Prices Just Keep Shooting Up
13 October 2019
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Prices of goods and services in Zimbabwe are pegged at an average of 50 percent above those obtaining in South Africa despite relative convergence between the Rand and the local unit on the interbank market over the last month.

While wages and fuel — the biggest contributors to production costs — are lower in Zimbabwe compared to South Africa, local products and services are priced inordinately higher than the neighbouring country. Economic analysts believe this could indicate unfair pricing models by local businesses through arbitrage.

NHMK Capital founder and chief executive Mr George Manyere contends that since the convergence of the Zimbabwe dollar and the South African unit last month, prices of goods in the two countries should align.

“As from 23 September 2019, the prices of goods and services in Zimbabwe and South African including the cost of labour should theoretically be expected to be aligned since the currencies are at par according to the interbank exchange rate,” he said.

“However, this is not the case as the Zimbabwean economy continues to suffer from the threat of hyperinflation and significant rent-seeking behaviour caused by the huge arbitrage opportunities that exist in the market.”

A comparison of prices in the two countries shows that a 2kg pack of brown sugar is retailing at R19,60 while it costs $29,99 locally, which is a variance of 53 percent.

While a 2 litre bottle of cooking oil costs R32,50 in South Africa, it is selling for $51,99 in Zimbabwe giving a price difference of 60 percent.

There is a 43 percent difference in the price of a 2kg box of Maq washing powder which is pegged at R39,99 in South Africa and $56,99 locally.

A 2kg pack of rice costs 122 percent more in Zimbabwe at $54,99 while in South Africa it is selling at R24.75.

Zimbabwean workers earn at least 90 percent less than their South African counterparts and this, according to the analysts, indicates local workers are subsidising their employers.

“Prices in Zimbabwe are on average 51 percent higher than those in South Africa implying that there is scope for downward revision of prices if the country pegs the currency to the ZAR or adopts it as the reference currency,” Mr Manyere.

“In essence, poverty levels are increasing in Zimbabwe resulting in huge salary gaps when compared to South Africa.

“The adoption of the ZAR as reference currency will indeed result in a gradual increase in salaries and a reduction in prices, thereby resulting in the market self-correcting and improvement of people’s lives.

“It will also result in improved competitiveness as wages will not respond instantaneously.

“Lower wages will attract new investment and expansionary projects.

Confederation of Zimbabwean industries president Mr Henry Ruzvidzo said businesses were placing a premium on the products to ensure that they can replace their stock.

He said the Rand exchange rate was stable, but the currency in Zimbabwe was volatile.

“There is a premium put (by business) on the pricing which may not relate directly to the exchange rate if you are comparing with the Rand,” said Mr Ruzvidzo.

“What is needed in Zimbabwe is stability of the exchange rate; people need to be able to predict in a month, in a year or two years the movements of the exchange rate.

“But, at the moment the movements are totally unpredictable and this makes businesses very vulnerable.”

Zimbabwe National Chamber of Commerce chief executive Dr Chris Mugaga also concurred that the price differences in South Africa and Zimbabwe were reflection of the volatility of the local unit.

He said inflation was not the only driver of the exchange rate.

“If one thinks when the Zimbabwean dollar is trading at 15 to the US dollar then it means it is at par with the South African Rand, that is actually a myth that needs correcting.

“Or when the Kenyan shilling is at 100 to the dollar and the Zimbabwean dollar is trading at 15 then the Zimbabwean dollar is actually stronger, that is another myth.

“In currency determination, we do not use the absolute number, we use the real exchange rate determination. “The issue of pricing in Zimbabwe is a function of the exchange rate, it’s a function of confidence, it’s a function of money supply and other factors that include foreign currency shortages.

“If the market is to stabilise today and businesses wants to increase prices of their goods, they will lose customers because people will simply not buy.

“We all know that salaries are low and this is a reflection of imbalances, not a reflection of overpricing,” said Dr Mugaga.

Consumer protection advocates are now calling for immediate introduction of the Consumer Protection Bill which was gazetted last year. The Bill seeks to protect consumers by establishing the Consumer Protection Agency and Regulation of Consumer Advocacy Organisations.

Consumer Council of Zimbabwe (CCZ) executive director Rosemary Siyachitema said slow progress in promulgating the Consumer Protection Bill was hampering efforts to fully protect consumers.

“Last year, we had Parliament doing consultations and we went with them. This was a step forward,” she said.

“Unfortunately, all of a sudden the Bill has become stuck. (There is) no progress whatsoever.

“The Bill will allow many people to participate in consumer protection matters.

“We are a very small organisation trying to do big things,” she said.

Parliamentary Portfolio Committee on Industry and Commerce chair Joshua Sacco said Parliament had now passed the Bill. It now awaits Presidential assent.