pro-opposition. In the last parliamentary election government lost all urban seats in Harare and Bulawayo to the Movement for Democratic Change (MDC).

They say the move reflects government’s desperation, which also characterised the previous elections. Over the past 25 years, the Zanu PF government has been known to spring populist policies just before an election such as the farm invasions and price controls. This has resulted in temporary reprieve for the electorate, which later suffer when the government fails to sustain these piece-meal measures. The private sector has in the past borne the brunt of price controls instituted under the guise of consumer protection but are actually meant to bolster Zanu PF’s electioneering.

The fiscus has also been raided to finance hefty salary hikes for civil servants. Government recently increased civil servants’ salaries by between 250 and 600%. It is probably the biggest salary review in the history of public sector negotiations.While government insists that these are genuine measures to improve the welfare of the workers, analysts say there is a worrying trend where these popular measures are introduced just before the elections. Analysts say civil servants’ salaries are heftier in election years.

However, the move to control prices of basic commodities and essential services is tantamount to forcing the private sector to participate indirectly in the government’s campaign and pre-election public relations stunt.
 
“It is a vote-buying tactic. The salary hikes, the fuel price freeze are part of that scheme,” said Eric Bloch, a Bulawayo-based economic commentator. “But that is abuse of power which will eventually hit the customer because the manufacturers will hike the prices after elections to cover the losses, ” Bloch said.

He said the vote-buying tactics included increases in allowances for the war veterans. The government recently increased war veterans’ allowances by about 200%. There are also plans to compensate the war collaborators to the tune of $10 million one-off payment per individual and allowances thereafter. The one-off payment will gobble in excess of $60 billion from the fiscus, which has not been budgeted.Chiefs and village headmen have also received a 150% increase in their allowances. Most chiefs have been given subsidised vehicles, had their homes electrified and boreholes sunk in their homesteads.

All these beneficiaries have in the past been crucial to the Zanu PF election machinery. The war veterans played an important role during the 2000 parliamentary and 2002 presidential elections, which the ruling party won narrowly.
 
They have also been used to intimidate the electorate. The chiefs and headmen have also been used in the campaign, with recent reports of some of them threatening to evict opposition supporters from their areas.

Analysts said the payouts to chiefs, civil servants and war veterans create a large hole in the fiscus that will have to be filled by printing more money or raising taxes. “It is just not sustainable and the government knows that it does not make economic sense,” Bloch said. The controls on industry and commerce have however taken a new dimension with government roping in the central bank to dictate the prices of goods and services. Recently the RBZ instituted a blanket ban on price increases for services offered by parastatals and local authorities.

RBZ governor Gideon Gono has put 70% as the ceiling of increases that can be instituted by any service provider. A proposed 120% hike on energy by Zesa was recently blocked by the central bank on the basis that it would stoke up inflation. Local authorities have also been forced to revise downwards their budget proposals in line with Gono’s dictates. Dr Alex Magaisa, a lecturer at Nottingham University in the UK, said the policy was bound to boomerang.


“If state intervention in setting prices fails to reflect market realities, the result might be that business will become too costly to run,” said Magaisa. “Eventually businesses will have to close — which affects not just the supply but employment and has knock-on effects on related entities. The fixing process may be convenient for political expediency, but it may have dire consequences for industry in the long-run,” he said
Harare city council is however still seeking to increase rates by between 300 and 600%. The city treasury department has described Gono’s 70% benchmark as not feasible considering the state of the economy.


Bulawayo and Chitungwiza on the other hand are seeking rate increases of not less than 250%.
Gono has said hefty increases will not be tolerated since local authorities should benefit from a $10 trillion seed fund as bridging finance. Local authorities have described the fund as a drop in an ocean. Analysts say Gono’s moves are short-term appeasements geared to hoodwink the electorate. “They say it’s part of the anti-inflation drive but it’s a clear campaign strategy,” said Brian Kagoro, a political commentator.


“That has been their system of offering piece-meal measures that in the end destroy the economy,” Kagoro said.
 
He said the government was penalising manufacturers and service providers. “There is every reason to view this as a blatant vote-buying tactic.”

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