GOVERNMENT has laid siege on the business sector, ominously accusing it of overcharging consumers in pursuit of super profits and engaging in “financial terrorism”.
BY KUDZAI KUWAZA/TINASHE KAIRIZA
President Emmerson Mnangagwa, his deputy Constantino Chiwenga, Finance minister Mthuli Ncube and Foreign Affairs minister Sibusiso Moyo are leading the assault. This comes as the country is holding the Zimbabwe International Trade Fair (ZITF) in Bulawayo which is meant to showcase the nation’s business innovation as well as promote trade and investment. The annual event will be officially opened today by Ugandan President Yoweri Museveni, who has been in power for 33 years. He is currently in the spotlight for clamping down on the opposition, particularly the persecution of musician and political opponent Robert Kyagulanyi, known by his stage name Bobi Wine.
Prices of basic commodities have shot through the roof since October last year after the Reserve Bank of Zimbabwe governor John Mangudya announced the separation of RTGS and foreign currency accounts, signalling abandonment of the fixed 1:1 exchange rate between quasi-local currencies and the United States dollar. Prices again rose sharply after Mangudya’s February 20 monetary policy statement which devalued the official exchange rate from 1:1 to 1:2,5.
Official statistics have shown that some basic commodities have skyrocketed by nearly 200% during the period between October last year and April this year. Giving oral evidence before a Parliamentary Portfolio Committee on Information Communication Technology and Courier Services chaired by Kuwadzana East legislator Chalton Hwende (MDC-Alliance) earlier this month, Mangudya also castigated business for hiking prices.
“You do not need to track the exchange rate on a daily basis. If your cost of production is 20% foreign currency, I think it would be wrong to use exchange rate as a price-determining factor, which I see in Zimbabwe,” Mangudya said.
“In South Africa, you hear that every day, the rand has moved from 12 to 13, 14 or whatever to the US dollar, but they do not change the price because of movement of exchange rate. If you go to Zambia, the kwacha moves from 9, 10, they do not change the price. We do not necessarily want this tracking mechanism. I think it is a disease that needs to be removed in this country. Yes, we know that Zimbabwe depends on foreign currency, but let us not over-emphasise that dependency.”
Ncube has also weighed in, accusing business of profiteering by using the exchange rate as a benchmark for pricing. “It is actually bad economics to link price increases to the exchange rate. That’s not how you do it, it is profiteering,” he told reporters earlier this month.
Ncube attacked business on the same issue yet again at the ZITF this week. “Please, it is bad economics, very bad economics where you tie price increases directly to the exchange rate. Good economics says tie prices around a consumption basket, you don’t earn your salary to go and buy US dollars. So, inflation thinking should be hinged around consumption basket and not US dollars,” he said.
In his Independence Day speech, Mnangagwa slammed business over the price increases.
“Government is alarmed by the recent wanton and indiscriminate increases of prices which have brought about untold suffering to the people. This conduct by stakeholders in business, industry and commerce is inhumane, unethical, unpatriotic and goes against the grain of economic dialogue which the Second Republic has espoused. Government remains determined to restore the purchasing power to all workers,” Mnangagwa said.
Vice-President Constantino Chiwenga this week issued an ominous threat to business, describing them as financial terrorists. “I want to give a stern warning to those practising financial terrorism in the country. We will react accordingly as government and nobody should claim that they were not warned. We’ll take very strict measures,” said Chiwenga.
Business has, however, reacted angrily to the government’s accusations, pointing out that the price increases are a result of toxic policies.
The chairperson of the Presidential Advisory Council and prominent industrialist, Joe Mutizwa, yesterday declined to say whether or not his panel has given Mnangagwa advice on prices. “You will appreciate that I advise the President in confidence. At this point, it would not be proper to comment on that,” Mutizwa said.
The threats by government are reminiscent of former president Robert Mugabe’s propensity to blame business over prices and inflation.
Mugabe in 2008 formed a pricing commission, chaired by Goodwills Masimirembwa, which imposed price controls, resulting in massive shortages and empty shelves. The International Monetary Fund (IMF) has predicted that Zimbabwe will slide into recession this year. Previous forecasts by the IMF had projected growth of at least 4,2%, but now the economy is seen contracting by as much as 5,2%.
Annual inflation has been galloping, while purchasing power and aggregate demand have resultantly plunged. Due to exchange rate movements and differentials, salaries and wages have gone down almost four times in real terms.
Company balance sheets, value, stocks, pensions and savings have been badly eroded.
Local companies with foreign debts could become insolvent and close shop as their liabilities have multiplied by up to 400% due to the adjustment of the exchange rate by the RBZ in February.
Volatility, which provides a measure of price uncertainty in the market, has been rising and companies have reacted by delaying investment and other decisions as they intensified risk management activities. The poor have been the hardest hit by price spikes, rising inflation and eroding incomes. The situation has been exacerbated by exchange rate volatility. Zimbabweans are now languishing deeper in poverty. ZimStats figures show poverty levels in Zimbabwe have reached alarming proportions. Poverty headcount ratio at national poverty line (percentage of the population) is rising.
Economist Godfrey Kanyenze said threats by the government against business raise déjà vu. “History is repeating itself. If you go back to 2004, businesspeople were called economic saboteurs,” Kanyenze said. “Government has a knack for blaming either sanctions or business whenever there is a crisis. When you float the exchange rate and when there is no foreign currency, the prices will go one way – up. It’s not rocket science.”
Economic analyst and Zimbabwe Independent columnist Victor Bhoroma points to the low confidence in the market as a major factor to the economic crisis. “As Zimbabwe’s economy wobbles on the brink of recession, the cost of low confidence in the market is taking a huge toll on various policies to resuscitate the economy. Prices for most consumer foodstuffs, industrial products and services have been skyrocketing since the October 2018 monitory policy statement with official inflation rate hitting 66,8% in March 2019,” Bhoroma says.