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Price controls backfire again

[Zimbabwe] Tracy with her daughter attending to a customer.
Most Zimbabweans depend on informal traders for their supply of essentials (IRIN)

Parallel markets are booming, businesses and industries are buckling and consumers are paying the price as the Zimbabwean government's attempts to forcibly control runaway inflation backfire.

In the face of soaring hyperinflation, President Robert Mugabe's government ordered a 50 percent cut in the prices of basic commodities last week. Defiance of the order was seen as a move to topple Mugabe and businesses were raided and threatened with closure on Monday 2 July.

John Robertson, an economist based in the capital, Harare, told IRIN: "Consumers are getting the worst end of it. While they had every reason to be happy when the government ordered price slashes, that happiness is fast waning, because the attempt to militantly control prices is boomeranging."

The government set up a taskforce to monitor and enforce compliance but a mid mid-June salary increase for civil servants, which topped 600 percent, sent the prices of basic commodities, clothing and transport fares shooting up.

Mugabe accused industry leaders of attempting to discredit his government ahead of next year's elections, calling them "snakes" and threatening to nationalise businesses that refused to comply.

Co-Vice-President Joseph Msika told mourners at the burial of a top military official and liberation war veteran in Harare that prices "are increasing in the morning, afternoon and evening", and the government would not allow business and industry, which he described as "sell-outs, renegades and money-mongers", to "sabotage" the economy.

"Their [business and industry] actions call for retaliation. We will uproot this rot within us, and if they don't agree they should close shop, or we will do it for them and take over their businesses," Msika said.

Many commodities on the controlled list had already disappeared from shops, but those available at reduced prices drew stampedes of consumers looking for a bargain, or to resell at a profit on the parallel market. Everyday commodities like sugar, cooking oil, bread, meat and maizemeal have become increasingly scarce.

The power of the parallel market

Robertson warned that the price blitz would boost informal markets as retailers and wholesalers redirected their stock to evade the order. "Price controls have been attempted in the past and by now the government should have learnt the lesson that policing business in that manner helps nothing. The black market takes over and shops remain with things consumers don't need."

The Herald, a government-controlled newspaper, reported last week that tonnes of sugar and huge quantities of other goods had been found stashed away in warehouses. It alleged that a ruling ZANU-PF party senator was among the "culprits" who had been hoarding, and that some retail shop managers were even taking stock to their homes to avoid cutting prices.

According to Msika, businesspeople were removing controlled, locally manufactured goods from warehouses and shops to create an artificial shortage and warned that basic commodity prices would be further reduced.

In the dormitory suburb of Chitungwiza, about 35km south of the capital, a number of butcheries were forced to close after being visited by the police and told to sell at the new lower prices. "Our boss instructed us to stop selling meat because it was no longer viable, since he had bought it at higher prices," said Gilbert Ncube, an employee.

"That will mean I and the other five employees would lose our only source of income," Ncube said, and "instead of the meat being sold under hygienic conditions, it is now out there in the dusty streets where people's health is in serious danger. Stalls selling meat at old prices have sprouted outside shopping centres.

Public transport operators have been unable to comply, arguing that they source expensive fuel on the parallel market. Fuel station prices have not been reduced because owners said they had to buy foreign currency on the informal market, now at Z$120,000 to US$1, to import diesel and petrol.

Industry takes another hit

Industry has been operating at a third of its 2000 capacity, according to the Confederation of Zimbabwe Industry (CZI). "There were signs of hope when a price and incomes stabilisation commission was set up [in May] ... but now that the government has taken such a step, all hope is gone," Robertson said.

"The economy is going to shrink further. There is going to be reduced supply by manufacturers to wholesalers and, in turn, to retailers," he predicted.
"Reductions in operations, shutdowns and layoffs, coupled with reduced investor confidence and, of course, the vicious cycle of poverty, will continue."

Jonathan Siyakurima, a Harare based accountant, told IRIN: "It is clear that, out of panic and the fear that it might lose the presidential and parliamentary elections, due to discontent in an electorate burdened by eroded incomes, the ruling party and government made a rushed decision to cut prices without considering other things; unfortunately, this is not giving us any relief."

He said the government should have consulted business and labour. "To most of us, the problem is not about business profiteering, or conspiring to effect regime change, but the perennial shortage of foreign currency." He doubted the capacity of the government to sustain the blitz, because previous attempts had been abandoned due to the shortage of manpower.

Most Zimbabweans have been left reeling by an annual inflation rate of around 4,000 percent, and unable to cope with steep increases in the cost of essential services such as health, water and electricity, combined with widespread shortages of basic commodities and foreign currency.

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This article was produced by IRIN News while it was part of the United Nations Office for the Coordination of Humanitarian Affairs. Please send queries on copyright or liability to the UN. For more information: https://shop.un.org/rights-permissions

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