‘Consumers must embrace plastic money’
On November 14 this year, the Minister of Industry, Commerce and Enterprise Development, Dr Mike Bimha said Government was working on easing import controls for basic commodities in a bid to address a possible shortage of some basic commodities. In the same month, the former Minister of Agriculture, Mechanisation and Irrigation Development Dr Joseph Made said Government was going to import agricultural inputs directly from international manufacturers, so farmers could access them at reasonable prices. Our features writer, Runyararo Muzavazi (RM), speaks to Zimbabwe National Chamber of Commerce chief executive officer Mr Christopher Mugaga (CM) on whether these initiatives will stop price hikes. RM: What does the relaxation of import controls mean?
CM: This means easing of regulations on the the importation of some products in short supply so that organisations with capacity can obtain licences for import permits in order to import so as to cover the supply gap. It also means our role as private sector is still significant given our call for the Government to relax some of the import requirements given the shortages the market has been experiencing of late. Indeed, the Government listens to advice from business but not all the time given that we are not the only stakeholder with a voice that matters in this economy. It can also be interpreted as a move to realign SI64 with the new economic realities which saw the nation experiencing crazy price increases in the past two months. RM: How is the relaxation going to help in terms of products availability and affordability? CM: Products that are in short supply will be available on the market. In terms of affordability, there have been price increases of late due to local manufacturers taking advantage of the shortage in the market. Therefore, from a general economic sense, an increase in supply which surpasses demand will result in reduced prices of goods and that is what the relaxation is aiming to achieve (flooding of goods to make them affordable). This, however, must not excite us since the negative consequences can be felt in the long run when the entire economy is replaced by imports of seemingly cheaper products. I insist local businesses still need protection from foreign products since it’s the only way we can avoid exporting jobs to countries that already have an unfair advantage on a number of trade protocols. Some of these countries are beneficiaries of AGOA (African Growth and Opportunity Act) which was signed between Washington and about 45 African states. They can easily sell to the USA as a number of trade barriers have been lifted and this is not the case with Zimbabwe which has been grappling with trade sanctions for more than a decade. Therefore, we must not lose sight of the ultimate end which we need to achieve; that is employment generation, price stability, re-industrialisation as well as international competitiveness. RM: Currently, we are having problems with manufacturers that are hiking prices on a daily basis. How is the relaxation going to ease the situation? CM: Prices are not being hiked on a daily basis by manufacturers, but rather recent price increases emanated from speculative hype and artificial shortages as a result of shortage of forex, which has become a major challenge for local businesses that rely on imports as their inputs to produce local basic commodities. Informal traders also fuelled Once shortages in the forex market are experienced, it naturally becomes difficult if not impossible to achieve uniformity or stability in the currency market. parallel markets which created unnecessary uncertainty in the market. Prices have somewhat stabilised. RM: How best can we tackle the issue of pricing products without implementing the four-tier pricing system? CM: With the Consumer Council of Zimbabwe set to publish recommended prices of all consumer goods that were affected by these price hikes, there is need to ensure that these prices are adhered to and implemented justifiably. Meanwhile, the general populace should embrace plastic money, and the plan to set up a special taskforce to persuade informal traders to embrace the use of plastic money in order to stabilise prices and supply of essential commodities in the sector is viable and will help address the issue of the four-tier system. Business should not inflate prices and this will help address the negative perception on the market. However, the loudest advice to policy makers is to shun price controls given the empirical evidence in Zimbabwe’s economy that price controls do not work. In addition, such a multi-tier pricing regime should be understood in the light of it being a symptom, not a problem in itself. Once shortages in the forex market are experienced, it naturally becomes difficult if not impossible to achieve uniformity or stability in the currency market. RM: How is the relaxation of import controls going to complement Statutory Instrument 64? CM: It is important to note that SI64 was not a complete ban of imports, but sought to regulate the importation of some products that can be produced locally and require an import licence. It was meant to protect local industries with the capacity to satisfy domestic demand as well as solve foreign currency problems caused by externalisation of foreign currency. Relaxation of import controls will complement SI64 in that it is there to cover a gap where demand exceeds supply by local companies. RM: How best can