HomeAnalysisPrice hikes: Coercive methods won’t work

Price hikes: Coercive methods won’t work

THE Zanu PF politburo on Wednesday set up an ad-hoc committee chaired by Vice-President Constantino Chiwenga who, until last month, was the Commander of the Zimbabwe Defence Forces.

Candid Comment,Owen Gagare

Hopefully, this does not signal the adoption of a law-and-order approach to economic management. History has shown the perils of deploying a massive sledgehammer where the proper instrument needed is a scalpel.

Chiwenga has been a significant player on Zimbabwe’s political landscape since November 13 when he announced that the army would not hesitate to “step in” and intervene in the Zanu PF succession fight to protect “our revolution” after which the military embarked on an operation code-named Restore Legacy, which culminated in the fall of former president Robert Mugabe after 37 years in power. It was a coup, but for many Zimbabweans it did not matter. A brutal dictator had fallen.

The appointment of the general to lead the fight against the price increases at a time government says it will deal with unscrupulous businesspeople “severely”, bears testimony to the fact that the authorities view the price increase as a real threat. After all, Zimbabwe is going for elections in a few months’ time. The politburo also discussed the issue of the three-tier pricing system prevailing on the market.

In dealing with the price increases, one hopes the Chiwenga-led committee will not consider price controls, but will instead seek to address the underlying causes of price hikes.

Unfortunately, brute force, even from a general, who can easily mobilise military tanks and automatic weapons, will not work in the absence of practical corrective action to remedy the deep structural economic issues affecting the country.

The government needs to find a lasting solution to the severe cash and liquidity challenges bedevilling the economy. It should find a solution for the biting foreign currency shortage on the market.

The government has to determine whether persisting with bond notes—which continue to lose value to the US dollar — while fuelling speculative behaviour, is worth it.

Perhaps the time has come for the government to consider swallowing its pride and adopting the rand, to stabilise the economy. Past experiences point to the fact that price controls do not work, even when coercive instruments are deployed.

For example, in October 2001 the government announced the introduction of price controls for basic commodities, through Statutory Instrument 307B.

The measures however failed dismally, as basic commodities disappeared from the shops but were readily available on the black market at the cost of an arm and a leg.

Having learnt nothing from the previous mistake, price controls were reintroduced in 2007 when the government ordered the slashing of prices by around 50% to curb inflation.

Despite a crackdown which resulted in several businesspeople being arrested, basic commodities disappeared from shops. Once again, the black market thrived.

The government should learn from previous mistakes.

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