- The rise in prices in Zimbabwe is a result of several factors, including the widening premium between the illegal and legal markets and forward pricing by businesses
- The government is taking a multi-faceted approach to address the issue, including issuing gold tokens, making auctions more responsive, taking over foreign debt
- The government is also unleashing the Competition and Tariffs Commission to investigate potential collusion
Addressing Rising Prices in Zimbabwe: A Multi-Faceted Approach
By Noah Shumba, May 19, 2023
Harare-As prices continue to rise in Zimbabwe due to inflation and a meltdown in the black market exchange rate, the government is looking for solutions to address the issue. The rise in prices has caused concern among consumers and government officials who are seeking more data and answers.
Some of the price increases can be attributed to the widening premium between the illegal and legal markets, particularly for those buying foreign currency on the black market. However, the problem has been exacerbated by forward pricing, where businesses are using the black market exchange rate instead of the interbank mid-rate plus 10 percent as required by government regulations.
Forward pricing starts with a US dollar price, converts it to the black market exchange rate or the expected rate in the future, and then converts it back to US dollars at the official or supermarket rate, resulting in price hikes in both currencies. There is also suspicion that distribution chains are favoring the informal sector tuckshops, causing shortages and further price increases.
To address the issue, the government has taken a multi-faceted approach, including issuing gold tokens backed by real gold to remove local currency from circulation, making auctions more responsive, and taking over foreign debt using foreign currency earned from taxes. Additionally, 14 basic products can now be imported without a special license and duty-free, and the Grain Marketing Board is promoting its Silo brand of mealie meal.
The government is also unleashing the Competition and Tariffs Commission to investigate potential collusion or market dominance in both manufacturing and retail sectors. This move seeks to ensure that competition is fair and pricing is reasonable for consumers.
While there is competition among some manufacturers and retailers, some dominant companies or groups of companies can strongly influence the market. For example, Innscor owns several companies with a significant market share of food products. While the Competition Commission monitors such companies, it is important to continue to enforce competition rules and tighten them when necessary to prevent a single entity from dominating the market.
In conclusion, addressing rising prices in Zimbabwe requires a multi-faceted approach that involves addressing issues such as the black market exchange rate and forward pricing, in addition to promoting competition and monitoring potentially dominant companies. These efforts can help stabilize the economy and ensure that consumers have access to affordable products.
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