Africa Moyo and Blessings Chidakwa
THE geopolitical developments in Eastern Europe where Russia is conducting a special military operation in Ukraine, have triggered price increases across the world, including in Zimbabwe, as supply chains have been significantly affected.
Further, speculative behaviour by some private sector players, who borrow from banks, spin the money and collapse the local currency by offering to pay more for United States dollars so that they pay back less to the banks, have also contributed to price increases in Zimbabwe.
But it is the Russia-Ukraine conflict that has caused the major price increases worldwide.
In a number of countries, including the United Kingdom, prices are surging at their fastest rate in 40 years, with South Africa having already told its citizens to brace for a fresh round of fuel price increases next month.
Fuel, consumer goods and gas prices have seen prices spiralling worldwide.
In the UK, the Consumer Prices Index (CPI) rose by 9 percent in the 12 months to April 2022, up from 7 percent in March, while on a monthly basis, the CPI rose by 2,5 percent in April, compared with a jump of 0,6 percent in April last year.
The UK’s Chief Inspector of Constabulary, Andy Cooke, said the rise in the cost of living would trigger a surge in crime but said officers should use their “discretion” when deciding if it is necessary to prosecute people who steal for them to eat.
Some supermarkets in the UK are limiting cooking oil quantities that customers can buy to ensure everyone has access to the product.
Statistics from the Consumer Council of Zimbabwe, a consumer watchdog, show the monthly food basket for a family of five rose to $120 000 up from $98 000 in April, as price increases take root.
The World Food Programme Zimbabwe chapter posted on its Twitter handle recently: “Despite being 11 000km away from Ukraine, the adverse effects of this conflict will most likely be felt in Zimbabwe.
“As global and regional prices transmit to local markets, food accessibility in the region could worsen as household purchasing power is effectively reduced.”
Reserve Bank of Zimbabwe Governor Dr John Mangudya last week said “imported inflation” was largely to blame for the rise in local prices.
“Prices are not just rising in Zimbabwe. Look at the price of fuel, wheat and others, across the world, you will realise that it is not only in Zimbabwe but a global phenomenon,” said Dr Mangudya.
Confederation of Zimbabwe Retailers president Mr Denford Mutashu concurred saying: “If one travels across the width and breadth of the world, they will surely appreciate better the negative socio-economic ramifications the geo-political crisis emanating from the Russia-Ukraine conflict has had.
“Supply chains have been shredded. Price escalations have been noted in the world’s most powerful nations, with inflation reaching 30 year highs in the UK and US. There is a global shortage of cooking oil and wheat supplies. Fuel and heating gas prices are escalating and it will be a huge negation to underestimate the impact of the crisis.
“Shipping costs and delays have jumped to more than 10-year highs. Currency depreciation has not only affected Zimbabwe, but it is now a global phenomenon especially in developing countries.
“Zimbabwe cannot be an isolated case. Other blocs like the European Union are increasing their interconnectedness within, to fight off the impact. Aid has dramatically fallen as focus is on Ukraine.”
But Mr Mutashu said apart from the Russia-Ukraine conflict, speculative behaviour by some local businesses was having a toll on prices, which saw the Government coming up with a cocktail of measures recently to curb the challenge.
The measures include resuming petrol blending at E10 from April 25 this year, which is expected to go up to E20 by end of this month. The Government
had scrapped the mandatory blending of petrol in January this year.
The Government has also allowed the importation of some basic goods duty-free for six months by those with free funds to ensure reasonable pricing.
The products are rice, flour, cooking oil, margarine, maize-meal, sugar, petroleum jelly and salt, milk powder, infant milk formula, tea, toothpaste, bath soap, laundry soap and washing powder.
Said Mr Mutashu: “There is a need for Government and business to increase local interventions to reduce the shocks of the global and local markets’ instability on the poor and marginalised. We can come up with a Russia-Ukraine War Market Stabilisation and Shock Absorber Facility locally.”
Economist and a member of the RBZ Monetary Policy Committee, Mr Percy Gwanyanya, said being an import-dependent economy, Zimbabwe would bear the brunt of global commodity prices.
“The recent acceleration on global commodity price increases, especially food and energy prices, on account of the Russia/Ukraine conflict, is seen as having far-reaching consequences on global inflation with Southern Africa being one of the most affected.
“The price of crude oil has almost doubled in the past year and food prices have increased by between 30 and 100 percent. This has seen a significant spike in the price of fuel locally and subsequent increase of almost all prices.
