Business leaders in Zimbabwe are concerned that President Emmerson Mnangagwa’s administration is seeking to institute price controls after the cabinet resolved on Tuesday to engage manufacturers, retailers and other businesses over the current spate of price increases sparked by continued loss in value for the local currency.
Zimbabwe’s local unit of exchange has been nose-diving in the past few weeks, plunging to $1:ZWL2200 on the parallel foreign exchange market this week, compared to nearly half of that value on official channels. This has sparked a new wave of daily price increases for goods and commodities as businesses seek to pass on the impact of an imploding exchange rate to consumers.
“The cabinet is concerned by the spiralling prices of the 14 basic goods especially bread, flour, cooking oil and mealie-meal. The Minister of Industry and Commerce is already engaging the concerned stakeholders including manufacturers, wholesalers, retailers and other associations on the matter,” Mnangagwa’s administration said after a cabinet meeting in Harare, the capital on Tuesday.
A cabinet committee, comprising of ministers drawn from the Industry and Commerce, Finance and Economic Development and ICT has now been set-up to look into the price increases “to ensure corrective measures” will be taken.
Amid the continued loss of value in the Zimbabwe dollar and the spike in prices, Zimbabwe calculated the April year on year inflation rate at 75%. Zimbabwe now uses a blended basket of local currency and US dollar pricing to calculate inflation.
“The blended inflation rate is useless because it does not recognise the reality of the fast-paced increases in the local currency prices. It leans heavily and speaks to a better inflation trend with the US dollar pricing that is now more common… it’s worrisome that the government wants to control prices when things are like this,” an executive with a large manufacturing company in Zimbabwe, said.
Former finance minister, Tendai Biti, said there has been “rampant rejection of the local currency in the market” with manufacturers “openly rejecting” the local currency.
Economic analysts say “inflation in Zimbabwe has reached an alarming level, with the price of everyday items like Nivea cream skyrocketing to Z$42 899 a jar, equivalent to US$38”. The situation is worsened by “poor policy-making, rampant looting, and misuse” of state resources, they said. Zimbabwean businesses have been calling for improved policies that allow them to trade in a stable currency such as the US dollar.
“Trading in foreign currency since April 2020 has allowed our retail chains to improve stock assortments, which in turn has increased traffic in our stores. While a sizeable portion of our cash sales are in foreign currency, we believe that this proportion can be increased through favourable and consistent application of regulatory policies around trading in foreign currency,” Themba Sibanda, chairman of Edgars Zimbabwe said.
Zimbabwe’s central bank this week introduced a digital token backed by gold, which it says will help provide an alternative store of value instrument to US dollars.
The digital gold coin will also be usable as a means of payments settlement in Zimbabwe’s bid to contain inflation by tying the new unit of exchange to bullion held by the central bank.
The International Monetary Fund (IMF) has, however, cautioned Zimbabwe against usage of the digital gold coins to contain a run-away exchange rate. A Bloomberg report quoted the Bretton Woods institution saying, “a careful assessment should be conducted to ensure the benefits from this measure outweigh the costs” and potential risks.
The IMF cited macroeconomic risks, financial stability risks, legal and operational risks, governance risks (and) cost of forgone FX reserves as the likely negative consequences of Zimbabwe’s newest measure, digital gold coins, to fight inflation and its currency volatility.
BUSINESS REPORT