‘We have to kill the black market’

Zack Murerwa

PRESIDENT Mnangagwa met members of the business community in April this year and expressed his displeasure over the unwarranted price increases of basic goods and services.

He rightfully appealed to them to have a conscience and consider the plight of the average person in Zimbabwe. We were excited when the response from the business community was that of a price moratorium.

However, it was partially implemented.

The average person continues to bear the brunt of these price increases and what we have seen in the last two weeks is shocking.

The President being conscious of the impact of price controls warned businesses that they should not force him to roll out legislative interventions.

The business community is a major player in the economic matrix of any nation.

Yes, business has to survive and has to be viable but there must be an economic justification for price increases.

Price increases have a ripple effect on inflation and this is currently our major challenge.

The issue of a manageable and reasonable exchange rate is key, and monetary authorities must endeavour to have robust and practical modalities of managing black market rates.

We have gone through various foreign currency management systems in the last five years but these have not achieved the desired results.

Some players continue to be in the playground of speculative tactics, manipulation and financial indiscipline — all of which have significantly contributed to the current economic discourse.

Government has remained open to dialogue and suggestions but all players must be honest and committed to ethical business principles. We must not be what the President last week described as “elite opportunists and malcontents”.

Political rhetoric put aside, let us take an economic self-introspection and get out of the abyss of economic opportunism.

It is only the ordinary person who will suffer. As Zimbabweans we have to do the correct and empirically acceptable economic behaviour — we have to kill the black market.

We have to focus on productivity as opposed to speculative behaviour and we must take pride in our national currency and preserve it.

We have the intellectual and human resource capacities.

Together we can put a stop to the current price increases which are inflationary in nature and are affecting the purchasing power of the worker and average lifestyle of our citizens.

Zimbabwe is a country whose economic activities have been hit left, right and centre by undesirable issues such as corruption, economic blockades and sanctions, and natural calamities such as droughts, cyclones etcetera but we need to move on for the sake of the generality of our people.

People need to earn a living and Zimbabweans are hard workers whose efforts are being undermined by the aforementioned issues.

However, I have no kind words for those fuelling the current price increase madness which inevitably results in hyperinflation as a vicious cost recovery cycle is created.

This also causes the serious erosion of the purchasing power of the local currency, perpetuation of a nefarious foreign currency exchange rate, an undesirable Consumer Price Index and an inevitable demand for a continuous adjustment of wages and salaries.

Business, labour and Government must sit, as a matter of urgency, using the platform of the Tripartite Negotiating Forum (TNF).

There is now a need for a social contract whose terms and conditions must be binding on all parties.

Convening TNF meetings to discuss minimum wages will not address the root of the current challenges as I can assure you that within a short period parties will be forced to negotiate again.

We already have the legislative framework in the form of the Tripartite Negotiating Forum Act and parties can agree to price freezes on selected goods and services for specified periods.

I would recommend a situation where the agreed freeze would be legislated together with penalties or deterrent mandatory sentences for violators.

This will work better than a gentleman price moratorium.

Obviously, implementation of such a system needs strict monitoring which includes inspections by relevant arms of Government and local authorities.

From an economic perspective, immediate reactions will be shortages of some commodities on the formal market, underhand dealings, resurgence of the black market etcetera, but I believe these can be managed.

In any case these will be the labour pains before the child is born.

My assumption is that a commitment by all social partners and improved market information systems will be necessary to make these interventions a success.

The next key issue is productivity in order to ensure availability of goods and services.

Investment interventions in key sectors such as agriculture, mining, manufacturing and tourism will improve competitiveness of domestic production and availability of goods and services at affordable prices.

Insufficient growth in production will lead to higher and more volatile prices. Incentives in the form of tax concessions and subsidies can be rolled out to specific players who will have achieved set targets.

This has been successfully done in countries such as Indonesia and Malaysia.

We have heard the clarion call for increased productivity in both monetary and fiscal policy pronouncements in this country, unfortunately what we have lacked are specific interventions to make this a reality.

Productivity reduces in the long run, demand pushes inflation, which normally occurs when aggregate demand is growing far much more than supply.

For now in Zimbabwe we are experiencing cost-push inflation where firms respond to rising costs by increasing prices in order to protect their profit margins.

Rising costs are mainly due to cost of raw materials, labour and foreign exchange costs. Experience has shown that improved productivity and efficiency can help to reduce these costs.

We cannot ignore the issue of an unsustainable exchange rate especially on imported goods.

A high exchange rate will mean the price you pay for imports will be high and logically the cost is passed to the consumer.

We somehow have turned a blind eye to black market exchange rates and have appreciated an official exchange rate which regrettably has not been fully functional.

I am of a considered opinion that the Reserve Bank of Zimbabwe must extensively do research on this topic and then come up with a realistic and manageable exchange rate system.

Difficult yes, but possible!

 

Zack Murerwa is an economist and consultant. Feedback: [email protected].