Finance Minister Mthuli Ncube recently claimed that the prices of goods will soon go down. Most people are skeptical. When it comes to Zimbabwe it is a well-known truism, when the rate goes up shops quickly adjust their prices up, when the rate goes down prices never seem to follow suit. In other words, what goes up does not always come down. For the past 8 weeks or so the country has witnessed something rare, a stable exchange rate that actually sometimes marginally goes down. However, the prices of goods have stubbornly remained the same and even increased in some instances.
Inflation has hit us hard but prices are stable and they are set to go down again soon as there is competition now in locally manufactured goods. Businesses can now plan for the future as prices of goods and services will be stable.
Locally manufactured goods have also started to penetrate the local market more than before. If you go into shops you can see that there is import substitution. Companies are beginning to make especially food products locally as against importing. We applaud that because there is job creation for the youths and shows growth of the business sector owing to the stability of the currency and we are now more competitive against importsMthuli Ncube speaking to the Herald
A country hooked on imports
Doing business in Zimbabwe is not for the faint-hearted owing to the tough political and economic environment. Most manufacturers have curtailed their operations leaving retailers and consumers stranded. Walk into any supermarket right now and you will see shelves full of products from South Africa. It is given this scenario, easy to see why retailers are always desperate to make sure they are not left behind by the exchange rate.
Zimbabwe is heavily addicted to imports and that hasn’t changed at all
So will prices come down soon?
Thus far we have only seen very marginal movements in the exchange rate. Retailers have responded by keeping prices where they are. Frankly the movements in exchange rates we have seen so far have not warranted a downward adjustment of prices. Whatever exchange rates gains shops are making are going towards the unofficial Covid-19 tax thus negating any benefits of exchange rate stability.
Examples of the Covid-19 tax include the higher margins companies are being asked to pay when ordering goods from South Africa which took a devastating toll from the pandemic. This has resulted in manufacturers there introducing measures such as regular testing, reduced staff per shift and having to deal with lockdowns and curfews. These costs are being passed down the chain and eventually to the consumer. There is also the fact that Zimbabwean businesses have to deal with the fact that borders remained closed. Small businesses often have to smuggle the goods in-paying bribes to guards both sides and syndicates.
Utility companies such as Telcos and ZESA have also taken advantage of the stability to adjust their prices to catch up with the rate. These often lagged behind and were often cheaper. It is now roughly twice as expensive to call compared to the prices in March. ZESA has also hiked its tariffs which means the cost of doing business has actually gone up even if the rate has stabilised.
It goes without saying but there are many many factors that businesses take into account when setting prices and exchange rates are just one factor. To claim that prices will come down soon based solely on this and increased local production (this increase is based on anecdotal evidence by the way) is preposterous. The best we can hope for right now is price stability which we seem to be now realising.
In any case falling prices are not always a good thing. Besides increased production the other reason why prices fall is due to depressed demand. In fact, if Zimbabwean prices do fall in Zimbabwe it will be more likely due to depressed demand than a surge in production. Incomes have constantly lagged behind inflation and if prices fall for this reason it doesn’t mean they are affordable.