The Sunday Mail
GALLOPING prices of goods and services in tuckshops and other retail outlets are literally causing many people sleepless nights.
The anxiety and angst that comes with the feeling of being hapless is simply unbearable.
It is worse for those in formal employment who have the ignominy of witnessing the painful spectacle of employers constantly reviewing prices even as their own miserable wages and salaries remain stubbornly static.
This is the sort of thing that drives people nuts.
Except that this is not a new phenomenon.
We have been down this path before.
Last year, the exchange rate seemingly wildly spun out of control before authorities put their foot down through a series of interventions that reined in the hitherto unregulated mobile money market — where speculators had found a comfortable home — and introduced the foreign currency auction market on June 23 to coax demand to a much more formal market.
It worked miracles.
The exchange rate, and by extension prices, were instantly brought under control, and so too was inflation, which tumbled dramatically from the vertiginous 838 percent in July last year to the current 51,5 percent.
The resultant relief was apparent.
But we are now back in the throes of another tumultuous period.
As is often the case, hysteria, anxiety and angst have since set in.
It reminds Bishop Lazi of Mark 4:35-40 when Jesus had to calm his disciples who thought that their boat was about to capsize after an unexpected tempest.
“That day when evening came, he said to his disciples, ‘Let us go over to the other side.’ Leaving the crowd behind, they took him along, just as he was, in the boat. There were also other boats with him.
A furious squall came up, and the waves broke over the boat, so that it was nearly swamped. Jesus was in the stern, sleeping on a cushion. The disciples woke him and said to him, ‘Teacher, don’t you care if we drown?’ He got up, rebuked the wind and said to the waves, ‘Quiet! Be still!’ Then the wind died down and it was completely calm.
“He said to his disciples, ‘Why are you so afraid? Do you still have no faith?’”
Aberrations
If you are to believe some self-anointed experts, the current pain that is being felt in the market is being solely caused by a rigged foreign currency auction that is promoting an artificial exchange rate and failing to satisfactorily meet demand.
The exchange rate is currently hovering around US$1:$88,5 on the auction, while, until recently, approved allocations were taking time to be settled.
However, on the parallel market, settlements are instantaneous, while rates are averaging more than US$1:160, which represent a premium of close to 100 percent.
Arbitrage has naturally followed and companies, including those that are benefitting from the presumably discounted rates on the Reserve Bank of Zimbabwe (RBZ) auction, are indexing prices of goods and services to parallel market rates.
We must, however, remember that the central bank is dishing out considerable amounts of foreign currency — in fact, more than US$40 million — at the auction every week.
But the experts argue that the solution to current aberrations in the market lies in the wholesale liberalisation of foreign currency trading and the exchange rate, which would supposedly allow banks to trade the US$1,8 billion they are sitting on.
It is envisaged that more than US$2 billion could become readily available to the market at fair value and help stabilise the Zimbabwe dollar. Well, this seems to be a reasonable suggestion, except that things are not always as simple as they are made out to be. Reforms are never easy. From where the Bishop stands, the obtaining foreign currency auction —however inchoate and imperfect it might seem — is seemingly a hybridisation of both Government intervention and private-sector involvement.
But what is not in dispute is the fact that through it, foreign currency has been successfully channelled to productive sectors at a reasonable price.
It is not fortuitous that much of the allocations are going towards procurement of raw materials, equipment and other critical items.
Allowing wholesale liberalisation that is solely mediated by the market might have the unintended consequence of funnelling much of the foreign currency to cliques and cartels that have the wherewithal mop up the available forex.
Seven months of pain
The Bishop decided to share his views on this hot subject after some forceful and passionate debates by his countrymen on social media platforms.
Unfortunately, most views shed more heat than light.
As Bishop Lazi said before, reforms are never easy and can sometimes lead to “cataclysmic upheaval”.
If possible, you should read the book “China Emerging: How Thinking about Business Changed” that was written by Wu Xiaobo.
You see, when Deng Xioaping decided to industrialise and modernise China through reforms and opening up after 1978, something curious happened in 1984, as industries began running out of raw materials.
In order to protect State-owned enterprises (SOEs), authorities decided to adopt a “two-track price system” for raw materials, which essentially prescribed one price for SOEs while prices for private companies were largely market-driven.
As could have been expected, the price differentials resulted in arbitrage, as some officials diverted the cheap raw materials to the private sector for a profit.
Corruption became rife and opportunism became both entrenched and systematic.
The distortions became a subject of debate in China, as some experts, similar to what is happening in our case, pushed for liberalising the prices. The calls became more pronounced in 1988 when Professor Milton Friedman — the first Nobel prize winner in economics — visited China.
As a disciple for “free markets” and “economic freedom”, he told Beijing then: “One should not confuse the release of prices (liberalising) with inflation. If you release prices, only a portion of products will rise in price. People will feel some pain in the first few days but quickly will discover that prices will not necessarily ratchet up.”
After some prodding, China subsequently liberalised in March 1988, and all hell broke loose.
It was tumultuous.
Prices went wild.
In fact, they rose by 95 percent for more than 400 critical products.
This inexorably led to a cycle of hoarding, panic buying, shortages, chaos and anxiety.
In areas such as Shanghai, authorities began rationing goods.
“You could only buy a cooking pot if you brought your old one in for exchange, or if you had a marriage certificate and evidence of your Shanghai residential status,” wrote Wu Xiaobo. Kikikiki.
According to the Chinese State Price Control Bureau, prices actually rose faster in 1988 than in any year since 1950.
By October 1988, the policy was declared a failure and China reverted to its old system.
Lessons
As Zimbabwe tries to navigate its way around the latest hurdle, it must be wary of some of the prescriptions that might seem reasonable but are actually specious.
Clearly, it would have been naïve not to expect the rate to move, especially with the money — estimated at $64 billion —that is being doled out to farmers as a reward for delivering a bumper harvest.
It is unquestionable that a significant chunk of some of these funds is chasing the greenback as farmers seek both a store a value and a relative convenient currency to finance other forex-denominated expenses.
What is most important, however, is the fact that the shocks are transitory.
Our economic fundamentals remain as strong as they have ever been in any time in our recent history.
Exports are rising, production in industry is up, the budget is in good shape and reserves are building up.
This is a solid foundation for our inevitable success. It also ordinarily puts us in good stead to defend the stability of the local currency in the medium to long term.
Punitive action against those involved in attacking the local currency, including frog-marching them to prison, should not be an exception, but a norm, as is the case in other jurisdictions.
It should not only happen when rates flare up.
As Bishop said before, reforms are not easy.
An article titled “Historical Direction of China’s Reform” written in the People’s Daily during the time of China’s episodic economic upheaval made the important observation that: “Reform is a particularly complex form of social systems engineering.
One cannot draw up a seamless plan in advance and then simply implement it, for the process involves ongoing change. In the course of the ongoing adjustments, friction and conflict between different interest groups is going to be unavoidable.”
But make no mistake about it, while the current upheaval in the market might be heady and a bit unsettling, the sky is not falling.
It will be fixed.
Why are you so afraid? Do you still have no faith?
We shall overcome!
Bishop out!
