Business speaks on price hikes

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ZIMBABWE’S hard-pressed businesses have blamed foreign currency shortages for the recent price hikes in the market.
This was revealed at a meeting held by business representatives at the Confederation of Zimbabwe Industries (CZI) offices last week.
The meeting, which was chaired by CZI president Sifelani Jabangwe, evaluated factors fuelling price increases and some of the highlighted issues included the transition from a regulated market to an open market, duty revaluations by government, legacy debts and letters of credit.
“The meeting said the transition from a regulated market to an open market, 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, was one of the causes of the price increases. The moment the rate shot up, producers were forced to effect the difference into the price of the commodity to maintain a profit,” said CZI.
Industry also cited the floating of the exchange rate, which is based on the willing-buyer, willing-seller principle, as reason for the price hikes.
“This floating exchange rate has resulted in government undertaking duty revaluations to factor in the interbank rate on duty calculations. The result of this was a duty increase, which in turn fuelled price increases,” CZI said.
The meeting also said the unavailability of foreign currency on the formal market, through the interbank system, had compounded their problems, as they are forced to source the foreign currency on alternative markets at a premium.
In February, the Reserve Bank of Zimbabwe liberalised the US dollar exchange rate against Real Time Gross Settlement (RTGS) balances, bond notes and all currencies in the multi-currency basket, as it sought to formalise trade in foreign currency.
“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 as well as the rate used,” industry said.
The meeting also raised the issue of legacy debts as a contributing factor to price increases. They argued that government had not been clear about the exchange rate at which companies should pay debts, at 1:1 or at the prevailing market rate.
They said some companies were 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 to stabilise prices as well as to keep goods on the market,” CZI said.
All stakeholders present agreed that banks were reluctant to issue Letters of Credit, mainly because they had not received guarantees from government that the money would be available for payment.
“Due to this, most external suppliers of raw materials are threatening to terminate supply to locals if they continue to fail to pay their debts,” said CZI.
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