HomeCommentEditor's Memo: Strong-arm Tactics Futile

Editor’s Memo: Strong-arm Tactics Futile

THERE is one fundamental phenomenon that our government has taken too long to learn from and to which the Reserve Bank of Zimbabwe is slowly coming alive:

that it is futile to fight the informal economy and inflation through strong-arm tactics.

In his mid-term monetary policy statement last week, central bank governor Gideon Gono almost conceded defeat in the fight against inflation as he canvassed the “collective effort” of the whole country to arrest inflation and speculative behaviour.

“As monetary authorities we once again wish to reiterate that the battle against inflation cannot be consigned to a lone effort of singular institutions or of singular groups among us,” said Gono.

He added: “If we do not come to realise that the trigger for rapid disinflation is to arrest the current run-away speculative mode in our markets, then soon our workers will practically be confronted with employers who cannot pay for their hourly wages.

“Indeed, soon we will find out that by allowing our markets and pricing systems to degenerate on the inflamed path of perpetual daily incomes and price hikes, we are incinerating the very fabric of our collective existence.”

This realisation is coming too late because that fabric of our collective existence is already up in smoke due to the speculative nature of the markets.

In essence, the balance of control and influence in the economy has shifted from the formal sectors to the streets. Recently, Bankers Association of Zimbabwe president Dr John Mangudya, at the launch of the Manufacturing Survey spoke of an 80/20 phenomenon in this economy. He said almost 80% of the economy has drifted to the informal sector and the smaller percentage had remained formal.

His summation is believable especially when viewed in the context of constant policy failure by economic ministries and the central bank. Measures which have been promulgated by the government –– especially during Gono’s reign at the Reserve Bank have been designed to fight the black market, forex traders, overcharging retailers, errant banks and other financial institutions, speculative punters on the stock exchange and so on.

Taking the fight to the greater portion of the 80% has been a futile campaign. The informal sector which drives the black market has in its armoury the sickness of our politics and economy while government and the central bank have tried to use legislation and bureaucracy to counter the growth of the black market.

There is no need for a body count to tell who the winner has been in this case.

The informal economy thrives in circumstances of instability and uncertainty. The dealers on the street have not just flourished, they now dictate policy formulation and the conduct of business in this country.

They now control and determine the foreign exchange market. The streetwise fellows have also of late made a big entry on the Zimbabwe Stock Exchange. Their advice on stock price movements should never be disregarded. They usually have their finger on the pulse, and sometimes proffer better advice than your stockbroker in a starched shirt and striped tie.

Informal traders have also distorted and contorted distribution systems of the few goods being manufactured here. They are already in charge of trading in imported merchandise. Has government managed to crack how the traders always get scarce goods ahead of retailers?

The informal sector players do not just control distribution patterns; they have become trendsetters in the pricing of goods and services.

They not so long ago created RTGS rates of exchange in addition to their thriving cash street rates in the forex trade. Now the 20% — that is the formal sector — has caught the cold and retailers have introduced a dual pricing system for their goods depending on whether buyers want to pay cash or transfer funds.

National Incomes and Pricing Commission chair Godwills Masimirembwa is miffed by this new phenomenon.

This week he was talking tough and ordering manufacturers to stop using the RTGS rate in pricing goods and services. Masimirembwa sounded like he had just discovered the trigger for the rapid rise in price –– the RTGS system.

This is what his commission will be seized with in the next few weeks as they open hostilities on a front where they face another humiliating defeat.

The NIPC and government have been focusing on the symptoms and not the real cause of our malaise.

It has been the failure to remove the shroud of uncertainty that pervades all aspects of the country.

It is important for Godwills and his comrades in government to wake up to the fact that the negative sentiment is a boon for black market activities which in turn is the trigger for steep price increases. Sentiment now constitutes at least 50% of the price of any product sold here.

Dealers are asking themselves how much more they can make from the same product the next day. Negative sentiment cannot be legislated away unfortunately.

As Gono has come to realise, it is “the expeditious resolution of the current political differences” that is key –– not blitzes and operations.

By Vincent Kahiya

 

 

 

 

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