Government flirts with price controls

Government flirts with price controls
Industry and Commerce, Minister Mike Bimha

Industry and Commerce, Minister Mike Bimha

PRESIDENT Robert Mugabe’s government this week announced a major step towards price controls, placing 16 products under a monitoring list and triggering fears of imminent shortages.
Although the move evoked memories of the ruinous 2007 price controls by government, the country’s biggest business grouping, the Confederation of Zimbabwe Industries (CZI) says industry had been consulted on the latest move.
“With immediate effect, the manufacturers of the 16 identified products are expected to publish the recommended prices of their products on a fortnightly basis. In an effort to safeguard consumer rights, the Consumer Council of Zimbabwe (CCZ) will also publish prices of basic commodities as they observe them through their regular surveys and intensify consumer education,” Bimha said at a press conference in Harare on Monday.
“The information on prices provided to the consumer will help them make informed decisions.”
Products on the government price watch list include cooking oil, sugar, laundry soap, cement, fuel, flour, rice fuel, milk, eggs, salt, beef, chicken, washing powder, bread and mealie meal.
Prices of basic commodities and foodstuffs have risen sharply over the past few months, as a foreign currency shortage intensifies. Zimbabwe’s productive base has collapsed, and the country relies on imports to meet most of its basic needs.
The price spike has prompted Bimha has to threaten to revoke the licences of companies that “unjustifiably” hike prices.
“When companies operate, they operate on the basis of licencing and permits, which government has a leeway to withdraw if a company is not behaving as required. However, we do not want to come up with measures that punish everybody and yet they are probably few, it’s better for us to be able to identify the culprits and deal with them,” said Bimha.
CZI president Sifelani Jabangwe said it was imperative for the government to come up with some mechanisms to protect the consumers, considering events of the past few months.
“What was not explained is that the announcement by Minister Bimha was part of discussions involving the government, the Reserve Bank of Zimbabwe, producers and the Consumer Council of Zimbabwe,” Jabangwe told The Financial Gazette yesterday.
“We all agreed to a price monitoring system on the 15 products as long as, on one hand, government and the central bank ensures continuous supply of foreign currency towards the import of raw materials and, on the other hand, the producers will keep the prices stable,” he added. 
Confederation of Zimbabwe Retailers president Denford Mutashu said while he understood government’s intentions to stabilise prices and protect consumers, there was need to identify the root cause of price hikes.

CZI president, Sifelani Jabangwe,

CZI president, Sifelani Jabangwe

“Price hikes are an indicator that the economy is not well and there’s need for a holistic approach to solve the current foreign currency shortages and increase production,” Mutashu told The Financial Gazette.
“When government makes it easy for companies to increase production, prices will automatically tumble. The recent price increases show that there’s a shortage somewhere in the economy,” he added.
Mutashu noted that price controls, which the country also imposed 10 years ago at the height of hyperinflation, distort market conditions and lead to shortages.
“Price controls have never worked in our economy and we are not sure if they will work in the current context. They are short term solutions and the country requires a long-term strategy to deal with foreign currency shortages,” he said, adding that prices are determined by laws of demand and supply in an open market.
In June 2007, Mugabe’s government embarked on an operation to control prices of all goods sold, slashing them by half or more.
Police officers were issued orders to throw business owners in jail if they did not comply and seize their businesses if they dared to shut their doors.
Within a couple of weeks, businesses collapsed while hundreds of business owners were jailed. Inflation worsened as food shortages became the order of the day.
Faced with the recent price hikes in the past six months, government looks to resort to type and seek to control prices.
Economic analyst Francis Mukora says the latest move shows the ZANU-PF government has not learnt from its past mistakes.
“The imposition of price controls on a well-functioning, competitive market harms society by reducing the amount of trade in the economy and creating incentives to waste resources,” Mukora said.
“Many researchers have found that price controls reduce entry and investment in the long run. The controls can also reduce quality, create black markets, and stimulate costly rationing.”

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