Price Controls are Back!

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Yesterday our esteemed government decided to tackle the issue escalating prices of basic commodities. They decided to respond in the worst way possible. By introducing what are essentially price controls. This has been mentioned a million times before by a million other people so I feel like I am kicking a very dead horse when I say: Price controls don’t work.

They wouldn’t work in economies in much better shape than ours let alone our ailing economy that has been struggling during the best of times. It’s basic economics really. The reason why we are seeing a surge in the prices of basic commodities is that right now demand far outstrips supply.

The situation has been made worse by the current domestic lockdown which has put a damper on domestic production. Normally when domestic production fails or falls South Africa helpfully chirps in as cross border traders rush to satisfy rising local demand for basics such as cooking oil, soap and mealie-meal. Now that is not possible because South Africa like the rest of the world is in its own lockdown.

Clearly, the all-round lockdowns have thrown up bottlenecks that have constrained supply while demand has remained the same or even risen as some people have decided to hoard basics. The government should be working hard to overcome these hurdles and ensure that supply improves.

They could, for example, take on the role of cross border traders and work to import more basics. They could work with the domestic industry to ensure that production is ramped up to reduce the gap between demand and supply.

Corruption, corruption, corruption

One reason why I am so sure the latest price control effort will fail just like the Masimirembwa led efforts during the 2007-8 era is because of corruption. Just as the government has failed to tame the foreign currency black market, it will fail to control prices.

It’s not just because of simple supply and demand. It’s also because those tasked with enforcing are hopelessly underpaid and would be more inclined to receive a bribe than they are to arrest the offenders or enforce the measures.

What are the March prices anyway?

At zimpricecheck.com I try to keep track of prices of various prices including basics in Zimbabwe. One thing I can tell you is that the Zimbabwean retail sector is a mess. Various retailers get their prices through various means and not always directly from the manufacturers who are always operating below capacity. – Garikai Dzoma

A bottle of ZimGold cooking oil sometimes has as many prices as there are branches depending on how that particular branch got hold of that bottle. Oftentimes they have to use a middleman who needs their cut which varies from middleman to middleman as circumstances differ.

The government has ordered retailers to charge prevailing prices before 25 March. All this leads me to ask: What are the March prices being referred to here?

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We are a team of independent analysts whose primary focus is research into the Zimbabwean parallel markets as well as the stock market. We strive to bring you the most accurate rates in the market and our independence means we have no bias on these rates. You need to make your business decisions and we strive to be your best source of information.

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The Lingo

OMIR

The ‘Old Mutual Implied Rate’ is a comparison between the Old Mutual share price on the London stock exchange / the Johannesburg stock exchange and the Zimbabwe stock exchange. Effectively RTGS is valued at 1:1 with the USD, but this difference in share price gives us the implied countries exchange rate.

RTGS

Real-time gross settlement systems (RTGS) is a funds transfer system where money transfer takes place from one bank to another on a “real time” basis and “gross” basis. Settlement in the “real time” means that the transaction happens almost immediately.

BOND

The Zimbabwe Bond Note is a surrogate currency issued by the Reserve Bank of Zimbabwe. This was originally issued against a loan facility from the African Export-Import Bank. The Bond Note is officially 1:1 however the market seems to have significantly discounted the value of the Bond Note.

ZAR

The symbol ZAR is the currency abbreviation for the South African rand.