‘Govt working on stabilising economy’

23 Jun, 2022 - 00:06 0 Views
‘Govt working on stabilising economy’ The Government is implementing a number of interventions to curtail price increases.

The Herald

Nelson Gahadza-Senior Business Reporter

THE Government will continue to create a stable operating environment for business to curtail price increases that have the negative effect of eroding the purchasing power of incomes while putting pressure on inflation, a senior official said.

Retailers, on their part, said it was critical that all sector players remain responsible and desist from speculative conduct that has the potential to worsen an almost volatile situation amid the prevailing parallel market exchange rate instability.

Sustained weakening of the domestic currency, reintroduced in 2019 after a decade-long hiatus caused by hyperinflation, has seen inflation relapse into three digit territory after it rose to 131,7 percent in May from 94,6 percent the previous month.

This has threatened to reverse the gains achieved when inflation progressively declined to touch a two year low of 50,1 percent last year from a post dollarisation high of 837,5 percent a year earlier, following the introduction of the auction system in June 2020.

However, the economy is facing resurgent inflationary pressures largely driven by exchange rate volatility but also due to the negative impact of imported rising global inflation resulting from the war in Ukraine.

The Government is implementing a number of interventions to address the situation including sticking to budget.

Ministry of Industry and Commerce chief director Dr Douglas Runyowa said this at the Retailers and Wholesalers Indaba in Harare on Tuesday, adding continuous engagements between Government and the private sector was critical for stability in the economy.

“The indaba has come at an opportune time when the Government is seized with the issue of ever-increasing prices of goods and services in the economy which are impacting negatively on consumer welfare.

“The theme of theindaba, therefore, is very relevant as the three issues highlighted namely; exchange rate, pricing and inflation are currently topical in national conversations in our economy,” he said.

Dr Runyowa said there was a need to advance the interests of the consumers ahead of profiteering.

“Consumers have, and continue to, cry over ever increasing prices, among other business mal-practices. After all, we are all consumers and no one is spared,” he said.

He said the Government was currently implementing the National Development Strategy 1 (NDS1) blueprint, which among other objectives, prioritises the growth of key value chains to facilitate development of an open and growing industrial sector.

He said this was buttressed by policies such as the National Industrial Development Policy (ZNIDP) and Local Content Policy, which all seek to promote local production and value addition.

“In the medium term, our challenge is to ensure we stimulate industries based on indigenous raw materials and strengthen local value chains.

“I therefore wish to make a clarion call to our industry to join hands with the Government in entrenching local production of goods so as to eliminate imported inflation, which is key in stabilising prices,” said Dr Runyowa.

He said the Government and private sector needed to work together closely to support local manufacturing entities, which will churn out competitive goods capable of competing both locally and in global markets in order to help stabilise our economy.

The Retailers and Wholesalers Indaba was organised by the Confederation of Zimbabwe Retailers (CZR) and ran under the theme “Promoting Local Currency Enhancement through Exchange Rate, Pricing and Inflation Stability”.

Dr Runyowa highlighted that at the onset that Zimbabwe, like any other nation, was reeling from the effects of the Covid-19 pandemic, which he said had shattered many economies and disrupted supply chains across the globe.

Furthermore, he said, the geo-political situation in Eastern Europe had also contributed to further shocks to the Zimbabwean economy, which has contributed to the high inflationary global environment in the energy and food value chains.

“Our fragile economies are not spared either and the impact is being felt by retailers and wholesalers among other sectors of the economy.”

CZR president Mr Denford Mutashu said that the battle for survival between formal and informal retail continues to threaten the viability of formal business.

He said operating costs were wiping out margins while labour cost containment remained a challenge against diminishing real value sales.

“Our manufacturers are struggling to consistently supply without losing out on exchange rate movement. Exchange rate shocks and the unpredictability in the trading environment have made planning difficult,” he said.

He said there were very few to none suppliers and service providers who take local currency for payment of goods and services under the obtaining situation.

“The currency you offer attracts the price one gets and even the quantity of supply. A customer entering the store expects a fairly priced quality product that is not only available but offered flexibly in all currencies legal tender. “It’s a vicious cycle,” he said.

Mr Mutashu said business should remain responsible and desist from speculative behaviour and always narrow the gap between incomes and prices.

“As inflation piles pressure on prices, incomes have remained eroded hence the need for policy intervention to save consumers and business and we need to remain optimistic,” he said.

Mr Mutashu indicated that the economy has huge potential despite the challenges.

Representing the retailers and wholesalers, Mr Achhie Dongo, director N Richards Group said suppliers are now increasingly demanding foreign currency payments for their products with little prospect for settling the USD invoice in ZWL.

He said in some instances, where the Zimbabwe dollar was accepted, retailers and wholesalers were subjected to forward pricing, which factors expected inflation or exchange rate movement, and the premiums found their way into the final retail price.

“As formal sector, our capacity to generate forex from these services is inadequate and this is because customers are not willing to transact using the interbank rate plus 10 percent rate.

“So we are constrained in terms of raising the forex when we face increasing demand for forex payments,” he said.

Mr Dongo said while the manufacturing sector had increased capacity utilisation and volumes growing for a number of products, some products will increasingly become unavailable on the market due to the sector’s inability to meet the suppliers demand of forex.

“Cooperation of channel members is being disrupted by defensive behaviour in a challenging environment. Everyone is trying to defend their business territory and survive. This situation will result in increasingly informalisation of business instead of the formalisation of new enterprises,” he said.

He noted that the sector has been contributing approximately 20 percent to the country’s GDP for the past three years.

Mr Dongo said that situation can only be addressed through restoration of the Zimbabwe dollar as a currency of store of value, preferred unit of account and accepted as a medium of exchange.  

In addition, he said, “a widely accepted exchange rate is the solution and restriction of liquidity can result in convergence of rate.”

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