NIPC To Continue With Price Controls

PRICES of goods and services have increased dramatically following the liberalisation of the foreign currency exchange policy.

 

The business community now feels there is no need for price controls and that the National Incomes and Pricing Commission (NIPC) is no longer relevant because cost build-ups will be transparent and justified. Business reporter Kuda Chikwanda spoke to the NIPC chairman Godwills Masimirembwa about their new role.

Chikwanda: How does the NIPC operate following the liberalisation of the foreign currency market? Is there justification for continued use of price controls?

Masimirembwa: There have been suggestions from government that the NIPC should concentrate on the three controlled and 16 monitored products. I firmly believe that the NIPC still has a key role to play. There is even acknowledgement by the Reserve Bank of Zimbabwe (RBZ) that the NIPC should continue to play the role of controlling and monitoring these goods. It is the form and nature of our role which needs to be looked at as regards the exchange rate.

Chikwanda: Is business justified in describing price controls as unnecessary in the new dispensation?

Masimirembwa: I think that business leaders have distorted the first quarter Monetary Policy Statement (MPS) to suit their bid to have price controls removed. It is clear that the RBZ governor Dr Gideon Gono acknowledged the implications of the NIPC in respect of the controlled goods.

Dr Gono accepts there is a role for the NIPC and it is wrong for the business community to say the liberalisation of the exchange rate means price controls are removed and that the NIPC no longer has a role to play. Personally, I feel they need to look at why the NIPC was formed. By and large from the 1990s until last year in 2007, market forces ruled.

But the parallel market was not stable and was pushing prices up, which then saw government intervening through the price blitz. The cause of intervention was the failure of market forces because they had failed to stabilise causing consumers to suffer. The NIPC was brought in to ensure goods and services are priced according to scientific methods.

Chikwanda: You have railed against businesses for turning to the parallel market to meet their needs after the RBZ failed to meet their demands. How do you expect businesses to remain operational given your demands and expectations?

Masimirembwa: The survival of businesses is not our only concern. The survival they talk about has to be looked at in the totality of the context. Businesses have to survive as well as workers too. The NIPC was brought in to bring sanity in the market.

We said to industry, you can’t abandon good corporate governance, for the sake of survival. In other words, corporates can’t stand and say they deliberately disobeyed the laws of Zimbabwe, went to the parallel market for survival and thus expect the consumers to bear the brunt of brutal market forces.

Chikwanda: Is the NIPC still interested in controlling the prices of goods and commodities despite clear indications that the cost build-ups are genuine and transparent and inclusive of interbank charges for foreign exchange?

Masimirembwa: Dr Gono highlighted the priority areas for foreign currency. However, I must dutifully point out that liberalisation is not complete as banks are not yet selling foreign currency.

The RBZ is yet to come up with a priority list on the foreign currency to be sold. Applications coming up now are purely speculative as no one has incurred the costs of buying foreign currency at interbank rates. As such, any applications we get, we are looking at them as if they have been buying foreign currency on the parallel market. We want proof of foreign currency purchases.

Chikwanda: The RBZ set up the Strategic Products Price Controls Mitigation Fund to make up for the adverse effects of price controls which it said infringed on producer viability. Is there no contradiction between your justifications for price controls as you try to hide behind anti-price control RBZ?

Masimirembwa: Businesses still need assistance and distortions will always arise. If a company accesses the Basic Commodities Supply Side Intervention (Bacossi) facility, it enjoys certain advantages than businesses that haven’t benefited from this facility. It is still absolutely necessary to supervise some sectors of the economy. By the same token, we also have to guarantee food security. It is also my view that the official exchange rate of US$1:$30 000 has not been abolished.

The NIPC is proceeding from the basis that the RBZ recognized the 3+16 products as priority items in terms of pricing and the implication for food security. That is why Bacossi and the Agricultural Sector Productivity Enhancement Facility (Aspef) are continuing.

Food security demands that government ensures that basic commodities, whether imported or not, are not unilaterally increased on the basis of a cost build-up based on the interbank rate.

Chikwanda: It seems you are desperately seeking your mandate and new terms of reference from the RBZ in defining what the NIPC is supposed to do in this new dispensation.

Masimirembwa: Not at all. Our scope of functions is much broader than merely pricing. The NIPC deals with hoarding, shortages of commodities, especially in this environment and other unscrupulous practices such as where a retailer forces someone to buy a basic commodity together with another product whose line is not moving. We also look at the impact of wage and salary increments on production costs and act as a point of reference for National Employment Councils in wage negotiations.

Chikwanda: The NIPC has been accused of fuelling of scarcities through imposition of ridiculously low prices. Businesses believe that these low prices you impose have brought on artificial demand and promoted hoarding.

Masimirembwa: What the business community is saying is that it prefers products and commodities to be unaffordable while appearing on shelves. The reason why people are flocking to buy products outside the country is because they are much cheaper. The NIPC is saying on a broader perspective the question is why are businesses not producing? I want to give an example of the sugar industry. Production is adequate for the nation but where is the sugar? It is being hoarded by business people? The mindset that business has does not augur well with us.

Chikwanda: I thought people go to neighbouring countries to buy things they can’t find here.

Masimirembwa: Yes but people also look at the prices. The prices here are very high. The business people here go beyond pegging their prices at parallel market rates. They multiply the rates in anticipation of future rate changes.

Chikwanda: How is that their problem when we all know that the rate is not stable at all? It changes everyday.

Masimirembwa: It is their problem. Look at a normal TV set for example. The price they are selling for here is many times what it costs in Botswana. They are multiplying by huge percentages. It’s speculative.

Chikwanda: That makes you irrelevant in this case because you have no control over the interbank rate.

Masimirembwa: Well but what can we do? We can’t do anything about it. The rate is moving too fast. The rate has almost doubled since the introduction of the interbank system because the banks are battling to stay ahead of the parallel market. Prices are galloping because of that.

Chikwanda: But significant market risks exist that have deterred foreign capital from coming here. Of concern has been failure by government to guarantee security from unwarranted takeover.

Masimirembwa: At the same time, Zimbabwean balance sheets are being used to support foreign operations. Why are they not disinvesting from Zimbabwe? Are they prepared to disinvest? No, because Zimbabwe is a sound economic destination.

Chikwanda: There have been reports that the NIPC is being used as a political tool to not only attack businesses owned by opposition MDC members but also Zanu PF politicians who have fallen out of favour with the leadership? How true is this?

Masimirembwa: Nothing can be further from the truth. The NIPC inspectorate fights unscrupulous business practices and hoarding, and will target anyone guilty of this. Our message to business leaders is that if you are caught, don’t cry foul. There are no sacred cows and we will be harder on chefs and leaders as they are supposed to lead by example.

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