HomeBusiness DigestCZI warns new minister on inflation

CZI warns new minister on inflation

Godfrey Marawanyika

THE Confederation of Zimbabwe Industries (CZI) on Wednesday warned new Industry and International Trade minister Obert Mpofu that the country risks missing out on “the gains”

of declining inflation as most companies are operating way below capacity.

The reasons for industrial decline include static commodity prices against rising input costs and other inflationary pressures.

Industrialists say government has not been acting fast enough to avert total collapse, symptomatic in shortages of basic goods.

Pattison Sithole, the CZI president, told an industrial/government meeting last week that although the country had managed to tame inflation from a peak of 620% in January last year to 127% as at February, money-supply growth would see inflation creeping up again.

While foreign exchange inflows had gone up by 486% on the back of improved gold deliveries (80% in volume terms), Sithole noted that business faced problems associated with the Reserve Bank’s controlled foreign currency auction system.

He said as a result of insufficient funds, a number of firms faced collapse.

“The auction system has stopped working,” Sithole said, adding: “For business, foreign currency is its life blood. Every business needs foreign currency in greater or lesser degrees.”

Further: “Many businesses are now on the verge of closing down because of inability to source foreign exchange (from the official sources), while others are forced to reduce staff or resort to shorter working days,” he added.

Sithole said foreign exchange shortages were not only detrimental to optimum capacity utilisation and a precursor to commodity supply disruptions, but were inflationary in that unit costs rise.

“Foreign currency shortage is also adding to inflation in another way; it is leading to a resurgence in parallel market trading as well as general shortages of goods which feed black market activities.”

During the meeting, Mpofu conceded that factory owners were facing numerous problems, especially in relation to pricing of goods.

He however said the issue had to be addressed without industrialists profiteering at the expense of consumers.

Mpofu said, though, that government had no solutions to the problems besetting industry since it had no experts, but was a mere regulatory or policy facilitator.

“We have no solutions, we are not experts… we are facilitators in the economy,” he said.

Since the March 31 election, Zimbabwe has experienced a shortage of basic commodities just like it did between 2002-3. Government accuses manufacturers of sabotaging the economy because they wanted the opposition MDC to win.

Manufacturers on the other hand blame government for forcing on them unrealistic pricing structures which threaten business viability.

Sithole said they had proposed a two-tier foreign currency management approach, where a controlled tier would be used for the purchase of maize, wheat, electricity, debt servicing and government requirements.

He said this would be funded from current surrender requirements on export proceeds.

Sithole said the second tier would be reserved for business.

“The exchange rate on the market should be determined by market forces. This will cause the market rate to escalate but control of money supply will ensure that the rate does not escalate to levels that prejudice our efforts to rein in inflation,” he said.

“There is a fear that a free foreign exchange market will result in a runaway exchange rate. This is simply not possible if money is controlled.”

Commenting on government’s so-called “Look East” drive, Sithole said as “business we look everywhere, be it east, west or centre. I was recently in Japan so this is testimony that we look for opportunities everywhere.”

Former president of CZI Anthony Mandiwanza said the country was having fuel problems because of a poor pricing structure.

“The official rate against the rand is around $1 100 and fuel locally is sold at $3 600 a litre yet in South Africa it costs around $5 500 a litre,” he said.

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