EDITORIAL COMMENT: Lack of competition helps push up prices

15 Aug, 2022 - 00:08 0 Views
EDITORIAL COMMENT: Lack of competition helps push up prices

The Herald

While many consumers blame retailers for the recent spiralling prices, now levelling out and in some cases even falling, the competition in the retail sector is real and at a high level, so the price push tends to come from the manufacturers, and they are far fewer and far more inclined to bow down to the black market.

Those who have been worshipping the black market, what they call the “parallel market” or even the “real market rate” now need to exercise some honesty.

Any attempt to raise any price means that they were using what they and their dubious friends thought the black market would reach in a month or two, and with stability any price rise shows high level proof of speculation and profiteering.

This also applies to those who thought they were being clever by working out costs in US dollars, then converting to local currency at the black market rate, then converting back to US dollars using the interbank rate and quoting that much higher price that could then be legally converted back to local currency using the interbank rate on the day.

Among the dishonest there were those breaking the law, but reluctantly, if they could not obtain currency at interbank rates from their bank or from the auctions. These will be edging their prices down as the black market declines. But considering that some who did get their currency from the auctions have been caught pricing at black market levels, consumers are going to have to take the lead in taming the pure profiteers.

But they will need help, especially in the uncompetitive environment at the manufacturing end of our economy.

The Consumer Council of Zimbabwe recommends people shop around, rather than just pop into the nearest supermarket, and that advice can produce some worthwhile results. For a start supermarket chains can generate some discounts with some suppliers, so large are their potential orders, so you can find some products lower in price as a result.

In some cases as a result there can be something close to a 20 percent gap in the retail price, and in the odd case even more. In general, the price differences for many products might just be a few percent, but those differences exist.

Other competition comes from seeking out new suppliers, a willingness to stock new brands that the competition is less willing to assign shelf space. This is important as new manufacturers often are not big buddies with the older firms and want to compete

So fairly obviously those who run OK Zimbabwe, Pick n Pay, Food World, Choppies, the main chain in the Spar franchise, and larger independents are not golf buddies fixing prices. In fact they and their store managers seem to be going all out to compete with each other, put in special offers to attract the trade and generally work on trying to grab market share.

This is not to say that supermarkets and other retailers are perfect, especially when it comes to their direct imports. But since over 70 percent of the products on their shelves are now local and retailers tend to use fixed percentages for mark-ups, we need to look at the manufacturing sector and some of the importers.

Here there is a different story. Zimbabwe is a small country and for far too many products there are three or fewer suppliers, and in a fair number of cases just one. Sometimes, as a result of acquisitions, there are a number of brands that have been brought together under a single corporate structure, so while the shelf says six suppliers, the costing chief says two.

Here problems can arise. A monopolist faces a lot of temptation to push profit margins, and even if they resist that temptation to gouge there is not the driving force of competition to push efficiencies to the limit.

And even if there are some technical competitors, it is fairly easy to form a formal or informal cartel where the one, two or three main manufacturers agree, again probably with a nudge and a wink, not to compete on price but only on brand name.

President Mnangagwa addressed this issue last week when he officially opened a judicial workshop sponsored by the competition commission for Comesa, an important free trade area for east and southern Africa and one of the main building blocks when implementing the African Free Trade Area.

The President stressed the need for enhanced competition and consumer protection law. While national statutes can be upgraded. But with the move towards regional and continental free trade these obviously have to be aligned as part of the process of creating the free trade areas.

Obviously judges are also involved. For a start they interpret the laws and the treaties, and their decisions fill in many of the gaps that automatically arise when a statute is applied to individual cases since no Parliament, let alone the governing commission of a regional trading area, can lay down rules that cover all cases, even if they produce a 1 000-page legal document.

Sometimes these judgments will note that legislatures need to fill a gap, or that a particular rule is unenforceable, and sometimes legislatures will find that an amendment is needed because the judicial decision, while correct in existing law, is not what is desired in society. So judges need to be active in pointing out the difficulties.

Secondly judges have to decide in both criminal and civil cases, with their different standards of proof, if someone has breached anti-competitive rules or has formed some sort of cartel, especially difficult if this is very informal with nothing written down even in an e-mail. We all know the sort of problem that arises when high levels of suspicion cannot be proved beyond reasonable doubt, or even on the balance of probabilities in a civil case, since a 50-50 probability has to give the benefit of the doubt.

Zimbabwe has a Competition and Tariff Commission and has headquarters and staff. But it is not over-active. Some of its work is to examine proposed mergers of competitors and it has banned some take-overs, but there are ways round this that have been exploited.

Even a relatively modest shareholding in a competitor can give a high-level of control if institutional investors are not active, and few are since a pension fund, for example, seeks dividends rather than control. And of course a major active investor in one business can be a major active investor in the presumed competitor, all nice a legal but hardly letting the left half of their brain stay at arm’s length from the right half.

So we need, as the President noted, make progress faster in cleaning up the systems. The courts can help, although people now need to use the new upgraded commercial division of the High Court. Consumers can help by punishing the greedy. The Competition and Tariff Commission needs more resources but also a gung-ho activist approach. The Reserve Bank of Zimbabwe’s Financial Intelligence Unit needs to keep up the pressure. And the Government needs to lean on those who ignore the rather good fundamentals it has created in the Second Republic. Together, but only together, we can beat the profiteers.

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