Price Volatility: An Enemy of Sustainable Economy

Price Volatility: An Enemy of Sustainable Economy

By DR Davison Gomo

SPECIAL CORRESPONDENT

Price Volatility: An Enemy of Sustainable Economy

The country has experienced serious sharp price increases in the recent past and there are a lot of reasons given for this that come from different sections of our society.

What cannot be denied by everyone is that the price increases have a direct negative bearing on the cost of doing business and indeed, a terrible social and economic impact on the ordinary citizens.

The big question is who is responsible for this state of affairs? The easiest option is to blame the authorities for failing to manage the economy effectively. However, one wonders whether a single and small country like Zimbabwe can completely succeed to subdue global economic and political influences that creep into our domestic space?

Indeed, government has a part to play but so are the business community and our society at large.  At this stage, the public are worried by the sharp rise in transport and food costs, electricity bills, hospital bills and generally the cost of transacting.

The conversations in both public and private spaces seemingly point to what they believe is government’s inability to term errant business people who are clearly profiteering at the expense of the economy, the public and certainly the stability of the country.

There is rampant smuggling of goods that eventually sell at abnormal prices and the situation is worsened by a foreign currency informal market that has gone mad. The combined effect of crazy prices, unsustainable informal foreign currency trading and general wide spread corruption has a debilitating effect on the economy that is already reeling under a terrible sanctions regime.

At business level, there are equally serious concerns about input costs because they affect the business’s ability to deliver goods and services at affordable prices.

 

The shortage of foreign currency in the formal banking sector resulting in the rise of an informal foreign currency market with its rate distortions causing a debilitating sharp spike in the cost of money, has left prices totally unable to hold and creating a runaway situation that has harmful effects on the economy.

Background Issues

There are a number of issues that can be identified as contributing to the current unacceptable price levels but more importantly, the fundamental question that needs to be addressed is “What type of economy does the country want and if different from the current focus, how is a preferred economic model likely to impact on the current development path?

The bottom line is, do we allow the illegal foreign currency trading to flourish even when it is evidently causing serious disruptions to the normal flow of an economy?

Right now, the formal economy has been seriously wounded by a daring and brutal black market economy. There is clear evidence that it is sending panic, uncertainty and indeed, it is depleting the confidence base of the nation.

How do we as a country want to balance between a technically determined future and a politically determined one? Both futures are critically important for the stability of the country but the need for balance is crucial for a breakthrough.

Right now both the political and technical determinants of success in economic terms are no match for the establishment that operates under ground. However, the consolation point is that government has the state apparatus to help it combat these unacceptable business tendencies and the time to act is now before a lot of damage is done.

 

While we are fighting to restore normalcy in our economic space and indeed the removal of the iniquitous business tendencies and practices, is it not fair to ask whether as an economy we are utilizing all resources at our disposal effectively and efficiently because if we seriously concentrate on getting value from every piece of resource and assets that we have, some of the inefficiencies that creep into the economy taking away competitiveness can be eliminated to the advantage of economic growth.

Right now the cost of food, shelter, transport, health, education, business rentals, taxes, regulatory compliance, use of government property and offices, private stock of industrial buildings and offices that lie empty, all this puts pressure on cost of production of industrial goods, commercial products and service delivery in general.

The need for the optimization of resource use has never been more urgent than now. Both government and business need to revisit current business models to examine them for relevance to the current challenges facing the economy and the country.

Reliance on what we have always known and used is no longer sustainable. The whole approach to the challenges facing the economy requires a rethink and critical reevaluation very urgently so that we can stay on course with the Transitional Stabilization Programme.

Our various ministries need to look at the most critical value drivers in their ecosystems and take robust measures to plug all the leakages and residual inefficiencies in order to expand the horizon for potential savings and growth.

For example, an aggressive approach in the use of water bodies to enhance local agricultural production needs to be prioritized as a way to avert the impact of periodic droughts that often live the country vulnerable to food deficits that result in shortages of food items thereby pushing up prices to unsustainable levels.

Huge investment in agricultural infrastructure and ensuring the proper use of such equipment will limit the frequent cycles of prices rises.

Currently, the utilization of key infrastructure such as the railways, bus metro system, airways, road networks etc, if well conceived and coordinated could result in significant improvement in the use of public funds and indeed the contribution of these assets to our GDP.

Another factor that poses a problem and threatens price stability is the security of supply. Prices have been impacted by lack of availability of water both for commercial and domestic use.  The cost of water treatment chemicals is inflationary, the erratic supplies of fuels [petrol and diesel], agricultural inputs such as pesticides and fertilizers are just too expensive and the land use especially for agricultural purposes needs careful assessment to determine proper use otherwise the collective weight of these challenges contribute to upward price tendencies.

If these challenges are managed well, the transition could create massive opportunities for economic and industrial renewal.

What Do We Want Most Urgently in Zimbabwe?

Undoubtedly, economic growth and employment are top priorities. This must be supported by a well coordinated action both at business and government level across all sectors and policy domains.

Research could be undertaken to identify opportunities for efficiency improvement across key lead sectors of the economy hopefully, new initiatives, at national, regional and city or district level can be found and implemented in order to minimize exposure to vagaries of economic challenges.

There is need for robust governance systems and strict enforcement of regulatory requirements and instruments to ensure discipline and order in the economy. One area that requires sorting out rather urgently is the now endemic reliance by business and mainstream society on the so called black market for foreign currency.

If this practice is left to its own devices, price stability will not be achieved to the detriment of the economy. A well conceived plan that is well coordinated at government level and is supported from the highest level of government is now urgent and unavoidable lest all government plans will be thrown off rail perilously.

Challenges

While there is a lot that can be done locally, but higher resource prices elsewhere and disruptions to supply of petrol, water treatment chemicals, insufficient supplies of medicines into the health system, aggressive competition coupled with commodity price volatility and the unpredictability of market behavior all feed into high prices barring the unethical behavior of businesses.

Zimbabwe has been seriously affected by illegal political and economic sanctions and to make the situation worse, sanctions have increased the political risk of the country threatening the potential gains from the policy of reengagement.

The presence of sanctions creates abnormal business practices, cartels and corruption.

Naturally, economic sanctions coupled with political blackmail and isolation trigger artificial shortages that force up prices as part of a wider political programme that seeks a specific political outcome. This state of affairs pushes up prices often to unacceptable levels and the current situation in Zimbabwe is a living example of that anomaly.

This onslaught requires all our efforts to defeat it because it is driven from both within and outside the country.

 

As if the current situation is not enough, the recent Cyclone Idah together with the drought conditions that we experienced this season cause the diversion of resources to address the negative impact on infrastructure, livelihoods and the availability of adequate food supplies.

There is a need to look at ways and means to help restore systems that are robust, proactive and effective to manage the conditions that create unpalatable price hikes and exposure to social fragility.

Business leaders must search for better ways of doing business and must commit to coming up with industrial models that are centred on efficiency, superior technologies and great imagination.

 

Davison Todson Gomo

Secretary General

Coalition Against Sanctions [Zimbabwe]

4 June 2019