Zimbabwe Review

Reflections on Zimbabwe

When all are forced into short term self-preservation mode

Posted by CM on July 11, 2007

In the Mail and Guardian, July 11 2007 :

Zim businesses strike conciliatory tone

At a conference organised by the Harare Chamber of Commerce to discuss the impact of a recent government order to slash prices across the board, Zimbabwe business leaders struck a markedly conciliatory tone to the government over its controversial price controls, pledging to make goods more affordable and accepting there would be no let-up of a crackdown that has seen hundreds of retailers arrested.

“There is no doubt that business have been affected by this directive… it is also important to recognise that business has an obligation to produce goods and services to satisfy demand at affordable prices,” Ozwel Bimha, chairperson of the Chamber of Commerce, told delegates. “In order to achieve this it is important for business to acknowledge that there was need for some intervention to avert this crisis.”

Andy Hodges, head of treasury for the Zimbabwe Allied Banking Group, said the business sector had played into Mugabe’s hands with their price increases. “In essence we set the stage for intervention as the government perceived prices increases as a third force,” Hodges told delegates. He said the price increases over the past two months were as a result of manufacturers and retailers who were basing the price of their products on future inflation forecasts.

Manufacturers say the government-set prices mean they cannot cover their costs and have stopped production, leading to widespread shortages of staples such as cooking oil and salt.

Brains Muchemwa, a leading Zimbabwean economist, told delegates it was important the business sector was not at odds with the government. Business and government have to walk in one direction “but in this case business seems to be trailing behind,” he said. Muchemwa also expressed concern oat the loss of value of the local currency, saying this has resulted in no one wishing to have the Zimbabwe dollar in large quantities “except if it is being used for speculative activities.”

The “conciliatory tone” of business is entirely understandable given that this the first time that the business elite has been targeted for mass arrests in light of the price wars of the last few weeks. The arrests have achieved the intended effect of shocking and intimidating business.

The “obligation for business to produce goods at affordable prices” rests to a large extent on the prevailing overall economic situation, and in government micro-managed Zimbabwe, that responsibility rests disproportionately on the state. The “obligation to produce at affordable prices” depends on business being able to compete “normally.” Instead, over the years we have had a situation in which many businesses have been driven under, creating effective monopolies in many sectors, especially in those producing many of the basic commodities.

Monopoly = price gouging, almost always, based on the science of human nature! Create an environment of lots of competition, and it is very difficult to sustain profiteering.

The government is quite correct to perceive “price increases as a third force,” as Hodges put it. But a “third force” created by the circumstances government bears more responsibility for than any other sector for creating, not one that can be laid at the doors of any nebulous “enemies of the people.” And Hodges explains the ‘human nature’ of the businessperson very well by pointing out that in a situation of the uncertainties about tomorrow created by the kind of inflation levels Zimbabwe is experiencing today, that businessperson must try to stay in business by guessing what the replacement costs of his stock will be tomorrow.

The only limiting factor in his pricing imagination in such a scenario, compounded by shortages, is what price the market will bear. The businessperson may just dream up a price figure, even far beyond what can be justified by fears of tomorrow’s replacement costs, and if the situation allows it, far more. If there are still people in the system able to afford his perhaps ridiculous price ( hard-currency paid NGO and private sector workers, embassy personnel, those supported by remittances from the diaspora, etc), he can get way with it because there are not many other places (and none with “reasonable prices”) that the able-to-pay customers can get it, even if this further sidelines the overwhelming majority who do not have such “protections.”

This is not an effort to justify high prices, just an attempt to explain the very obvious motivations of some of the actors in this tragic scenario. It is impossible to say which is the stronger hyper-inflation pressure between (1) plain old greed and (2) genuine business-survival caused anxiety. But in either case, they are only able to exist because the environment is so particularly suitable for them to do so. Anxiety-caused hyper-inflation continuous to feed on itself, worsening the inflation. And the anxiety is not strictly economic, but also as a result of lack of confidence about the short term political situation as well, so it is not easy to wipe it out by government decree or threats. If the prices are indeed “normalised” by force for a while, the multi-faceted problem will then mainly manifest itself in worse shortages of goods.

Putting aside issues of right or wrong, everyone in this chaotic scenario is acting on short-term self-preservation instinct : the government in lashing out physically rather thinking, consumers who are happy at slashed prices even if it means the producer will not be in operation tomorrow, the business person who raises prices several times daily knowing that this can not be sustainable.

Things have reached a stage where any “solution” that pleases one sector at the expense of the connected others simply will not work. The “conciliatory” statements by business leaders may keep some of them out of jail and from being abused by the authorities, but they will not change the underlying causes that have brought Zimbabwe this low.

Whether any of us are happy with this reality of the unavoidable need for an all-encompassing, “holistic” answer to the situation is really besides the point. Like it or not, we are all victims as well as agents of this invisible, so-called “third force” that comes in the form of market forces and human nature.

Chido Makunike

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