HomeBusiness DigestPrice controls no panacea to problems - Masimirembwa

Price controls no panacea to problems – Masimirembwa

BUSINESSES are accusing The National Incomes and Pricing Commission (NIPC) of delaying prices reviews. The consumer says the prices controls have pushed commodities on to the black market where they are going for higher prices. Some business leaders say the NIPC should not have been created in the first place because it’s destroying companies. Business Editor, Shakeman Mugari spoke to NIPC chairman, Godwills Masimirembwa this week. Below are excerpts from the interview.

Mugari: Would you say the National Incomes and Pricing Commission (NIPC) has achieved anything since its establishment in October last year?

Masimirembwa: The answer is yes and no. I say yes because people saw how empty the shelves were after the blitz. We have been able to work with industry to ensure that a significant number of basic commodities are back on the shelves. I must however say that the situation is still far from being normal.

Mugari: That sounds incredible. Surely it is far from being true. The latest that we hear is that capacity utilisation is between 10 and 20%.

Masimirembwa: I don’t agree that capacity is at 10%. The majority of the companies that have made representations to us have indicated that capacity is above 40%.

Mugari: It’s hard to believe you because I have just spoken to Calisto Jokonya, the president of the Confederation of Zimbabwe Industries (CZI), who indicated that capacity has slumped by close to 90%.

Masimirembwa: We have got a problem with Jokonya because he likes to exaggerate things. He has made it clear that he does not agree with us. That is why we are now dealing with individual companies instead of the CZI as a group. That 10% figure he gave you is false. For example the cement industry is operating at 90% as I speak and Dunlop is at 65%.

Mugari: The NIPC was obviously not created to control prices only. The act says the NIPC should investigate and analyse the causes of price distortions in the market and come up with clear models to solve the problem. The NIPC has not come up with a single model.

Masimirembwa: When a company submits an application for a price review we look at the pricing structure of the whole sector. We look at the major drivers and then come up with a clear pricing system.

Mugari: That doesn’t mean that the NIPC has come up with a pricing model.

Masimirembwa: What I am saying is that the models are already there because the companies have got them.

Mugari: How is it possible that the NIPC is able to come up with fair prices when it does not control the prices of other key inputs like fuel?

Masimirembwa: The NIPC is mandated to control the prices of everything including fuel. It is unfortunate that we are not in control of those prices at the moment. We are in the process of negotiating with the parent ministry and stakeholders to find a lasting solution to the fuel pricing issue.

Mugari: Will that work? Surely you will be the first to admit that fixing the price of fuel has led to huge problems in the past.

Masimirembwa: Yes it will work.

Mugari: How will it work now when it has failed dismally in the past?

Masimirembwa: We are looking at the pricing structure of a litre of fuel compared to the same quantity of another product like cooking oil. We believe that we will reach a price that will be agreeable to everyone in that sector. The critical issue is that we have to get some buy-in from the stakeholders.

Mugari: But are you aware that the price of fuel hinges on the exchange rate which the NIPC does not control?

Masimirembwa: We will not be addressing the issue of the exchange rate but rather we will be looking at what should be a reasonable price.

Mugari: It’s amazing that you use such words like “reasonable” in such an environment. A week ago the United States dollar was at $6,5 million. Now it is around $10 million.

Masimirembwa: That is where we have a challenge. Stability is a function of many other issues. What worries me is the attitude of other businesses that want to profiteer in the name of the exchange rate. We have seen some companies selling imported goods at five or six times more than even the parallel rate. The mark up is just too big. In order to come up with a fair price for a commodity we use an equivalent of a local good. The issue is not the exchange rate but the context of the parallel market. We approach the issue from a reasonable perspective.

Mugari: You still haven’t said a word about how the NIPC deals with the movement in the exchange rate on the parallel market.

Masimirembwa: The movement on the parallel market is speculative. It’s not driven by any fundamental issues but people taking advantage of the shortages of foreign currency.

Mugari: Are you trying to say that the shortage is not a fundamental issue in this case. Isn’t the economy all about demand and supply?

Masimirembwa: Yes shortage is a fundamental issue but we have to realise that productivity is the key to the stability of prices in the market. We are saying imported goods should be a buffer but should not be used to exploit people.

Mugari: Your commission has been accused of taking time to approve prices. Companies say by the time they get new prices things would have changed. Consumers say your approved prices are always far removed from the reality on the ground.

Masimirembwa: We are not always behind. What is always ahead is the tendency to profiteer. I must however say that we have worked well with big corporates.

Mugari: Does the commission have the capacity to monitor prices effectively?

Masimirembwa: Yes we have 37 monitors who are responsible for Harare and all Mashonaland provinces. We have enough people on the ground.

Mugari: And resources?

Masimirembwa: We have four cars to cover that area.

Mugari: Are you aware that you are talking about covering half of Zimbabwe with 37 people and four cars.

Masimirembwa: But that is not the issue. What we want is a culture of responsibility.

Mugari: You are trying to inculcate a culture of responsibility in an economy with 66 000% (now 100 000%) inflation. The International Monetary Fund says even this figure is understated.

Masimirembwa: The NIPC does not sit in an abstract. We look at an application and its merits. We want stability. The price must hold for 30 days.

Mugari: It seems that even the 30-day time frame is not working?

Masimirembwa: we must realise that price reviews are not a panacea to our problems. The solution lies in productivity. There are shortages in the whole economy. We will still have problems achieving this stability if inflation continues to rise. We need a total package to solve this problem.

Mugari: We last had a consistent update on inflation figures in May last year. As we speak now the inflation figures are a month behind because we only have the numbers for December. What has NIPC been using to come up with a fair price?

Masimirembwa: I think I have answered that question before by saying that the NIPC does not use inflation figures to determine the prices. We use the pricing structures that we get from the companies. We look at the cost build up.

Mugari: Is the NIPC capable of making independent decisions without government interference?

Masimirembwa: The NIPC is a creature of statute which gets policy directions from government.

Mugari: So the commission is not independent?

Masimirembwa: The NIPC has got a specific mandate to operate within the system.

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