Source: Cabinet okays provision of forex for basic goods | The Herald May 2, 2019
Africa Moyo Senior Business Reporter
Cabinet has resolved to avail foreign currency to manufacturers of basic goods for the acquisition of raw materials so as to arrest the unjustified price increases obtaining in the country.
The decision, which came out during Cabinet deliberations on Tuesday, had recently been proposed by the Confederation of Zimbabwe Retailers (CZR).
Information, Publicity and Broadcasting Services Minister Monica Mutsvangwa, told journalists during a Cabinet Press brief on Tuesday that Government was deeply concerned over the ongoing price increases, which are imposing “extreme hardships” on citizens.
“To alleviate the suffering of the majority of our people, Cabinet is putting in place mechanisms to ensure foreign currency is made available to the business community for the procurement of raw materials for production process.
“This will go a long way in stabilising prices. In light of this initiative, Government is appealing to business to exercise restraint and stop the wanton increase of prices,” said Minister Mutsvangwa.
Government used to support bread and cooking oil makers with foreign currency for the importation of key raw materials in a bid to reduce prices.
However, following the introduction of the interbank foreign currency market, whose forex rate is market determined, Government felt it was now prudent for the producers to source their own forex at the low rates.
As at April 30, the interbank rate was 1:3,1822 compared to almost 1:5 on the parallel market.
The interbank rate is seen by policy makers as key to reducing the prices of goods.
However, producers claim they are facing challenges in obtaining foreign currency on the interbank market, which makes them turn to the parallel market rate to keep the wheels of factories turning.
Exporters are thought to be holding on to their forex until an “acceptable rate” that is close to the parallel market rate has been reached, but Finance and Economic Development Minister Professor Mthuli Ncube told The Herald Business recently that the obtaining macro-economic fundamentals do not provide for a higher rate of forex.
Prof Ncube said Government is not creating new money while the tobacco selling season has begun in earnest, making any upward adjustment of the forex rate ridiculous.
The wanton price increases have also seen the year-on-year inflation rate spiking to 66,80 percent in March from 59,4 percent in February.
Month-on-month remains in positive territory despite rising to 4,38 percent in March from 1,67 percent in February.
When prices started rising astronomically in October last year, the month-on-month inflation rate shot up to 16,44 percent.
Mid April, CZR president Mr Denford Mutashu said the wave of price increases had been caused by the rise in sugar prices.
Sugar rose from RTGS$4,29 to RTGS$5,29 and since a number of products such as bread use sugar as a raw material, bread makers also increased the price.
Mr Mutashu said it had become imperative for basic commodities producers to be assisted with forex by Government to keep prices low and cushion consumers, the bulk of whom have not received pay increases even by companies that have raise prices of their products.
“I remember a lot of basic goods manufacturers used to get a lot of support (from Government) but right now, almost everyone is being directed to the interbank where sometimes foreign currency is not available.
“So what it means is that we are leaving the supply of basic commodities to the vultures of market forces and the consumers will certainly become vulnerable (and) we believe that there can be a way that can be worked out to try and ensure that the suppliers and manufacturers of basic commodities are supported,” said Mr Mutashu.
Mr Mutashu said Government intervention in supporting the production of basic goods would allow citizens to “continue to have a decent living”.
It remains to be seen if the manufacturers, once they start accessing forex from Government, would reduce prices, and more importantly, ensure that everything produced from those funds is not diverted to the parallel and foreign markets.
Some industrialists previously came under fire for exporting products that would have been produced using Government funds, leaving the local market having to contend with a few highly priced goods.