Fresh price controls could lead to further shortages, analysts

Economists warned of fresh shortages of basic commodities and an expanding parallel market as the Zimbabwean government announced plans for new price controls across all sectors of production, to take effect within the next two weeks. The government last week announced the introduction of a new price control structure, which includes fuel, to curb what it termed a "price increase madness" by producers, wholesalers and retailers. Eric Bloch, a Bulawayo-based economist, told IRIN the latest price control regime would precipitate a shortage of basic commodities on a larger scale than experienced before, because only a few producers are able to supply the market at controlled prices and the majority may stop production. "Should such measures be implemented, the country will experience the worst bout of goods shortages and even higher prices in the black market. As it is, we are operating in a high inflationary environment which has no prospects of improvement," said Bloch. Wellington Chibebe, the secretary-general of the Zimbabwe Congress of Trade Unions (ZCTU), called on the government to abandon price controls, to promote the revival of the manufacturing, wholesale and retail sectors. He said further price controls would force manufacturers to reduce production, while those who chose to continue would be forced to try and recover their production costs by supplying the parallel market. "The introduction of the fresh price controls is most ill-advised, and detrimental to the interests of the worker, who is the producer and consumer of the basic commodities. The prospects are [that] more workers will be retrenched, since most companies are likely to close. The chain reaction will be felt first in the manufacturing, wholesale and retail businesses, before going down to the man in the street. No-one will be able to afford the black market prices that will be triggered by the imposition of such controls," said Chibebe. By constantly reviewing price controls, he added, the government was putting the jobs of more workers on the line - a situation that worsens the high unemployment rate. "Price controls are a threat to the workers, and good for those in the business of profiteering. It is ironic that each time government announces price controls, it claims to be doing so to protect the workers from the high cost of living. If they have ever gone down to assessing the real effects of such measures, they would, by now, know that it does not only throw workers out of jobs and promote the black market, it also kills the economy in a literal sense," said Chibebe. Commodity prices in Zimbabwe increased almost fortnightly in the past two months as manufacturers, wholesalers and retailers took advantage of a lull in the monitoring of price controls, blamed on a shortage of fuel that grounded price control inspection teams, to raise their prices to what they said were viable levels. Retailers who spoke to IRIN said once manufacturers raised their prices, the rest of the sectors in the chain had to do the same to recover costs and remain afloat. "It's a do-or-die situation, because business is about viability - either we increase our prices in line with the rest, or close our shops," said one retailer. Property owners also increased monthly rentals, while a number were already quoting their rates in foreign currency to protect themselves against rampant inflation. In its monthly economic highlights last month, the Reserve Bank of Zimbabwe (RBZ) expressed concern at the declining level of formal employment, which had fallen from a peak of 1.4 million in 1998 to below 1.2 million by the end of 2001, in tandem with industrial production. Employment levels had dropped across all the major sectors, such as mining, manufacturing, construction and tourism. "New projects have been suspended due to lack of materials and prohibitive costs, while viability problems have seen a number of concerns closing shop," the bank said. Inflation now stands at 426,6 percent, with analysts predicting a climb to 500 percent by year-end. Since the government announced its intention of imposing fresh price controls last week, all the basic commodities that had returned to shop shelves at exorbitant rates had disappeared, only to resurface at even higher prices in the parallel market.