Harare / ZW. (wib) President Robert Mugabe´s Zimbabwe is officially a socialist republic, predictably complete with a Politburo and worthless money. Currency traders quote Zimbabwean Dollar (ZWD) only with a black market exchange-rate: 300.000 ZWD for one USD – a depreciation of 30 per cent in the past week alone. Zimbabwe is a classic morality play, made hypnotic by its tragic ending. We are watching the final act, in which state coercion (wage and price controls, enforced by soldiers) reinforces state corruption. Tens of thousands of people are hungry; tens of thousands of people have fled the country. Without a change in this script, the final curtain appears imminent – and awful.
To end inflation, Mugabe last month summarily ordered all merchants and manufacturers to return prices to the level of June 18. Past events in 2003, 2005 and 2006 have shown that such directives have forced a massive rift between business, government and the consumer. It created a thriving black market for sugar, bread, washing soap, cooking oil and fuel, with controlled foodstuffs disappearing from supermarkets shelves.
Market watchers said history was repeating itself although this time around it was likely to have a more disastrous impact on the economy. In 2003 it was fuel, in 2005 it was cornmeal, cooking oil and sugar. Last year it was bread; a fortnight ago it was almost every basic commodity.
Following government´s directive that fuel be sold at 60.000 ZWD, the commodity is now in short supply, but readily available on the parallel market where it is being sold for between 400.000 and 500.000 ZWD a litre. In 2003, government ordered service stations to sell fuel at the gazetted price, resulting in the commodity disappearing on the formal market, but it was readily available on the black market at an exorbitant price. After realizing that it was shooting itself into the knee, government two years later allowed private importers to import fuel through the direct fuel import scheme.
In 2005, ahead of the parliamentary elections, government ordered that shops stick to gazetted prices. The Minister of Finance reduced Value Added Tax from 17,5 percent to 15 percent to justify the call for price reductions. An increase in VAT results in the simultaneous increase in the price of taxable products and vice versa. Manufacturers responded by reducing production as they were operating at a loss. Most goods were readily available on the parallel market and the effect is still being felt today.
Last year government ordered bakeries to reduce the price of bread to 200 ZWD from 335 ZWD despite the cost build of bread being above 320 ZWD. About 14 managers accused of ignoring the directive were arrested. The decision by government resulted in a massive shortage of bread for about two months.
Manufacturers and service providers have been accused of inducing inflationary pressures on the economy through unwarranted price adjustments. Striking a balance between salaries and prices has proved to be a major challenge in the country as product and service adjustments continue to accelerate while salaries lag behind. One more chapter in the tragedy named Zimbabwe 2007 (sources: Wikipedia; AllAfrica; AngolaPress).