Robin Muchetu, Senior Reporter
THE Government will soon meet the business sector to understand the rationale behind a spate of price increases in both local and foreign currency that are threatening to reverse economic gains made so far.
Some unscrupulous businesses responded to the Government’s announcement of Statutory Instrument 127 of 2021 by effecting price changes that have eroded most people’s incomes. The SI was introduced to plug abuse of foreign currency that companies were sourcing from the Reserve Bank Foreign Currency Auction system.
Among other issues, the SI states that businesses can now be fined for issuing local currency receipt for goods purchased in foreign currency, pricing goods and services above the ruling exchange rate, pricing of goods only in foreign currency and using the money obtained from the auction for other purposes other than what the supporting invoices on the bid stated.
Finance and Economic Development Minister Professor Mthuli Ncube told Sunday News on the sidelines of a meeting with miners in Bulawayo yesterday that local businesses tend to abuse laws to profiteer and abandon the good intentions that the laws sought to achieve.
“We will engage the private sector players to try to understand what the issues are that would have caused them to behave in this manner. We thought we had reached some kind of equilibrium in terms of where the economy is, stabilising the exchange rate, and inflation heading downwards. We will engage them to find out how we can work better together and also that they respond better to policymaking.”
A survey carried out by the Sunday News in Bulawayo since last week revealed that the pricing of basic goods and services largely increased in local currency and US dollar terms. In addition, some shops continue to base their prices on black market rates.
A loaf of bread that cost $95 now costs $101 in some retail shops, a pocket of potatoes which was selling for $900 now costs $1 300, a bar of washing soap has moved to $104 from $0,95 while 2litres of cooking oil now costs $430 from a region of $350. A 10kg bag of mealie meal is now selling at $600 from around $550 and 2kg of self-raising flour is now going for $215 from a region of $180. There has also been an increase in prices in hardware shops. Prof Ncube said it was clear that business were abusing the SI to profiteer and create confusion.
“The idea was very simple, that those that are accessing foreign currency on the auctions are using it for the right purpose. We intended to create a level playing field to protect the consumer just to ensure there is compliance with the auction rate and that the auction rate does not become a source of profit for speculators.
That was the idea. We wanted to bring sanity and compliance to the economy. But others have rather abused it and started increasing prices in United States Dollar (USD) terms and some even in Zimbabwe dollar terms,” he said.
However, despite the law, some retail outlets are still to regularize their pricing systems to conform to the SI.
Previously, some business people were charging goods in foreign currency and issuing local currency receipts which is illegal and now a chargeable offence.
The president of the Confederation of Zimbabwe Retailers Association, Mr Denford Mutashu, said the SI 127 was introduced without much unpacking, leaving consumers and retailers making their own interpretations.
“The increase in prices is predominant in the informal retail and wholesale sector while the major players have not increased prices; they have continued to sell at the prices they had before the introduction of S1 127. What I have observed is that while they have not increased prices some have stopped accepting USD. I have seen furniture, hardware, clothing retailers and wholesalers having a huge spike of between 50 to 100 percent price increases. I take that to be defensive pricing that always comes through on the market as players will be trying to adjust and interpret the policy accordingly,” he said.
He said some suppliers and manufacturers have also started limiting goods.
“It’s a bit worrying because they are also trying to interpret and adjust to the policy and during that transition no one wants to lose out on the exchange rate losses that may be experienced.”
He said the biggest problem was that not all companies were accessing foreign currency through the RBZ hence the price increases are also a direct response to where they are sourcing money to restock.
“Even big institutions cannot get all the foreign currency requirements on the system so the blending that then takes place is that if they get say 60 percent of their forex from the auction, then 40 percent is likely to come from the parallel market. It then becomes impractical for them to be able to sell at ZW$84 to US$1,” he said.
Mr Mutashu said there was not enough unpacking of the intentions of the SI hence the panic in the market.
“We actually wanted a dominant narrative to say there have been businesses double dipping (getting forex on the RBZ auction and then selling goods using black market rates). There is still a need for the policy to deal with this double dipping because formal businesses will suffer more.”
The issue of price increases has spilled into Parliament and last week parliamentarians voiced their concern over the issue. They argued that Government should in fact name companies that have been abusing foreign currency obtained from the RBZ. They were also calling for the Finance Ministry to name and shame the abusers of the system and bar them from accessing forex through the auction system. They also wanted to know the monitoring mechanisms that have been put in place to ensure that there is compliance.
In his ministerial statement to Parliament last week over the SI, Finance and Economic Development deputy Minister Hon Clemence Chiduwa said the SI was meant to promote market discipline which is a key anchor of the price and financial stabilisation strategies. He said Government will ensure that the law is followed and that perpetrators are brought to book.
“The banning on cross-currency receipt issuances where goods are sold in USD$ and receipted in ZW$ ensures that vulnerable consumers are protected. This is in line with standard Consumer Rights and expectations in the region and elsewhere.
The widespread abuse of the auction platform through arbitrages will be eliminated by making sure that banks adhere closely to KYC and due diligence procedures,” he said.