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Editor’s Memo

Who is fooling who?

By Vincent Kahiya

THIS week, I continue with the discourse on the dollarisation of the economy. In this column last week, I questioned Zimbabwe National Chamber of Commerce Marah Hativagone’s in

tentions in supporting Air Zimbabwe’s quest to charge fares in foreign currency.

Hativagone was quick off the blocks last Friday to advise that “the RBZ buys forex from the parallel market to pay Zesa and Air Zimbabwe bills…” The full response from Hativagone is published below.

This allegation has also been made by another business leader, Confederation of Zimbabwe Industries president Callisto Jokonya earlier in the year although he could not furnish the nation with details of how much the central bank spends buying foreign currency on the illegal market. One day we expect the central bank governor to confirm or disprove that his bank is involved in acts of illegality. In the absence of a rebuttal, it can be assumed that the central bank is involved in illegal activities on the parallel market, which new National Incomes and Pricing Commission chair Goodwills Masimirembwa this week said is illegal.

In an interview on radio news on Monday Masimirembwa said companies making submissions for price reviews should not quote parallel market rates in the cost build-up of products and services. He said business should stick to the official rate of US$1:$30 000. At a press conference later in the day, he said companies importing goods for sale should produce foreign currency receipts for the purposes of calculating the mark-up.

Hativagone’s assertions on the abundance of forex in this country and Masimirembwa’s declaration on the pricing of imported goods bring me to the point of whether the pricing commission is capable of reversing reality of the parallel market and replacing it with the myth that there is foreign currency available for us all. Masimirembwa’s position on pricing models based on the official exchange rate presupposes that there is sufficient foreign currency on the official market and there is therefore no reason for business to resort to the parallel market. His position also presupposes that state institutions are in charge of the formal economy where everything is done by the book.

Assuming that products and services are priced on the basis of the official exchange rate, then Zimbabwe has some of the most expensive goods and services in the world.

A beer at $200 000 is almost US$7 or R50 and buffet lunch at Meikles at $4 000 000 will translate to US$133 or about R1 000! Compare this with US$7 and R100 for a beer and a meal respectively in South Africa.

What is obvious in this country at the moment is that the informal world is big and operates on the borders of legality. There is a meeting point between the informal market and legality. That is the home truth. Prices of government services have moved in tandem with the parallel market and not necessarily the artificial exchange rate. The monetary authorities have always come up with a blend rate for exporters and other primary producers.

The recent review in the producer price for wheat at $71 million puts the commodity at US$2 367 using the official exchange rate. Compare this with US$370/tonne at the gate in South Africa. The same technocrats and apparatchiks who denounce the parallel market by day have in a way benefited from the black market. Is it not amazing that farmers getting tractors under the state mechanisation programme will repay loans calculated at the official exchange rate while they can sell their produce at parallel market — factored prices?

The point here is our government talks tough about the parallel market but is in a subtle way a participant. What authorities in Zimbabwe should do is commission a study to quantify the extent of the informal economy and its impact on government policy. A study on the same theme in Peru by economist Hernando de Soto discovered that informal housing in Lima was not 14% of the total, as the official figures stated, but 42% with a value of US$8,4 billion, slightly more than the country’s external debt. In public transport we discovered that 87% of the buses in Lima were illegal and when combined with illegal taxis, it turned out that 95% of the public transport was private and informal. The value of buses was US$120 million.

The value of illegality here should be a useful pointer to what our government is actually in charge of. A cursory glance at the moment shows that it is not very much after all.

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