By Business Reporter- By Business Reporter – Fears are mounting over the potential disappearance of basic commodities from supermarkets following the government’s imposition of new price control measures.
The government recently enacted Statutory Instrument 81A of 2024, which removes the 10% premium on forex sales. Consequently, all sellers of goods are now mandated to use the interbank selling rate or face penalties of at least ZiG200,000.
Business leaders and economists argue that the government’s attempt to manipulate exchange rates effectively reintroduces price controls, which have historically resulted in the disappearance of essential goods from store shelves.
Denford Mutashu, President of the Confederation of Zimbabwe Retailers (CZR), has formally communicated these concerns to the Minister of Industry and Commerce, Mangaliso Ndlovu. In his letter, Mutashu states:
“We are writing to express our strong concerns regarding Statutory Instrument 81A of 2024. While we understand the intention behind this instrument, we believe that the current framework is not workable and requires significant adjustments to ensure its feasibility. Our concerns are centred around the maximum exchange rate, which does not reflect a cost recovery exchange rate given the current circumstances. Specifically, banks are currently charging clients a rate around 5% above the selling rate.
This week, the banks have been selling at a rate of around ZiG14.70:US$1.
The new intermediate money transfer tax (IMTT) statutory instrument announced by the minister has increased the IMTT for forex (FX) purchases on the Willing Buyer, Willing Seller (WBWS) from 1% to 2%.
This is in addition to the 1% charged by the Reserve Bank of Zimbabwe (RBZ), taking the total cost for WBWS purchases to 3%.
These costs add up to an average of 8% above the RBZ selling rate.
Furthermore, FX is not available on demand, and any time lag between receiving ZIG and purchasing FX on WBWS can result in losses for traders due to ZIG rate devaluation.
To make this SI workable and possible for players to comply, we recommend that the bank selling rates must not exceed the RBZ selling rate and that FX purchases from the WBWS must be exempted from IMTT.”
Mutashu also urged authorities to remove the RBZ’s 1% administrative fee for WBWS purchases and to allow an additional 2% above the WBWS selling rate to account for ZIG rate volatility. He cautioned:
“SI 81A of 2024 will not be workable, and it will lead to a cat-and-mouse game between the regulator and businesses. We urge you to consider our concerns and recommendations to ensure a feasible and effective framework.”
Kurai Matsheza, President of the Confederation of Zimbabwe Industries (CZI), echoed these sentiments, emphasising:
“In economics, there’s a law of demand and supply; hence the government should follow that for the exchange rate to stabilize. Anything outside that will affect the economy.”
Economist Vince Musewe criticised the government’s approach, stating:
“You cannot police market sentiment. The market is a beast that can only be tamed by building trust and confidence. Price controls always create alternative market shortages and increased smuggling. We are not learning from history.”
Another economist, Tony Hawkins, expressed similar concerns, highlighting the adverse effects of these policies:
“The threats of arrests and fines confirm that nothing has changed. Next comes the shifting of goalposts with new SIs and additional ways of calculating inflation. In this case, we have a new twist — the conversion of an already out-of-date national budget into zigs, which will give Treasury lots of opportunities to switch spending and raise stealth tax revenues. The next stage, as is happening now, is threats, arrests, and fines, all of which confirm that nothing has changed. How can it be a free market if anyone who trades on a willing buyer-willing seller basis is breaking the law unless he trades at the manipulated RBZ rate?”