Concern over new price controls

The Zimbabwe government's decision to impose a new set of price freezes would create shortages and an increase in smuggling, an economist told IRIN on Monday. The state-controlled Herald newspaper reported the government-gazetted six-month price freeze on a long list of products to cushion consumers against rising prices and an inflation rate that hit 144 percent in October. The list includes fuel, all meat products, dressed chickens, salt, vegetable oils, fats and sugar. It also covers alcoholic beverages and household items like soap, candles and toilet paper. The price of building materials and blasting explosives and accessories for the mining industry as well as vehicles and their accessories would be controlled. There was also a freeze on the price of all agricultural tractors and implements as well as chemicals, veterinary products and maize, barley, soya-bean, sorghum, wheat, groundnut and sunflower seed. But while people questioned in a subsequent snap survey by the newspaper lauded the move, economist Tony Hawkins said the government's price controls introduced in October 2001, when inflation was at 70 percent, had had no effect. "It did nothing except create shortages. Price controls meant that goods were either not being produced [because manufacturers were not recouping costs], goods were sold on the black market at higher prices, or they were being smuggled over the border," he said. "Deliveries of sugar to Mutare doubled but there was no sugar for sale in the town - it was being sold across the Mozambique border at higher prices," he added. Hawkins said that Zambia's former president Frederick Chiluba complained that his country had lost almost one-third of their cement market to smuggling or dumping from Zimbabwe. In addition, he said the announcement during Finance Minister Herbert Murerwa's budget speech last week that all bureaux de change would be closed, would make it more difficult for businesses to access the foreign currency they needed. Zimbabwe's foreign currency shortage has seen businesses driven to the bureaux de change "parallel market" in search of the hard cash to pay for imports or raw materials. In the hopes of stopping a currency freefall, the Zimbabwe Reserve Bank (ZRB) fixed the exchange rate at US $1 to Zim $55 in October 2000, but shortages have seen the parallel rate fluctuate at over Zim $1,500 for US $1 over the last fortnight. The government's move to close the bureaux would force businesses to apply to the ZRB for currency and the bank would have to decide whose application was approved, Hawkins said. This comes alongside the government forcing companies to surrender half their foreign exchange earnings to the ZRB. "Price controls and shutting the bureaux de change will destroy businesses and it will drive the parallel market onto the street corner," Hawkins said. The Commercial Oil, Grain and Cereal Producers Association said that while it welcomed the price fix on seed, there needed to be a corresponding price fix on production inputs. The association's general manger of commodities, George Hutchison, said shortages would still drive prices over the fixed rate and manufacturers would not sell their goods at a loss. "With agricultural chemicals, importers use foreign exchange to bring them in and they won't sell their goods at a loss and they either remove it from the market, or we have to pay the asking price. If we had a real exchange rate we wouldn't have this problem," he told IRIN. "If you're desperate you have to pay the asking price. If the government could control prices right through the [production] chain, it might work, but not in a shortage situation. The only people who benefit are the middle men," Hutchison said. In their latest situation report, the World Food Programme said farmers reported shortages of seeds, fertiliser and fuel. It warned that if fuel shortages continued, it could pose difficulties for the commuter transport system with implications for heightened food insecurity in rural as well as urban areas.