THE Reserve Bank of Zimbabwe (RBZ) is leaving no stone unturned in its bid to turn around the cash crisis that has locked the nation in a throttlehold.
The Brett Chulu Column
Its response, predictably, has been to flex its derived authority muscle to goad errant businesses to adhere to relevant provisions of the Bank Use Promotion Act (Chapter 24:24).
Last week the RBZ released a five-point press statement. Its thesis-like mouthful title is telling: Press Statement on the Collaboration Between the Reserve Bank of Zimbabwe and Retailers and Wholesalers on Measures to Enhance Regulatory Compliance and Use of Plastic Money in Business Transactions.
The fifth point of this press statement is of interest. It states: “Retailers and wholesalers shall sell any particular product for the same price irrespective of the mode of payment and desist from multiple pricing of goods on account of mode of payment (cash, Real Times (sic) Gross Settlement (RTGS) and Point of Sale or a combination of any two or more of them).
For the avoidance of doubt, retailers and wholesalers shall not charge any premium for the sale and purchase of their wares on the basis of mode of payment.
“Similarly (sic) any cash or quantity discount shall, in accordance with best practice, be granted in the normal course of business and not on the basis of the multiple pricing system.”
Retailers are steps ahead. One can infer this from three pricing models I encountered in one retail sector.
Retailers are doing away with multiple pricing. Instead, they are using a single price point in ostensible compliance to the RBZ directive. At face value, it might seem as a capitulation to the directive of the monetary authority; far from it. What is happening is that this single price point is an inflated one.
The reason this single price is inflated is to accommodate or factor in the cost of the price of foreign currency exchange in the grey market, either through the RTGS system or the hard cash system.
The driver is the well-known shortage of foreign currency on the formal market. It is a well-known fact that some daring entities can avail hard cash in exchange for an inflated RTGS transfer, with premiums of 15-20% not uncommon. The bond note-dollar exchange is likely to reach these premium levels soon than later.
RBZ’s stamping of its authority weightily is likely to raise these premiums further; it represents an excuse in informal markets to aggravate the scarcity of cash.
A mix of payment methods is being carefully adopted for strategic reasons. One set of retailers is offering proportional quantity discounts for cash purchases. They only accept payment either through ecocash or hard cash.
On their part, it is a strategic choice not to have swiping machines. The reason for this mix is not too hard to discern. It would appear that these retailers are able to access hard cash through the EcoCash mobile cash ecosystem. This pricing system is meant to quickly mobilise cash to enable the purchase of foreign currency from informal markets.
The other set of retailers accepts hard cash and plastic money only; mobile money is not accepted. What is apparent when you present debit cards for payment is that they accept plastic money in nominal terms.
Their swiping machines keep declining cards. One is left with no choice other than to look for hard cash.
Even after the RBZ directive has been given, these very retailers whose swiping machines keep “declining” are still offering cash discounts as high as 20%.
That tells you that at least 20% extra is built into the superficial single price meant to feign compliance with the RBZ directive.
The third set of retailers accepts any payment mode. They appear to be in deference to the RBZ order. In reality, they are just passing on the inflated price to the consumer. Of the three, they are the worst since they offer no discounts and yet appear to be good and exemplary corporate citizens.
To understand the dynamics at play, economics alone is insufficient. The subtleties at work operate at the intersection of economics and politics; it is a politico-economic problem.
For all the praises that private enterprise market systems get, it is an accepted fact that these market systems have incompetence. Theoretical economists tell us of an ideal no-loss-to-anyone Pareto optimality that can never be reached in any real markets. They cite that markets do not count all costs, do not count all benefits, individuals are not fully competent to know all alternative choices, monopolies exist to limit choice, transactions to keep the market system working are very costly and that people do not want to pay for public goods (free rider problem).
For all their imperfections, markets are brilliant at one thing; they do not offer conflicting incentives — you know you are in the market to acquire the best advantage for yourself.
Command or comply-or-else systems offer conflicting incentives —they force people to reduce profits for the elusive common good. Politico-economic history shows that people have summoned courage to defy comply-or-else systems in pursuit of market incentives. When price controls ruled the day in this country, bakers brought substandard bread to the market. That is just one example.
The RBZ directive is in the mould of comply-or-else. Businesses are doing what they always do; find ways to outwit authority systems in obedience to market incentives. For instance, the ostensible acceptance of plastic money, but making sure the machines are not working most of the time is a stratagem to outwit the command system.
Of deeper significance is the apparent defiance of some business players. Deceptively, politics and money seem separable. In fact, some scholars are of the view that politics is a willing servant of capitalist interests. They argue that political authority is not maintained through the visible hierarchical or pyramidal order of commands; it is maintained through multilateral exchange — dispensing of benefits to support structures.
Politics is largely a multilateral game. Those who look for political subtleties in hierarchical top-down relationships are looking for fools’ gold. A political player cannot coerce his/her critical supporting system; it is suicidal. Thus politics is largely a nested network of support systems that control or limit higher authority. This could explain why certain players defy directives.
Defiance is likely an indicator of an intersection of politics and economic interests. Grey markets persist despite being illegal. Politico-economic interests explain their persistence. Dismantling networks of defiance has a high marginal cost both economically and politically.
The monetary authorities should be alive to the reality they are not dealing with purely economic matters; they are dealing with politico-economic actualities. Disentangling politics from economics is failure to understand economics.
No wonder the celebrated former economist from Yale University Charles Lindblom observed that corporates conduct their “domestic policy” through authority (command), but conduct their “foreign policy” through market mechanisms.
Businesses are politico-economic institutions that are part of the political ecosystem. You do not see this addressed in the RBZ directive. Economics eats politics for lunch. Politics eats economics for lunch.
Chulu is a management consultant and classic grounded theory researcher. He has published research in an international peer reviewed academic journal.