Price controls result in shortages and lay-offs

"It is common knowledge that price controls lead to shortages of the very commodities we would like people to access," Malvern Rusike, chief executive of the Confederation of Zimbabwe Industry (CZI) told IRIN. "It is futile to try to address the symptoms of the economy’s problems and avoid the real issues, nor does it make sense to control the price of the end product whilst key input prices are market determined."

President Robert Mugabe said on Monday that he would press ahead with price controls introduced last week on bread and other commodities to curb soaring prices in the midst of Zimbabwe's worst economic crisis since independence. Mugabe warned that the state would take over any businesses that closed if they blamed their closure on price controls. But Jacob Dube, president of CZI, said that such policies ignored economic realities. "If there is no re-negotiation of the controls that have been put in place ... most likely almost all the bakeries in the country will close," he told Reuters.

A breakdown of bread production costs prepared by the CZI, including amounts for raw materials, labour and transport, showed that a loaf costs 52 Zim dollars (97 US cents) to produce, but that government controls meant it had to be sold for no more than 44 Zim dollars (82 US cents). "There will be no bread on the shelves. These guys (industrywide) are taking a knock of about 1.8 million Zim dollars (US $32,700) loss per day. There's no business that is prepared to carry that loss," Dube told a news conference. In a statement, the CZI pointed out that policing the new regulations would mean more government expenditure as an army of price inspectors and monitors would have to be recruited.

The 'Daily News' reported on Wednesday that bakeries in Harare had laid off hundreds of contract workers as the price controls had led to them incurring heavy losses. Many faced imminent closure soon after using up current flour stocks. A production manager at a city bakery, who refused to be named, said: "We are incurring heavy losses every day and we cannot continue producing bread under the prevailing circumstances. As a result, we are down-sizing our operations and doing away with contract workers."

Since the beginning of the year, the price of flour had gone up every month by between 10 and 20 percent, he said.
"Our business is no longer sustainable and the allegations of profiteering are baseless because of the hyper-inflation, now hovering at about 86 percent," the manager said. Mark Prior, chairman of the National Bakers’ Association of Zimbabwe (NBAZ), said bakeries were producing and selling bread at a huge loss. Prior said millers and bakers were still waiting for the government’s response to an appeal for a review of the pricing so that all parties could get a better deal.