Erich Bloch: Eliminating The Parallel Market

RECENTLY, the Retailers Association of Bulawayo urged consumers to boycott products which were imported through parallel market funding.

The motivation for this appeal to Zimbabwean consumers was undoubtedly in recognition that one of the greatest contributants to Zimbabwe’s crippling hyperinflation is the ever-rising cost to the importers of the goods, in consequence of constantly soaring premiums.

Concurrently, the retailers association was in all probability also motivated by a desire that its members should be law compliant.

This was not the first time that consumers were advised to refrain from purchasing parallel market funded goods, for similar advice has been forthcoming from the National Incomes and Pricing Commission (NIPC), by the Minister of Industry and International Trade, Obert Mpofu and by many of his colleagues.

In principle, the advice given is well founded, for the magnitude of inflation in Zimbabwe is of gargantuan proportions.

Current unofficial estimates place inflation for the year to April 2008 at higher than 400 000%! So intense is that inflation that millions are struggling to survive, with the overwhelming majority of the population generating incomes far below the Poverty Datum Line (PDL).

Undernourished, malnutrition  and ill health, with associated misery and distress, is the lot of most Zimbabweans.

Hence, it is desperately necessary, for Zimbabwean hyperinflation to be very urgently contained and reversed, and although a variety of very important and decisive actions are necessary to achieve this, one of the greatest ones is to eliminate inflation driven by parallel market foreign currency funding of imports.

However, it is unrealistic in the extreme to expect to achieve this by   consumer action of withholding custom in respect of goods financed through parallel market operations.

First and foremost is that when, in an economy characterised by extreme shortages and pronounced scarcities, consumers are desperate to source essential, critically needed requirements, they will inevitably give greater prioritisation to their immediate, perceived to be vital, needs, than to the downstream inflationary consequences.

When there is little or no maize meal, flour, soap, candles, medications, paraffin or petrol, and so forth available, other than as may have been imported via parallel market foreign exchange funding, the source of the funding is of little or no consequence to the embattled consumer.

Consumers desperate for survival of themselves and their families will continue to purchase anything that they consider to be survival essential, irrespective of subsequent negative downstream effects of their so doing.

Secondly, in most instances, the overwhelming majority of the population are completely unaware as to when their needs have been funded through the parallel market, and when funding has been effected with legitimately possessed foreign exchange.

The rank and file of the populace does not have the business operational expertise, or depth of knowledge of economic intricacies, to make that judgment.

Moreover, whilst some parallel market funding is indisputably applied to importation of finished goods for sale by wholesalers and retailers, a far greater proportion of total such funding is destined to the importation of operational inputs of the manufacturing sector, and there is no credible basis whereby consumers, or the wholesalers and retailers, can determine which goods manufactured in Zimbabwe have been substantially produced with direct or indirect imported inputs which are purchased through  the parallel market.

Furthermore, albeit probably only a minority of consumers, some are very aware that much parallel market trafficking is engaged in by the state, directly or indirectly, and by political hierarchy and others of that ilk, and therefore cannot perceive that there is anything unlawful in the operations of that market!

Nevertheless, if inflation is to be meaningfully contained, one of the most critical measures necessary is the elimination of both the parallel and black markets.

The harsh fact is that, although consistently unpalatable to, and rejected by, government, the parallel market will only cease to exist once there is a constant sufficiency of foreign currency in official markets to service all the needs, wants and desires of commerce and industry, mining, agriculture, tourism, other economic sectors, and the population in general.

Were that to be the case, the only parallel market traffic would, for so long as exchange controls prevail, be the sale to, and purchase by, those wishing unlawfully to externalise assets.

However, much is needed to be done by government if a surfeit of foreign currency is to be constantly available in official markets.

Unfortunately, for many years has government not only demonstrated a pronounced reluctance and unwillingness to take necessary actions, but it has also repeatedly rejected all well-founded and well-intentioned advices thereon by both international and domestic expertise in general, and by the affected economic sectors in particular.

If Zimbabwe is to become foreign exchange sell-sufficient, some of the very necessary, “ must do” actions are:

*Agriculture must be restored to its former glory, whereby it produced the totality of Zimbabwe’s needs for agricultural products, and much in excess thereof which could be, and was exported, thereby yielding substantial foreign exchange. In contradistinction, for most of the last 10 years, Zimbabwe has to find foreign exchange to import agricultural products in order to feed its people.

*Currency exchange rates must, until such time as they can be, and are, market-force determined, be very substantially adjusted to recognise the extent that Zimbabwean inflation has exceeded that of its principal trading partners, and must thereafter continue to be so adjusted, in order to achieve Purchasing Power Parity with competitor export countries.

Only by so doing can potential foreign exchange-generating economic sector enterprises be viable, and thereby generate the much needed foreign exchange.

Manufacturers, the mining sector, and tourism operators, cannot export their products or services in the absence of continuously viable foreign currency exchange rates.

*Zimbabwe desperately needs to attract Foreign Direct Investment (FDI), and that requires an investment conducive environment. Prerequisites of such an environment include political and economic stability, respect for property and human rights and law, minimal bureaucracy, unhindered economic operations (free of excessive state controls), a taxation friendly regime, and good and sound, cooperative and collaborative international relations.

*Constructive, harmonious interaction with international monetary bodies, and with first world, developed countries, so as to attain access to Balance of Payments Support until Zimbabwe is self-sustaining.
Clearly, therefore, the burden of eliminating the parallel market does not lie with the consumer, and should not, but fairly and squarely upon the shoulders of government.

Top