HomeBusiness DigestControls create price distortions

Controls create price distortions

Paul Nyakazeya

GOVERNMENT’S decision to slash prices of basic commodities has created serious price distortions in the market as businesses battle to stay afloat.

The move has also resulted in an avalanche of imported goods whose prices are being set at black market rates.

Over the past two months retailers have resorted to stocking imports to fill the void left by local producers who are not manufacturing at the controlled prices they were forced to charge by government’s price blitz.

The prices of most imported goods are beyond the reach of many consumers whose wages are not being reviewed because their companies are bleeding because of the price controls.

While the imports might have helped restock shops, their prices clearly show the futility of government’s decision to control prices in the first place. Consumers are now bearing the cost of government’s poor economic policies.

It is because of the government’s crackdown on prices that the country now spends billions in scarce foreign currency importing products that should otherwise be manufactured locally at cheaper but competitive prices. For example while local companies like Victoria Foods are being forced to sell rice at the gazetted price of $800 000 for 2 kgs, South African brands like Tastic rice packed by Tiger Consumer brands is going for $2,5 million for the same quantity.

While the gazetted price for two litres of cooking oil is $660 000, imports are being sold for between $3,5m (Sun oil) and $4 million (Sunflow). Locally made tissue paper brand Softex manufactured by a subsidiary of the listed Art Corporation now costs $400 000 for a pack of four but imports from South Africa are being sold at above $900 000 for the same quantity.

Other imports in the shops include juices and toiletries which are all nearly five times more expensive than the gazetted prices of local products. Other products include Black Cat peanut butter (South Africa) which is going for $2,3 m while government insists that local producers sell peanut butter at $430 000.

Ellis Brown powered milk manufactured by National Brands Ltd is being sold at $5m but local manufacturers of a similar product like Dairibord and Nestlé are controlled at less than $1m.

Imports Golden Dawn table salt and Selati Sugar manufactured by TSB Sugar Ltd are now popular on the market at the expense of similar products from National Foods, Blue Ribbon and Grain Marketing Board.

Zimbabwe is also importing biscuits and snacks from Malawi.

The market has to do with baked beans imported from Zambia when there are local brands like Cashel Valley, Heinz and Marlon. Analysts say the real beneficiary of government’s price controls has been regional countries. The real loser is not the government but the consumer and local industries.

“It is the Zambian or South African farmer and manufacturers who are benefiting. In the end, it is their (regional countries) economies that are thriving because the Zimbabwe government has destroyed its own industry,” said the marketing director with a local retail chain.

Analysts have said if the local manufacturers resume production their goods might never be able to catch up with the foreign products.

Economic consultant John Robertson said as the last remaining stocks of goods trickle out of factory warehouses onto the market, the country could see the start of an inflationary spiral that would make today’s prices seem cheap.

“It could go much higher 10 times as much for some things in the next couple of weeks, as goods cease to exist and imports flood the market,” Robertson said adding that the real victim will be the consumer. ZB Financial Holdings group economist, Best Doroh said local retailers were being forced to import some of the basic commodities to fill-in the gap created by the low capacity utilisation in the local industry.

“Consumers require these basic products and if they are not available from local manufacturers, then retailers have to satisfy that need through imports,” said Doroh.

“Ideally, you would want the local industry to benefit from the local demand, but unfortunately the benefits are now accruing to foreign manufacturers at the expense of our own local industry.”

Doroh said it will take some time for the local market to recover because some critical raw materials need to be imported and the full production cycle for some products is longer. “In some cases critical production mass has to be achieved first,” Doroh said.

“It will not be cost effective for industry to produce some products in very low quantties.”

The worst is however yet to come.

This week the National Incomes and Pricing Commission (NIPC) chairman, Godwills Masimirembwa announced a decision that analysts say would stop supermarkets from selling imported goods.

“The commission notes with concern the indexation of manufacturing costs or the costs of imported items on the basis of the parallel market foreign currency exchange rate,” said Masimirembwa.

“We have so far approved many price review proposals. “However, if reference is made to parallel market rates, then we will strike it down because that is against the law.

Any cost build-up that is outside the official exchange rate will not be approved,” he said.

In other words Masimirembwa was saying imports are also technically controlled because retailers will have to use the official rate.

That means that an imported beer like Windhoek whose landing price from Namibia is about R12 will cost $360 000.

The effect of this new policy shift is that companies will immediately stop importing. The shops will be empty again.

“Charging goods at the official exchange rate of $30 000 can only be viable if retailers or manufacturers managed to get foreign currency at that official rate from the Reserve Bank,” said Doroh.

Doroh said it was not practical to produce or import a product factoring in the official market rate in the cost structure and expect to be viable.

Confederation of Zimbabwe Industries (CZI) president, Callisto Jokonya, said that government needs to address foreign currency availability.

“The commission should implement the correct pricing system in order to boost industry’s production capacity,” he said.

Jokonya said NIPC should allow correct pricing structures without any delay in order to stabilise prices.

“Companies are not happy with the prices they are being asked to charge,” he said.

“As part of the way forward, the nation needs to address foreign currency availability and be bold enough to implement the correct pricing system,” said Jokonya.

Since the price blitz started five months ago most Zimbabwean products have found their way in neighbouring countries such as Mozambique, Malawi and Zambia where producers are making better margins.

Prices distortions are also apparent in the few locally manufactured goods that make it to the formal market.

Just what is the official price of a bottle of Coca Cola?

A shop along Takawira Street says $130 000 is the price while a bottle store along Kwame Nkrumah says it’s $150 000.

A convenience shop along Kaguvi Street says it’s $250 000, another says it’s $60 000 but Delta, the manufacturers of Coke, say the retail price is $38 000.

The official price of bread is $100 000 but retailers are selling a loaf at between $400 000 and $600 000.

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