Price controls likely to be disastrous

EFFORTS by the government to curb profiteering, which has seen a rampant increase in prices of basic commodities in the retail industry, could turn out to be disastrous for the economy, economists and industry experts have warned.

Nkululeko Sibanda

This week, government issued an instruction that prices of basic commodities be reduced to last month’s levels. The government said this was meant to curb unjustifiable price increases.

Industry players and economic analysts told the Zimbabwe Independent that price controls would harm the economy and lead to shortages on the market.
“I am very confident that the move to reverse the prices to the March levels will indeed result in shortages of basic commodities because the producers of these products will not be able to get stock and raw materials to produce these basics in the manner in which they did in March,” economist John Robertson said.

“The government is surely going to aid the sale of these basic commodities on the parallel market and, worse still, in foreign currency which will be very expensive for the general man on the street. I wonder how long government will be able to sustain this kind of situation,” he added.

Robertson said government should take a cue from other administrations the world over who have stayed away from controlling prices of basic commodities.
“All over the world, there is no government, even the most powerful ones, that has succeeded in controlling prices of basic commodities. The market forces are the ones that determine the prices,” he said.

“It is common knowledge that price controls don’t work. All they do is to disturb business. I can foresee a lot of challenges lying ahead of us due to this approach that government has decided to take.”

Economics professor Tony Hawkins said it was tragic that government had decided to renege on its earlier undertaking that it would not interfere in the pricing of basic commodities.

“We have been down this road before and we are all clear, including those in government, of what happened earlier,” Hawkins said.
“We had all agreed that trying to control prices was a wrong approach for the government. It is surprising what has led to this change of heart on government’s part and also led to what we are going to be dealing with going forward.”

He added that government, through the announcement of the price controls, was on the brink of creating a situation where there would be empty shelves as producers and retailers were likely to withdraw their products from the market.

“Government is simply pushing us to a situation where the shelves will have gaps very soon. Companies and retailers will soon be bankrupt because the maths that involves procurement of raw materials, production, and retail of these basic commodities simply does not add up if we are to follow the government’s decision. It’s going to be a disaster going forward,” Hawkins said.

Zimbabwe National Chamber of Commerce chief executive officer Christopher Mugaga said government’s move was likely to lead to the collapse of companies and industry.

“We have simply started creating corporate tombstones in our economy courtesy of this decision to try and tamper with the prices of basic commodities,” Mugaga warned.

“The government, through this decision, is creating a situation that will result in the collapse of business the same way through which Macro Wholesalers, a big giant in the retail business, collapsed. It would have been better for the government to monitor prices than wanting to control the prices.”
He said government’s move could have worked had there been a stimulus package that would be availed to manufacturers as a way of helping them keep the prices of basic commodities low.

CZI president Henry Ruzvidzo told the Independent recently that companies were already counting their losses, which are projected to escalate as the world battles to contain Covid-19.

He said the amount of money for the required stimulus package is difficult to compute, owing to uncertainty surrounding the timelines as to when the disease will be brought under control.

Vice-President Kembo Mohadi told journalists on Wednesday that there was a general agreement among multi-sectoral stakeholders that price increases, particularly during the lockdown period, were speculative and unjustified.

“The multi-sectoral stakeholders committed to a price moratorium to operate based on the prices that were applicable on March 25,” he said.
“The moratorium will also apply to all value chain players.”

The multi-sectoral stakeholders that the government engaged include the Grain Millers Association of Zimbabwe, Consumer Council of Zimbabwe, Confederation of Zimbabwe Retailers, National Bakers Association Zimbabwe and National Foods among others.

The last time the Zimbabwe government interfered with prices and imposed a price control policy was in 2007, which resulted in serious shortages of basic goods.

In June 2007, businesses were ordered to revert to June 18, 2005 prices, resulting in massive queues, shortages of goods and hyperinflation, which ultimately resulted in the collapse of the Zimbabwean dollar. The government’s introduction of price controls forced the supply chain to slash commodity prices by 50% and led to empty shop shelves, staff being laid off and the closure of businesses, including retail chain Makro.

Mnangagwa when he took over from former president Robert Mugabe in a military coup in 2017 assured Zimbabweans that he will not resort to price controls.
Prices have more than doubled in some instances in the last month.