HomeBusiness DigestFallacy of the national pricing commission

Fallacy of the national pricing commission

IT is quite certain that whoever called for an inclusive stakeholders forum to remove pricing distortions through a social contract never expected the country to subsequently degenerate into a one-sided approach dominated by price controls.

The unfortunate breakdown of the well conceived Tripartite Negotiating Forum (TNF) and the proposed three economic stabilisation protocols as part =of the social contract initiative, brought about the existence of price controls initially through a cabinet task force and later through the current National Incomes and Pricing Commission (NIPC).

It is quite clear that the NIPC, just like similar initiatives in the past, has been largely unsuccessful in crafting a sensitive all stakeholders national pricing policy.

This is evident from the fact that since the advent of price controls, the Zimbabwean economy has struggled to emerge from the shortages of locally manufactured goods because of haggling on pricing issues between the NIPC and the business community.

The NIPC has been accused of bureaucracy in approving new prices rendering subsequent price adjustments ineffective because of the rapid movement of a hyper-inflationary environment.

Consequently, the NIPC has been bogged down with unending requests for price reviews and has tended to lag behind the pace of real inflation.

The end result has been shortages and supply of poorly manufactured goods to the formal market while the punitive black market has become a reliable source for a number of commodities.

The NIPC has not made much headway in finding a lasting solution to the national pricing problem because it is part of a system that deliberately denies that inflation and the parallel market rate are significant input factors in a credible pricing model.

In addition, the NIPC though set up by government should have been managed by independent thinkers or reform-minded people with an attitude geared towards crafting workable solutions for all stakeholders concerned.

Ideally, the role of this institution should not be perceived to serve government interests but to provide feasible pricing models in a highly distorted environment.

It should not be swayed by government populist policies or by the business community’s insatiable desire for profits.

The institution should assess from its own intelligence structures, the economic operating environment and thereafter proposes policy to government and lobby for the implementation of such policy on the basis of its fairness and on the good of the country.

If the exchange rate for instance as a pricing factor was the bone of contention, the NIPC should have done its own assessment and proposed policy variation to the Ministry of Finance to ensure viability of business rather than to implement one-sided destructive policies to appease some stakeholders.

It is unfortunate that the NIPC has not adopted this stance and to a certain extent is guilty of being inclined to government thinking.

As long as there is no major policy shift on the part of the NIPC in this respect, bickering with the Confederation of Zimbabwe Industries and other business associations that frequently spill over to the media will continue to characterise their relationship while no concrete steps made to find a workable solution.

It is the people who will continue to suffer.

It is very important for the NIPC to realise that inflation data, the parallel market rate and a workable national pricing model are elements that cannot be divorced.

The institution should have been the first to cry foul when the government conveniently swept inflation data under the carpet from October last year.

How the institution functioned all that time without such key information is worrying.

Statements by the NIPC to the effect that business entities should not request for price reviews citing inflation and parallel market rate movements are an indication of how the institution is not alive to the situation prevailing in the economy.

They indicate a serious shortcoming on the part of the NIPC.

For the benefit of the hardliners, Zimbabwe is an import-driven economy and the importance of imported raw materials for the production process cannot be over-emphasized.

Over 50% of imported raw materials drive the production process.

Once there is mention of imported raw materials, the exchange rate becomes an important component in the total pricing structure.

Unfortunately due to the economic recession, Zimbabwe has experienced dwindling foreign currency inflows and the government, through the Ministry of Finance subsequently implemented a fixed exchange rate that has continued to exist well out of sync with reality forcing a more potent parallel market to dominate foreign currency transactions at punitive rates.

Businesses have been subjected to the same punitive parallel market rates that they have to effect into their final product pricing structures.

This fact cannot continue to be ignored any further because the difference between the official exchange rate and the parallel market rate has become insanely massive and in part contributes to falling production levels and company closures.

If the NIPC would rather ignore the fact that the parallel market rate is a significant pricing factor, then it would be better for the institution to lobby government on behalf of business for adjustments of the official exchange rate in line with inflation differentials between Zimbabwe and its trading partners.

For the sake of progress and for the good of the country as a whole, the NIPC needs to reform to remain relevant.

A trigger pricing mechanism linked to a viable exchange rate is necessary to limit bureaucratic engagement with NIPC every time business requires price adjustments.

It would be fool hardy to believe that all goods in the country can be competently priced by one institution without having distortion consequences especially with the parallel market, official market, subsidised loans, cheap Noczim fuel and expensive black market fuel etc. If the NIPC cannot be done away with then the other option is to limit the scope of the institution’s influence.

*Nhlanhla Nyathi is a director of a private equity firm. He can be contacted at kexhe@yahoo.com.

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