Zim subsidising other countries

By Nhlanhla Nyathi



THAT fateful day in Inyanga when the Tripartite Negotiating Forum (TNF) — comprising government, business and labour — failed to agree on the broad

working modalities of the initially proposed social contract will go down in Zimbabwe’s history as a monumental failure.


All the participants in the TNF forum squandered a chance of a lifetime to facilitate an all-inclusive determination and progression of prices and wages for the welfare of all Zimbabweans.


The parties in the TNF forum should have realised that dragging their feet with regard to such an emotive issue was bound to blow up in their faces as inflationary pressures remained relentless and unbearable.


Concessions should have been made by one or two parties in the TNF forum in the interest of forging some kind of agreement since it was obvious that government was not going to back down until something substantial was done to appease the suffering masses.


As a consequence mistrust ensued between government and business leading to the one-sided disastrous price controls that have destroyed the social fabric of the Zimbabweans as well as sunk viable businesses.


Since the implementation of the blanket price controls in June, which also affected parastatals and government institutions, basic commodities and a significant number of other products have disappeared from the formal market leading to a thriving parallel market that has become more potent and difficult to police than ever.


Law enforcement agencies have had a torrid time in the past few months bogged down with trivialities of policing a faceless black market which can virtually operate from anywhere. On the other hand, manufacturing companies have had to contend with the forceful application of the price controls by government through ruthless law-enforcement agencies.


Initially because of adequate stocks normally kept by companies as part of their stock holding policies, the inception of price controls did not immediately lead to shortages of commodities in the formal market.


It was only after a few days of uncontrolled bulk buying by consumers that it became apparent that stocks on the shop shelves were not being replenished. Companies blamed unviable pricing structures as a major inhibiting factor disabling them from ordering raw materials required to keep the production process going.


Zimbabweans became victims of widespread shortages and had to learn the art of becoming modern day hunter and gatherers for virtually every commodity required to sustain their daily lives.


Going into the fifth month of the stand-off between government and business over the contentious price controls, it appears the new National Incomes and Pricing Commission (NIPC) chairman, Godwills Masimirembwa, is determined to maintain the hard-line status quo.


The latest decree by the NIPC to devise new pricing formulae on the basis of converting foreign currency-denominated invoices at the official exchange rate is a huge blow to the business community that was looking to engage the NIPC in constructive ways to find lasting solutions to the incessant shortages.


It is an open secret that foreign currency is scarce on the formal market, while the parallel market that has access to the foreign currency is priced at a massive premium. Clearly companies would rather not re-stock at all if such threats keep lingering in the horizon. No sound-minded businessman would source currency at US$1: $1,2 million only to sell the imported products at a discounted US$1: $30 000.


With this latest stance taken by the NIPC, the standoff is bound to persist for some time to come. Consumers will have to wait a bit longer before shop shelves can be filled up again.


Companies will have to continue hunting for alternative survival strategies in the meantime to ensure their long term existence and profitability as the local market is unlikely to be a market of choice due to controlled pricing structures that have proved to lag behind real inflation.


As part of that process, some companies have already scaled down production and laid off part of their workforce, while others entered into toll manufacturing agreements with companies outside Zimbabwe. Unfortunately for Zimbabwean consumers, these alternative survival strategies disadvantage the local market and result in reduced supply of products.


If that is to be the trend going forward, it is quite clear that the price and wage controls that resulted in forced lower fuel prices, lower water tariffs, lower electricity tariffs, lower labour costs and many other forced reductions will not benefit locals as they have been shunned by local companies trying to avoid operating at a loss.


If toll manufacturing is to be the survival strategy going forward as it seems to be so far, companies outside Zimbabwe will be the eventual unintended beneficiaries of the price and wage controls.


Toll manufacturing allows local companies to use their skills, labour and machinery for a fee to manufacture on behalf of companies outside Zimbabwe without investing their own financial resources required to purchase raw materials.


Such a process enables local companies to continue operating profitably while limiting exposure to price controls and the local market. Although it is a good business survival strategy under the current circumstances, toll manufacturing by its nature tends to tie up productive capacity and time of local companies to external commitments while the local market is starved of the same product.


The disadvantage that arises in circumstances where there is toll manufacturing coupled with price and wage controls are clear.


The initial intention of price controls was to relieve suffering masses from high prices resulting from the hyperinflationary environment. This