ZIMBABWE: Government price controls under pressure

The Zimbabwe government is struggling to keep its price control regime on basic commodities intact in the face of price hikes this week by the country's millers and sugar producers, with
further increases in the offing for next month.

The government has for the second time this year ordered millers to reverse their latest 20 percent rise in the price of flour, and has threatened to gazette the price of bread and flour if they do not comply by next week. The millers have said they would only agree if the government provides the cheap wheat they were promised. Sugar suppliers on Thursday also announced a 20 percent hike, which will have ripple effects throughout the food and beverage industry, analysts told IRIN.

Price controls, in a reversal of the government's free-market policies, were introduced last year on basic commodities following widespread food riots. Producers complain that with inflation running at 50 percent, affecting the cost of inputs, maintaining the government's artificial ceiling is not viable.

"I think it's a loosing battle. I don't think that price controls have been effective," Muriel Mafico of the Poverty Reduction Forum told IRIN.

"The government's dilemma is that on the one hand they want to liberalise, and on the other they want to avoid civil unrest."

Zimbabwe's economy is in deep trouble. The International Monetary Fund last month refused to release US $53 million in support funds. The US has reportedly suspended some US $120 million in aid due to human rights violations. Zimbabwe's military involvement in the Democratic Republic of the Congo is also proving to be an expensive and lengthy intervention.

Meanwhile, according to a national human development report, 62 percent of Zimbabweans as a whole live below the poverty line, and 84 percent of people in the rural communal areas.

A poor grain harvest forecast this year due to heavy rains is set to exacerbate the hardship. The SADC Regional Early Warning Unit estimates grain production at 1.5 million mt, well below national consumption of some 2 million mt. Zimbabwe's carry-over stocks of maize are among their lowest levels ever. A similarly reduced harvest across the region would force the government to make expensive grain imports.

Agitation by the country's powerful unions for a new round of wage increases would further damage the government's plans to get the economy back on track, analysts say. The Zimbabwean Congress of Trade Unions has since last year boycotted a tripartite consensus-building national consultative forum involving business and the government as unrepresentative. It is reportedly about to "facilitate" the creation of a new labour party as a direct political challenge to the administration of
President Robert Mugabe.