More price controls spell disaster for producers

Shakeman Mugari


PRESIDENT Robert Mugabe l

ast week outlined economic policy measures that he said his government would soon adopt to arrest the current economic decline. But analysts this week dismissed the proposals as mere political rhetoric that lacked substance.


Addressing parliament, Mugabe said there was need to “adopt effective measures to address the paradoxical situation whose destructive impact is vividly illustrated by the impoverished condition of the common man”. He said there were sectors performing well in the midst of economic decline.


To address the situation, Mugabe said his government would strengthen price monitoring mechanisms while increasing capacity utilisation to make scarce commodities readily available.


He also said government would deal with the fuel crisis by restructuring the National Oil Company of Zimbabwe (Noczim) to compete with private oil companies in the importation and distribution of fuel using a dual pricing structure.


Government also intends to acquire a 25% stake in Hydro Cahora Bassa (HCB) power station of Mozambique to alleviate the shortage of electricity.


 To speed up land reform, a Land Acquisition Amendment Bill would effect amendments to the principal act.


Mugabe said government would introduce an Indigenisation Bill to force companies to allocate a 20% shareholding to their workers. He said government was committed to the National Economic Revival Programme, which was adopted in February this year.


But analysts said the proposals were Mugabe’s wish-list — similar to those contained in the National Economic Recovery Programme — which would not address the plethora of problems facing Zimbabwe. They said the measures were devoid of substance.


University of Zimbabwe economic analyst Tony Hawkins said Mugabe’s speech skirted the crisis by dramatising the problems without offering workable solutions.


“The speech failed to address the issue at the core of the crisis,” Hawkins said. “It merely emphasised that Zimbabwe is in a crisis but there were no solutions. It was one of those Mugabe speeches in which he commands business. He did not offer any solutions.”


Hawkins said Mugabe’s populist rhetoric revealed the widening gulf between government policy and reality.


“In fact government has failed to identify the problems and is therefore groping in the dark,” he said.


Another analysts said Mugabe’s pronouncements on fuel would not guarantee adequate supplies as they focused only on pricing instead of the sourcing of the commodity.


He said for as long as there was no foreign currency to import fuel the crisis would persist. Cheap fuel imported by government would continue to find its way on to the black market the government was trying to kill.


He said there were also no clear parameters on what constituted the “public sector” which would buy fuel at subsidised rates. This, he said, would leave the scheme open to abuse by public officials.


Economic analyst John Robertson said the fuel crisis would  remain with us until government addresses issues of supply.


“There is nothing in Mugabe’s speech that will bring fuel to Zimbabwe,” he said. “The biggest shortcoming is that Mugabe failed to address the issue of fuel supply, which directly hinges on Zimbabwe’s export capacity.”


Robertson said Mugabe focused on the secondary issue of fuel distribution instead of supply.


“It’s sad that Mugabe said nothing about the sourcing of fuel and it is this omission that has caused misery in the country,” he said. “The availability of fuel depends on our ability to export.”


Zimbabwe signed a US$360 million fuel deal with Libya two years but the deal collapsed last year due to government’s inability to pay and supply agricultural products as initially agreed. Before the deal was put in abeyance, Libya supplied 70% of Zimbabwe’s fuel needs. Zimbabwe’s agricultural production has plunged in recent years and government has failed to supply tea, tobacco and horticultural products to Libya.


With major fuel companies — BP, Caltex, Mobil, Shell and Total — owning 90% of fuel service stations in the country, it is doubtful whether government has the capacity to distribute fuel efficiently.


Industry players dismissed the arrangement as a firefighting strategy that would not resolve the fundamental causes of the fuel crisis. 


Zimbabwe National Chamber of Commerce economist James Jowa said a dual pricing system would only benefit top government officials and parastatals.


“Taxpayers are forced to subsidise fuel for parastatals which are already making losses,” said Jowa.


“It’s a short-term solution because unless we can export to get foreign currency we will remain in a fix,” he said.


The government has systematically destroyed the agricultural sector which was the biggest foreign currency earner. Prior to the land grab Zimbabwe was able to earn more than US$400 million from tobacco, flowers, fresh vegetables, cotton, citrus, coffee, tea and timber.


The analysts said tightening price controls would not address the issue of inflation. Mugabe remains a control freak while his Finance minister Herbert Murerwa tries to implement workable policies. In his budget statement last year, Murerwa said price controls were sabotaging companies and undermining the economy.


Jowa said widening price controls would be a disaster.


“If Mugabe’s comments are anything to go by then there is no future for industry,” Jowa said. “Price controls have caused distortions in the market. They have eroded investor confidence which is what Zimbabwe requires urgently.”


Price controls were introduced in October last year purportedly to cushion consumers against rising inflation. The move worsened shortages as controlled commodities found their way on to a thriving black market. In response to mounting pressure from producers, government made a U-turn and decontrolled some products in May this year.


The manufacturing sector is expected to decline by 17,2% by year-end. At least 500 companies have closed  shop since last year while the manufacturing sector is operating at below 60% of capacity.    


Government says it wants to acquire a 25% stake in Hydro Cahora Bassa (HCB) but has failed to rehabilitate local plants at Hwange and Kariba. Zimbabwe owes regional power utilities US$110 million. Experts say at full capacity, Kariba and Hwange power stations should be able to provide adequate power for the whole nation.


Mugabe dropped a bombshell by indicating that interest rates should go down. This is against advice from economists to raise interest rates to arrest galloping inflation now hovering at 364,5%. Low interest rates have eroded savings and threaten to push inflation to 400% by the end of next month.


The National Economic Revival Programme (Nerp) which Mugabe praised in his speech now risks be-coming redundant due to delays in implementation. Under Nerp government promised to remove price controls, devalue the dollar and raise interest rates to cub inflation. None of that has been done.


The analysts also said the avalanche of bills due to be tabled in parliament would divert MPs’ attention from debating issues of national importance.


“Mugabe’s problem has always been that of putting the cart before the horse. Government is busy promulgating more laws while the nation starves. The bills will not alleviate fuel and forex problems,” said one lawyer.   


The problem, says Hawkins, is that government has failed to develop a realistic framework for sustainable economic recovery. Since independence government has been experimenting with unsustainable policies that are steeped in command economics.