14 Basic Commodities: CZI Price Assessment, Resolutions

SEVERAL industry players from diverse sectors met at CZI to discuss the recent and continued hike on prices, especially where the fourteen basic commodities are concerned. The meeting evaluated certain factors fuelling these price increases and some of the highlighted factors included the transition from a regulated market to an open market, duty revaluations by government, issue of legacy debts, Letters of Credit or lack of, to mention a few.

The meeting, which was chaired by the CZI president Sifelani Jabangwe, said the transition from a regulated market to an open mark, wherein foreign currency was being availed at 1:1, to an open market system where the rate has risen to 1:3 on the interbank market, as one of the reasons for the price increases. The moment the rate shot up, the producer was forced to effect the difference into the price of the commodity so as to maintain his profit.

Another factor identified by the meeting was the floating exchange rate which gives market forces power of the exchange rate and is informed by the willing-buyer willing-seller principle. This floating exchange rate has resulted in the government undertaking duty revaluations to factor in the interbank rate on duty calculations. The result of this was duty increase which in turn fuelled price increases.

The meeting also noted the unavailability of foreign currency on the formal market, through the interbank system has compounded to their operations, as there are forced to secure the foreign currency on alternative markets, at a premium. There was therefore, the need for the interbank market to be allowed to operate freely, on a willing-buyer, willing-seller principle. Concerns were raised on the issue of transparency and openness of the interbank market. The RBZ ought to make public, the information on volumes of trade that has been done on the interbank market, as well as the rate used.

The meeting also raised the issue of the legacy debt as a contributing factor to price increases. The argument was that firstly, the Government has not been clear about the exchange rate at which companies should pay the debts, at 1:1 or at the prevailing rate which will be obtaining on the market. Secondly, the some companies are factoring in the debt component on their margins in order for them to extinguish these debts. These debts were acquired at 1:1 with the authorities encouraging business to do so in order stabilise prices as well as to keep the goods on the market.

Another prime factor identified by the meeting is the issue of Letters of Credit or rather the lack of them. All stakeholders present agreed that Banks have been reluctant in issuing them out, mainly because they have not received guarantee from government that the money will be available for repayment. Due to the lack of these letters, most external suppliers of raw materials are threatening to terminate supply to locals if they continue to fail to pay their debts.

The meeting also noted that the fuel rebate system which was meant to cushion firms from not increasing the prices after the fuel price increases in January, 2019, have not been effected and this cost has also been compounded into the prices of goods and services.

The meeting sighted the price distortions obtaining in value chains as some of the reasons for price increases. It was reported that inputs (such as packaging, coal, etc) and service providers (such as the NRZ) have increased by as much as 120%. This results in ripple effects along whole value chains. It was also highlighted that in some instances, there has been some mismatch on the producer price and the retail price. Producers noted that they have no control over retail prices, even though they have in some instances tried to put labels with recommended retail prices on their products. This has however, been disregarded in most instances, probably due to also the high levels of inflation currently obtaining in the economy.

The meeting resolved that there is need to undertake an exercise of understanding the cost structures of the local value chains, and ascertain the major cost drivers in these value chains.

There is need to engage the Ministry of Industry and Commerce, to understand the mechanism they use when they monitor prices, and to ascertain if it is scientifically based.

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