We can kill the black market

29 Oct, 2017 - 00:10 0 Views

The Sunday Mail

Sifelani Jabangwe
By acknowledging that the black market is there, Government should closely monitor it. Whenever wild swings start, it can be taken as a signal that someone or something is tempering with the market through unusual activity.

The Confederation of Zimbabwe Industries believes increasing foreign currency parallel market rates and social media messages sparked panic-buying on September 23.

Some of the messages insinuated the economy was about to crash, and that goods would disappear from shop shelves; something CZI strongly disputed.The Confederation of Zimbabwe Industries believes increasing foreign currency parallel market rates and social media messages sparked panic-buying on September 23.

Panic-buying mainly happened on Saturday and Sunday when most factories were closed and management teams were away. Therefore, replenishing stocks after this extraordinary occurrence was only able to start on Monday, September 25, 2017.

We once again reassure the nation that the situation was and is not similar to that of 2007/8. There shouldn’t be panic as our members are producing goods.

More importantly, fundamentals of 2007/8 and those obtaining in 2017 are totally different.

In 2007, there were very little forex inflows from gold, with production at its lowest at four tonnes.

Most mines were under maintenance, too. We also did not have a lot of maize due to drought.

On the other hand, we had a bumper harvest of maize and other crops in the 2016/17 summer cropping season, and gold production is targeted to hit 26 tonnes.

Mines for major minerals are operating and expected to increase revenues.

CZI believes panic-buying was also due to inadequate confidence by the market; that is low confidence in the economy and industry’s ability to keep supplying goods.

We called an urgent meeting of the CZI National Council to discuss this issue, and plan how we could contribute to stabilising the situation.

It was agreed that the only way to get that confidence back to the market was to replenish shop shelves, which hoarders and speculators had cleared.

This is what CZI members did.

In one incident, a sugar supplier found a retail store in Chivhu that had run out of sugar. However, the product was being sold from a rogue trader’s truck at black market prices just outside the shop.

The sugar company’s managing director called his factory and directed one of their trucks that was going to deliver sugar elsewhere to first cater for that shop in Chivhu.

And that was enough to force the rogue trader to slash his price.

Analysis post-September 23

Prices of large manufacturers did not change, but rogue traders were buying these goods from shops using “swipe” and reselling them at higher prices in streets and tuckshops.

Producer prices for basic commodities such as sugar, milk, beverages, bread and mealie-meal did not change.

I really don’t know why people are crying when the essentials are still at the same prices.

Challenge me if bus fares have changed to a dollar anywhere. We can’t make noise over foam bath and other luxuries that are beyond the reach of many.

Due to general low allocations of forex to finance raw material purchases, stocks of basic commodities were low but adequate for normal consumption patterns.

On September 23, there were enough sugar stocks to last a year, so panic-buying was unnecessary. The only delay in supply had been in waiting for the sugar to be delivered from the Lowveld.

Edible oil stocks were the lowest, hence, this product was the first to be cleared off the market when panic-buying started.

Panic-buying also affected fuel as motorists, who normally buy fuel for US$3, US$5 or US$10, started buying full tanks, with some hoarding at home.

We believe this strained the fuel delivery system.

In addition, opportunists joined the confusion around fuel to block some fuel stations with their jerry cans.

This brand of panic-buying occurred in the third quarter of the year when the country is generating its lowest forex inflows as tobacco auction floors will be closed.

The greatest demand for forex occurs three to four months from year-end as companies pay for goods that have to be delivered in time for festive period sales. In 2017, there has also been greater demand for forex as more companies were increasing output.

The Reserve Bank of Zimbabwe is receiving inadequate forex, so only large companies are accessing forex from official allocations.

Most smaller companies that are unable to import inputs directly due to forex challenges and are, therefore, accessing inputs from third party distributors who get forex from the black market.

This situation, together with actions of aggressive buyers on the black market, resulted in prices of goods acquired by these smaller organisations also going up, tracking the black market rate.

Wild price swings were seen on wholly-imported goods such as hardware products, some medicines and fabrics.

We believe the root cause of the challenge was/is inadequate forex in the official system for distribution to importing sectors.

The forex shortage was worse between August to March.

This results in enterprises that do not receive forex choosing to either close shop or acquire expensive inputs paid for using black market forex.

This situation leaves the nation prone to wild price shifts when black market prices shift. And this only happens when a very large buyer goes onto the market.

These wild swings cannot be mitigated if Government does not have forex at hand.

It would be possible to control these swings by injecting more currency into the system, but this can only be done if authorities have something in their hands.

By acknowledging that the black market is there, Government should closely monitor it.

Whenever wild swings start, it can be taken as a signal that someone or something is tempering with the market through unusual activity.

Action can be taken to identify who it is or what it is, and action can be taken to inject more forex into the system to stabilise it.

Black markets arise as a result of shortages of a particular commodity, in this case, forex.

The black market is a symptom of shortage.

Just as a headache maybe a symptom of malaria, painkillers will only neutralise the headache but not the underlying problem.

So, we need to deal with the root cause.

The only way to deal with the black market is to supply extra units of the required commodity.

Sensitive product manufacturers should get foreign currency from the official system.

Those who require large sums of forex should be kept away from the black market as they can cause shifts in rates.

Multi-tier pricing is being seen mainly on wholly-imported finished goods such as hardware or goods with high-import content.

Investigations revealed that the source or root cause of this was also black market traders.

They offer different rates, depending on how one is paying for the currency.

A lower rate for bond notes, a higher rate for mobile money and the highest rate for RTGS payments.

We could not establish why this is so — whether it’s because of timing issues or the market is putting a value in proportion to the type of currency to the USD currency on the market.

Wild price swings were not seen in locally-produced goods as import content is only a small proportion.

So, locally-produced goods help reduce forex required and goods’ susceptibility to price changes due to currency rate fluctuations.

Recommendations

The root cause is forex shortage. We also must be proactive to the cycle of our forex inflows throughout the year.

Our inflows fluctuate from high to low, with heavy influence from the agro sector. We need to address this by finding a tool to manage the low trough in the forex supply cycle every year (August to March), for instance, the Nostro Stabilisation Fund or, preferably, increasing national exports. (Immediately to medium-term)

There is need to promote greater growth of exports aggressively in all sectors. (Medium to long-term).

There is need to scrutinise and better allocate available forex in line with priority lists. Reconcile between banks and the RBZ. (Immediate)

As CZI, we are also looking to go on a campaign to showcase the positive effects of the various Statutory Instruments which are now under SI 122.

The actions above show that we could kill the black market within a year and assure the nation of adequate supply.

However, we must also consider that the economy is growing; the requirements for forex will keep growing as well.

With all these challenges we are going through, the economy is in a very strong state compared to most prior periods.

All challenges can be managed as long as we take well-researched interventions. With 2017 only two months from the end, we believe we could even assess how the economy has performed this year, looking at indicators such as:

  1. Gross forex inflows for the country have grown by 48 percent. We have, so far, had a narrowing of the trade deficit by 26 percent;
  2. Various achievements in the manufacturing sector, including new local and foreign investments;
  3. Achievements in tourism such as completion of Victoria Falls International Airport;
  4. Completion of the Tokwe-Mukosi Dam, achievements in agriculture such as the bumper maize harvest; and
  5. Progress in the energy sector.

The result of the assessment should be a positive mark, indicating that all stakeholders have done well in 2017.

 

Mr Sifelani Jabangwe is the president of the Confederation of Zimbabwe Industries. He was speaking to The Sunday Mail’s Livingstone Marufu in Harare last week

 

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