HomeBusiness DigestThe (Im)possibility of an Island

The (Im)possibility of an Island

ONE could almost be forgiven for forgetting the days when a daily allowance of a dollar to take to school could afford a “freeze-it”, a packet of maputi and perhaps an after-school chocolate ice cream cone from the Dairiboard vendors, strategically positioned just outside the school gate to capture whatever loose change was left from the break time ‘bingeing’.

Back then, a $10 gift from a relative after eagerly showing them your latest report card was soon followed by dearest mommy seizing it for safekeeping, and only given back to you through some form of an instalment scheme. Back then that dollar counted for a lot and it was not even American!

Fast forward to today and the latest craze is on dollarisation, dollarisation and still more dollarisation.

Zimbabweans find themselves paying for everything from hospital fees, education and groceries in some form of foreign currency. Even some areas that people thought were safe such as cellphone airtime and watching soccer matches have not been spared.

However, perhaps owing to the gross market inefficiencies in our economy the pricing of some of these goods and services do not make much sense. Everything is just plainly overpriced to say the least.

There is a general feeling however that prices are beginning to come down quite significantly in recent weeks. A major reason for this perhaps is that using US dollar pricing means that local players will now have to face direct competition from companies beyond our borders.

In the long run local suppliers can only charge at a level where it would not be worthwhile for consumers to drive to border towns in South Africa, Botswana or Zambia for most of their shopping.

One can think of the example of alcoholic beverages. This particular market was perhaps the first to experience market forces driving down prices.

The market for beverages should be about maximising profits through volume rather than excessive mark-ups. When foreign beers first appeared, they were priced at five to 10 times what they are currently selling for. Now local beers are at times even more expensive than some of the imports.

This should serve as a sign for future trends across most products and for the rest of the economy. Local manufacturers need to start realizing they can easily lose the competitive advantage arising
from being closer to their market and a sense of supporting local companies just because they are Zimbabwean.

An encounter with a cellphone subscriber presented another such anomaly. The lengths to which consumers are willing to go to ensure they are not short-changed can be amazing.

On a trip down south, this particular subscriber was interested to know if it was cheaper to use a South African issued prepaid cellphone line.

On checking the various operators’ websites it turns out that that can actually be cheaper in some instances where international SMSs from a South African based operator can be as low as R2.50 while roaming in Zimbabwe!

So looking at set up costs alone foreign operators seem to have an advantage. Using Vodacom (SA) as an example, it costs you less than a South African rand to buy the line and there are no activation costs for the SMS-only roaming option.

Compare this with a local offering at US$20 for the line and SMS charges ranging from US$0.14 to just under US$0.40 for local and international messages respectively.

Assuming one wants the SMS-only option; only after sending about 200 messages would local operators actually start becoming cheaper. But by then trying to regain lost customers could be a lot more difficult.

Unconfirmed reports suggest a British based operator can offer calls (again while roaming in Zimbabwe) at less than the cost of making local-to-local calls and it is probably on per second billing at that! With the age of borderless technology, internet banking will enable consumers to easily service the alternatives without much of a hassle.

While this particular example highlights the skewed pricing of Zimbabwean mobile operators, the same would apply to any other sector. And the super-profits will only last as long as the market is not informed and aware of the various alternatives available to them.   

The world we live is fast changing and the days of operating as some form of island with protected local industries could soon be over. 

Zimbabwe is in the process of making some commitments with regional blocs to create free trade areas with the eventual hope of creating a fully-fledged customs and monetary union. Should the status quo remain local companies will surely be no match for external players.

Local companies should either look at more cost effective business models or just stop being greedy. To prove this you could try offering a local consumer an imported Hansa beer at the price of a local pilsner and guess what they will choose.

To be fair such pricing mismatches perhaps result from the haphazard manner in which the “dollarisation” is occurring. Perhaps now would be the time to set up proper official and blanket treatment for all suppliers.

Offering foreign currency licences to part of the economy creates unfair advantages for some while continuously stifling healthy competition between players to bring prices down.

Dollarising the stock market, for example should soon be followed by that of the whole economy. In the long run, perhaps the consumer will benefit (as wages and all else is converted into foreign currency) but then again, this is pretty unlikely to happen as we all know who the biggest loser will be!


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