“Food prices mainly corn and wheat are on the increase and Zimbabwe will import significant inflation from this. The increase in global inflation coupled with fears for global commodities shortages on account of the break-up of global value chains, may result in shortages of products locally. Now, this is a key concern to us as we are already battling with our own economic challenges that have seen increased volatilities in the economy,” said Mr Gwanyanya.
He added that as signs of tough times ahead were clear for everyone to see, some countries were taking prompt measures to turn the curve including restricting exports of key commodities whilst others were limiting the amount of product purchases per individual.
“As a country we need to act to minimise the effects of the impending crisis. It’s therefore unsurprising that the Ministry of Finance extended a temporary waiver of duties for basic commodities to support stocking of the same before the global shortages and inflation intensify,” Mr Gwanyanya said.
He said in Zimbabwe, the effect of global price increases has been minimised by the Foreign Currency Auction system, which supported access to affordable foreign currency by businesses, who would then pass the benefit to consumers.
“This has resulted in relatively cheaper products in Zimbabwe compared to the region. The fact that our oil expressers are selling edible oils up to the borders supports this assertion. However, it’s common cause that we are not realising the full benefits of the Foreign Currency Auction system as most local business people are bent on abusing this system for personal gain as opposed to economy wide benefits.
“A lot of businesspeople are not passing on the benefits of cheaper foreign currency to the ordinary person as they continue to charge higher prices. It’s disheartening that it’s the common man who bears the brunt of the unscrupulous business practices bordering on abuse of the Foreign Currency Auction system,” Mr Gwanyanya said.
He said while the forex auction system has its own challenges, mainly the mounting backlog of payments and “overvalued” exchange rate, these can be sorted out.
“It is comforting that the RBZ has adjusted the exchange rate in line with the willing buyer willing seller matrix. We expect to see rationalisation of demand for forex in the coming weeks, which will lend credence to exchange rate stability.
“Importantly, the funding of the backlog which is expected to happen this week, will be a key relief to the participants at the auction system. Going forward, we expect a properly functioning system as RBZ scales up its supervision function to deal with errant and unscrupulous players who abuse the system to the detriment of the whole economy,” said Mr Gwanyanya.
Zimbabwe National Chamber of Commerce Chief Executive Officer Mr Christopher Mugaga said it was difficult to “discount the impact of the Ukraine conflict on the local economy”.
He added that since the Russia-Ukraine conflict is expected to drag for much longer, the threat of inflation remained elevated in the short to medium term.
Russia President Vladmir Putin has previously said the provision of weapons to Ukraine by the EU and the US would prolong the special military operation.
Pan African Chamber of Commerce board member Mr Langton Mabhanga yesterday conceded that the geo-political issues in Eastern Europe were having an impact on the local economy, but implored the RBZ to be “more vigilant and innovative” especially in providing 21st century leadership to the financial sector through relevant and responsive Monetary Policy strategies that edify Vision 2030 of an upper middle income economy and the National Development Strategy 1.
“The heavy local currency balances in banks must be strategically deployed and managed. We need novel policy interventions that ensure delivery of the entrepreneurship revolution being instigated by Zimbabwe’s Education 5.0 model and innovation hubs at every State university.
“These exploits of the youths must not just be funded but commercialised. Instead of banks and some in the financial services sector going to create separate innovation hubs, we could desist from re-inventing the wheel but rather, support the infrastructure established by the Government in the universities.
“Failure to help banks to appropriately deploy the local currency balances towards funding bankable entrepreneurship and productivity enhancement projects, hot money generated by these institutions will spur inflation. The same applies to corporations making huge profits in local currency, yet they end up chasing the US dollar as a means of preserving value of the money.
“Profits made in Zimbabwe’s economy must essentially be directed to grow this economy, not kill it through illicit currency trading and price gouging. We need effective financial intelligence systems that protect our economy.
“Let’s get these fundamental macro-economic hygiene factors dealt with now. Consumers can pledge solidarity to Government and monetary authorities by staying away from brands, banks and companies that are colluding against the Zimbabwe economy. It is our economy, together as Zimbabweans,” said Mr Mabhanga.
The economy scored a growth rate of 5,8 percent against the backdrop of the Covid-19 pandemic, and a surplus current account balance in 2021 and home-grown climate change proofing strategies that now provide food sufficiency cushion despite a depressed 2021/2022 season.
Mr Mabhanga said Zimbabwe continues to aggressively build its own infrastructure principally roads, dams and other water projects, using local resources, hence the need to harness all internally generated funds to ensure they are not used to cause pandemonium in the market.