- Category: Stories
- Published on Monday, 08 November 2010 09:47
- Written by Charles Rukuni
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The re-introduction of price controls on maize meal by the government and the intention to gazette the prices of other basic commodities is a complete reversal of the liberalisation programme and has further damaged the image of Zimbabwe in the eyes of the investing community.
It is disturbing to note that the Minister of Industry and Commerce is putting a ceiling on maize meal prices when no research has been carried out to find out whether millers are profiteering or not.
The Minister is not acting in good faith because in his statement on June 25 he talks about tasking the Industry Trade and Competition Commission to investigate the maize milling industry, but at the same time already concluding that millers are profiteering.
At a time when Zimbabwe desperately needs a dose of positive news to rekindle battered investor confidence, the ZNCC wonders why the government has decided to take this action as it will certainly derail any hopes of generating the much needed positive supply response from the private sector.
Increased inflows of direct investment capital will not take place in an environment fraught with policy inconsistencies. Policy reversals and uncertainty make planning future investment programmes very difficult. Investors, currently faced with a wider choice of where to put their money, want to see a sustainable liberalisation programme before investing.
Re-introducing price controls also clearly shows that the government is not committed to market reforms. It is therefore unlikely that ZIMPREST targets will be met. Soaring inflation, punitive interest rates of above 35 percent, unsustainable fiscal deficits and a volatile foreign exchange market clearly show that Zimbabwe has tumbled down the ladder of competitiveness. Re-introducing price controls will further pull the country down this ladder of competitiveness.
What surprises the ZNCC is that the government seems oblivious to the fact that globalisation is gathering momentum and that countries with economic policies that do not follow the normal trend will certainly be marginalised from the global village.
The major problem in Zimbabwe is that political considerations continue to override rational economic thinking. While acknowledging that political stability is one of the major pre- requisites to sustainable socio-economic development, the ZNCC strongly condemns any actions that sacrifice national economic interests for the selfish interests of a political establishment.
The major reason why government is re-introducing price controls on basic commodities is that it is afraid of a repeat of the violent food riots in January this year. However, what the authorities fail to realise is that controlling prices will not lead to an improvement in the standard of living of the people and stop violent protests.
The pre-ESAP period between 1980 and 1990 saw activities such as distribution, investment, international trade, just to name a few, subjected to excessive government regulations. These included price controls, import licensing, foreign exchange allocations, investment controls and controls on labour related issues.
As a result of these regulations, private sector activity was severely depressed and the economy slumped. An average GDP growth rate of about 2.7 percent was realised during this decade, and shortages of basic commodities accompanied by long queues became the order of the day.
Because of GDP growth below the average rate of population increase of 3 percent per annum, per capita income fell and poverty levels rose. Due to low investment, export growth tumbled, resulting in a weakening of the foreign exchange position.
By re-introducing controls, the government seems to be clamouring for a repeat of this mediocre economic performance. Although the economy has not improved remarkably under ESAP, one cannot blame the programme for the current hardships.
Failure by government to implement an aggressive fiscal policy stance to complement the Reserve Bank of Zimbabwe's monetary and financial sector reforms is largely responsible for the difficult situation the country is finding itself in.
Sound economic management, which is characterised by sustainable budget deficits, low inflation, low interest rates, high rates of savings and investment and a stable foreign exchange market, requires a synchronisation of fiscal and monetary policies.
Many problems we are currently facing can therefore be largely attributed to mismanagement of scarce resources. The government can therefore not re-introduce controls when these never achieved any positive results in the first place.
One could take note of the fact that the removal of all price and distribution controls has resulted in the establishment of new enterprises particularly in the agro-industrial subsector and a bigger market for farmers' produce.
The dismantling of controls has injected the much needed competition in the market place, and caused some firms to look closely at the issue of quality and customer care to remain in business.
Before the introduction of ESAP, very few firms bothered to look at the above factors mainly because they had a captive market.
What also bothers the Chamber most when the government talks of price controls is that they fail to realise that these controls mean subsidies to the affected firms. And the issue of subsidies has contributed immensely to the current unsustainable budget deficit which has averaged 10 percent of GDP since Independence in 1980.
At a time when the government is facing serious financial constraints, the question is: Who is going to pay for the subsidies? If the government cannot pay, what it means is other stakeholders will have to foot the huge subsidy bill. The re-introduction of price controls will therefore mean higher taxes for the already overtaxed Zimbabweans.
The other alternative would be for the cash-strapped government to borrow from the market, a move that will worsen its debt position which is seeing over 25 percent of the total budget going towards the repayment of interest of debt alone. In fact, the nation is now teetering on the edge of a serious debt trap because of government blunders in economic management.
Given the above, the solution lies not in price controls, but in creating a conducive macro- economic environment for the private sector to flourish. It is through increased investment and the generation of value-added products that the problems of high prices, low GDP growth and unemployment can be resolved.
A conducive business environment will only be created through reducing public sector claims on scarce resources. This entails accelerating the pace of commercialising and privatising loss-making public enterprises with the proceeds being used to retire debt and reduce the deficit, sub-contracting non-core government activities to the private sector, reducing the size of the cabinet, cutting on the number of diplomatic missions, strengthening revenue collection and administration and decentralising the public service delivery system. Targeted tax incentives should be provided to those firms engaged in value-added activities and those involved in linkages with small to medium scale enterprises.
At the government level competition and increased competitiveness requires support through the provision of a sound macro-economic and an efficient legal and institutional framework. The absence of such a framework can make it impossible for firms to exploit market opportunities. As experience from other countries has shown, liberalisation alone will not be accompanied by adequate supply responses unless the whole macro-economic environment is conducive.
Other factors militating against the growth and hence increased competition, competitiveness and affordable prices include low productivity levels, lack of purchasing policies with regard to raw materials and capital goods, limited access to credit because of lack of asset collateral, low levels of quality control and understanding of standards, poor product design capability, inability to afford costs of safe and appropriate standards, poor management techniques and lack of funds for price discounting and promotion.