allAfrica.com: Zimbabwe: Urgent Reform Needed to Curb Price Distortions

JOSPHAT Zulu stares in awe at the empty supermarket shelves in Mabelreign, Harare.

In one corner there is shoe polish he needs for his eight-year-old son who attends a school nearby and it costs $60 000.

With the onset of the rainy season imminent, he desperately needs the shoe protective.

He has no savings and his employer -- government -- cannot pay him that much.

Even with R100 reportedly being paid to gardeners, Zulu knows that it would be ludicrous for him to part with a month's earnings for a tin of polish.

Alternatively he can make a trip to town where he can find the same product for $8 000 on the thriving parallel market. But soaring transport costs could also limit his movements.

Zulu's ordeal represents the plight of millions of Zimbabweans facing the brunt of hyperinflation now estimated to be over a trillion%.

The Reserve Bank of Zimbabwe last week blamed Western imposed sanctions and the recently suspended electronic money transfers for promoting price distortions on the market.

The suspension of wiring money has resulted in increased use of cheques as a form of payment. Long queues of withdrawers at banking halls continue to be a common feature despite promises by monetary authorities to restore normalcy to the financial sector.

Last week, the central bank reviewed maximum daily withdrawals to $20 000 from $1 000, an amount which is not enough to meet a week's transport costs.

However, industry warns that this decision to suspend electronic transfers could stifle foreign currency supplies for the manufacturing sector, now reportedly operating at 15% capacity utilisation.

With such a low productivity level, this means that the country is now importing virtually all fast moving consumer goods to meet local demand against a backdrop of suppressed export activity and foreign currency shortages.

The central bank last month registered hundreds of retailers, among them OK Zimbabwe, TM supermarkets and the Spar brand, to sell imported products in foreign currency at 30% mark-up of cost price.

An observation by businessdigest this week revealed that the mark-up translated to almost three times the price of the same product from its source. A 2 litre bottle of vegetable cooking oil that cost R24 in South Africa is priced at US$9 (R75) locally.

"The major cost in any product in Zimbabwe is foreign currency," Confederation of Zimbabwe Industries president Callisto Jokonya said. "The Real Time Gross Settlement scheme was the most open market rate that provided foreign currency. We fully understand though that it was abused and we will soon engage the RBZ on this."

He criticised the National Incomes and Pricing Commission (NIPC) for ordering price slashes to those obtaining on September 26.

"Price controls should be loosened. Inflation, perception, and cost of money and value of money determine pricing. Any law that keeps business unviable is against the Companies Act -- and that law will not hold water anywhere in the world. That is where we have differences with the NIPC," Jokonya said.

He said reports of a political deadlock between President Robert Mugabe, Prime minister-designate Morgan Tsvangirai and his deputy designate Arthur Mutambara were also threatening price stability.

Tsvangirai's MDC this week attacked Zanu PF for "insensitivity" to the country's worsening economic problems.

"In short, there is national paralysis. Zanu PF does not seem to appreciate the magnitude of the crisis in the country. The whole nation is hanging characterised by anxiety, uncertainty and speculation," said the MDC in a statement.

A new hyperinflation index propounded by United States-based monetary reform expert Steve Hanke claimed that year-on-year inflation for September reached 2 trillion % on the back of unbridled money supply growth by the central bank. Last released official figures for June indicated that annual inflation was just over 11,2 million %.

"Zimbabwe is the first country in the 21st century to hyperinflate. In February 2007, Zimbabwe's inflation rate topped 50% per month, the minimum rate required to qualify as a hyperinflation (50% per month is equal to a 12 875% per year). Since then, inflation has soared," said the Johns Hopkins University professor.

"As of 3 October 2008, Zimbabwe's annual inflation rate was 2 trillion %."

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