we minimise the outflow of foreign currency since all problems surrounding product shortages are emanating from scarcity of foreign currency? CM: Strong economic foundations rooted in export-led growth are needed so that we have a strong export sector which will help bring in the much needed foreign currency. There is also need for industry to be competitive and reduce imports which will in turn reduce the outflow of foreign currency. Meanwhile, measures need to be put in place to reduce concentration risk on the use of a single currency (US$), and promote the use of other currencies in the multi-currency basket. There is also the issue of confidence versus perception risk. I think the recent erosion of value on the Zimbabwe Stock Exchange is testimony that where there is a confidence deficit, we are also bound to experience chronic capital account deficits. Even if we are to significantly increase our export base, without addressing the confidence and perception risk variables, we remain exposed to forex shortages. It is also pertinent to note that forex challenges are not a new phenomenon in Zimbabwe, since 1965, forex shortages have always been an issue. Last but not least, as long as the debate on whether we must continue with multi-currencies or switch to local currency is not resolved, it becomes very difficult to resolve forex shortages, therefore the foreign currency situation is closely and strongly linked to the currency dynamics of the land. RM: So far how has SI64 helped in developing our local industry and the economy? CM: Business has since realised gains following the introduction of SI 64 of 2016, with capacity utilisation having increased in some industries. Some sector-specific gains were reported and examples include biscuit manufacturing whose capacity went up from 35 percent to around 75 percent and the detergent industry which moved from around 30 percent to 60 percent. Given that Zimbabwe’s economy is coming from a very low base, it becomes unfair to judge the success of SI64 on a period of less than 24 months. Also the success of SI64 is primarily premised on the availability of forex since retooling and importation of raw materials is what is needed to consolidate on the objectives of SI64. The unfortunate thing is the overemphasis on SI64 even by media in Zimbabwe. We must understand that SI64 is not a policy but rather an instrument, so the best way to analyse it all is to critique the yet to be launched national trade policy rather than taking a myopic stance of over analysing the SI64 story. RM: To what extent can we blame the scarcity of foreign currency for the supply gap? What other factors could be causing the supply gaps on the market? CM: Industry is failing to import raw materials because of foreign currency and this has an impact on production levels. Inordinate delays in the processing of foreign payments are being experienced and the foreign currency allocation framework is not efficient as business has to wait for
months to be able to import and this promotes arbitrage opportunities for speculators. Also retailers are finding it difficult to pay their suppliers leading to low supply levels. Other factors include the rise in cost of producing and overvaluation of the US dollar. RM: It is said that licences to import products that can be produced locally will be issued. Do you think the local industry will be safe from such a move looking at the gains that came with SI64 and why? CM: Local industry will be safe as this relaxation has been put in place just to fill in the supply gap and not to compete with the local products. This means that if the local industry comes to a position where they can meet the market demand these licences will be suspended and allow for local producers to cater for the needs of the market. RM: If there is a supply gap in the market, does opening borders reduce competition and promote local firms or what is needed is to monitor the products? CM: There is need to note that import relaxation is there to address the supply gap, and not address competitiveness. Promoting local firms is the way to go, but if demand is not met there is need to look at alternative solutions to address this. Also this may have an impact on local companies to increase production levels so as to meet demand. For starters, the focus should never be on monitoring products, we should spend much energy on monitoring the threats to recovery of the economy and not the products themselves. RM: Do you see the country winning this battle of easing the situation on product pricing and availability in our various markets? CM: There is need for all stakeholders to work together to ease the situation. There is need to be competitive given that competitiveness is a major aspect of doing business. Lack of competitiveness has been a major constraint in doing business and the collaboration of the private sector. Government and academia, through the establishment of a National Competitiveness Commission, will help address issues to do with pricing and availability of goods on the market. Local industry should strive to produce more in order to meet local demand. This is every stakeholder’s battle and the best means to deal with pricing and availability rests in flooding the market with products. Honestly, how do you monitor the value of the greenback in this economy if it is in short supply? How do you set a price ceiling for cooking oil if all producers are bemoaning shortage of raw materials to produce the product?