The abomination of the United States dollar!

By Wendy Nyakurerwa – Assistant Editor

Product mark-ups in neighbouring South Africa range between two to 15 percent while in Zimbabwe businesses charge as they please. One would have thought that the National Income and Pricing Commission (NIPC) would be on the lookout for such price distortions.

A basic economics rule states that there is a direct relationship between the quantity of money in an economy and the prices in that economy.

As the money in circulation increases, so does the prices of goods and services. When people have more money, they are willing to spend more on goods and services and hence prices go up to quench this “hunger” to spend.

This is one reason why Zimbabwe’s inflation sky-rocketed in 2007/8 when former Reserve Bank of Zimbabwe Governor Dr Gideon Gono was frantically trying to satiate the currency appetite by printing more bills.

There were plenty of Zimbabwean dollars in the economy and prices kept shooting up.

Now, just five years after the introduction of the multi-currency system, it seems the country’s pricing policies are already poking inflation, going against economic theory.

As it stands, nothing really valuable can be purchased for less than a dollar, be it bread, soap, a newspaper, etc.

The obtaining extortionist prices are partly a result of mega earnings made by comparatively very few individuals, coupled with an influx of imports.

Hate it or like it, when the market detects that it is “normal” to take home in excess of US$1 000 monthly, prices rise. This is the reason why Zimbabwe is a target market for foreign manufacturers.

With salaries not in tandem with the country’s economic and industrial performance, we simply become a source of foreign currency for non-Zimbabwean manufacturers.

Greedy entrepreneurs see an opportunity to charge ten-fold for products they would have smuggled across the Limpopo. Why? Because the people earn “enough”.

And like the handsomely paid Zimbabweans that we are, we almost eagerly part with the Benjamins because we earn enough, right? After all a “measly” dollar for a loaf of bread and another dollar for half-a-dozen eggs will not dent the pocket of someone who earns US$1 000 every month – or is it US$40 000 or US$230 000?

And so we get a vicious cycle: the employee earns big, too big actually, more money gets into circulation, entrepreneurs peg extortionist prices to milk that money, employee feels the pinch and demands more money, prices scale to dizzying heights and on it goes, round and round.

In the United States, they would say, “Somebody call 911!” while our Nigerian friends would exclaim: “It’s an abomination!”

For it is very clear that something is very wrong somewhere.

Presenting his Mid-Term Fiscal Policy Review Statement recently, Finance and Economic Development Minister Patrick Chinamasa pegged the country’s import bill for the first half of the year at US$3 billion.

Imagine what that $US3 billion could have done for the economy if it had been channelled to crucial sectors while we produced our own goods?

And it’s really tragic because a lot of these imports are not paying duty.

By importing, we are creating jobs for other countries and becoming a nation of warehouses and retail outlets. By increasing import tariffs on some basics, locally produced goods are somewhat protected.

Hopefully the protected local manufacturers will see sense in Minister Chinamasa’s strategy and push for volumes as opposed to high prices.

Product mark-ups in neighbouring South Africa range between two to 15 percent while in Zimbabwe businesses charge as they please. One would have thought that the National Income and Pricing Commission (NIPC) would be on the lookout for such price distortions.

We don’t need the NIPC issuing statements, we expect action to stop the circus and enforce some order.

Between 2005 and 2006, Government created the NIPC and mandated it to investigate, monitor and regulate prices but as the country switched over to a multi-currency system, the State amended the enabling Act to give the commission a monitoring role rather than a regulatory one.

NIPC chief executive officer Mr Esau Ndlovu reportedly admitted, “We as a commission are powerless, we used to have the power to control prices during the Zim dollar era, but since dollarisation the market is now a free market, we are only monitors.”

This is sad because this country’s economy needs active participation, not just “monitoring”.

Maybe the commission must be disbanded as it has no real teeth. After all, its very existence is funded by financially-burdened taxpayers.

Government, through such commissions, needs to intervene to protect consumers from daylight robbery.

We need to correct both prices and remuneration so that they are reflective of our economic situation.

The drive towards the new economy as projected by Finance and Economic Development Minister Patrick Chinamasa when he presented the 2014 National Budget is compromised if the status quo is maintained.

Something has got to give, and soon!

Information, Media and Broadcasting Minister Professor Jonathan Moyo put it into perspective at the Zimbabwe Staff College earlier this year.

“There is the problem of false pricing. We still have the psychology of a pricing model based on the Zimbabwe dollar during the hyper-inflationary era…”

What is the point of getting salary increments when such increases are met by even more spectacular price hikes?

The bigger salary figure tastes so good as one rolls it of their tongue, but the real value remains stagnant, if not lesser. Fortunately, prices have already started to self-correct.

Some employers have cut the infeasible salaries they were paying by as much as 50 percent. This, coupled with the obtaining liquidity crunch, has forced most retailers to adjust their prices accordingly. (The crunch itself is an expression of an importing economy, as all our money leaves the borders rapidly.)

During the first half of the year, prices of most basic goods have declined considerably in sync with the deflationary trends.

A 100ml tube of Colgate toothpaste went down from around US$1,10 to US$0,90; while locally manufactured Olivine Cooking Oil now costs US$4,13 down from US$4,55 for two litres.

In its January-July report, the NIPC reported that prices for peanut butter, milk, brown sugar and washing powder also went down. Maybe things are going back to normal – where the correct value is bestowed on the USD.

 

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