THE changes in the foreign exchange system and the movement in the rate means that companies have to review prices everyday.
At the moment trends show that companies are changing their prices in line with the movement in the exchange rate.
This has however clashed with the National Incomes and Pricing Commission (NIPC)’s demands that prices should have a shelf life of three months. Tensions are already running high. Business reporter, Jesilyn Dendere spoke to Confederation of Zimbabwe Industries (CZI) president, Calisto Jokonya about the issue.
Dendere: What is the current relationship between CZI and the NIPC? We hear the relations are frosty because businesses are changing their prices in line with the movement of the exchange rate, which is contrary to the demands of the NIPC.
Jokonya: We don’t have a personal vendetta with the NIPC, we have never had any, we just don’t agree on price controls because they don’t protect the consumer or the producer.
Dendere: What is the relevance of price controls in light of the changes in the exchange rate?
Jokonya: Personally, I think they dont work because they actually harm the consumer. It forces the consumer to buy what they don’t want simply because it is cheap. The consumer should be allowed to have a choice but all the same it is the law, we have to work around the law.
The most important thing is that price controls must be proactive in the sense that they should take into account all costs incurred. They have to be dynamic and move with the exchange rate. If the exchange rate goes up on a daily basis, prices must also change daily. If it lags behind the foreign exchange rate, it ceases to be relevant. If it doesn’t take this into account making it practical becomes difficult.
Dendere: From what you are saying business will be happy to see the NIPC dismantled. The problem is that government still wants them to continue. So what should the NIPC do to remain relevant?
Jokonya: What they need to do is to always approve pricing formulas so that companies will apply in formulaic manner as and when the exchange rate moves up, and then it makes it more feasible. That was our understanding when the NIPC came on board that they would approve pricing formulas.
In that respect they have to let the system function.
Dendere: But they are not doing that. They are setting prices. The problem is that they can’t match the changes because of the exchange rate movement. Why do you think they should continue to be around?
Jokonya: The NIPC is an act of parliament so any changes have to be made in parliament but at the moment there is no parliament or any presidential power to instill changes or repeal the act. This is a parliament issue but parliament is not sitting. As law abiding citizens we have to stick to the law as it is.
Dendere: How will the changes in the foreign currency exchange policies affect businesses?
Jokonya: It is going to enhance business because now businesspeople can go out there and look for foreign currency without going to the black market, that’s the way to do business in any economic environment. It is happening the world over.
In a way it encourages people to work hard and at the same time promoting a formal way of doing business. It also eliminates indiscipline which is something that we don’t want in the business community. The black market was illegal. At least now, it won’t be a crime for one to be found with foreign currency in their pocket
Dendere: Have any changes been noted within companies since the inception of the willing buyer, willing seller system?
Jokonya: Though it is still too early to come up with a conclusion, yes changes are beginning to show as evidenced by the queues in banks with businesspeople selling and buying foreign currency, the parallel market dealers have not been as active.
Dendere: How has business responded to the new $300 trillion SPPC Mitigation Fund. Other analysts have argued that it is not enough to cover the damage caused by the adverse effects of price controls.
Jokonya: It is not damage as such and money is never enough. From my own understanding, the fund was put in place to help the vulnerable (poor), instead of subsidising everybody. It should be for those who cannot afford. It will mainly help those who are in the food industry so as to increase production and revive the economy.
Dendere: NIPC says businesspeople have distorted the monetary statement to suit their drive to have price controls removed – is this how business has interpreted the statement, have you as business called for the removal of price controls?
Jokonya: The statement is very clear to everybody, the governor made a suggestion and gave advice to the NIPC that they should accommodate changes that are occurring and NIPC has got to take cognisance of all factors in their pricing system.
As far as the central bank is concerned, the NIPC should accommodate all the dynamics of what is happening in the economy at the moment.
NIPC has to accept that things are changing, accept that foreign currency is a key component in production and that its rate is changing daily. We are not saying it be abolished, it is governed by an act of parliament, it is law we cannot dispute that. What we are saying is they need to realise that there are changes coming into the act. It requires dynamism from all sectors.
Dendere: NIPC says businesspeople are taking advantage of the new foreign currency exchange rate system to hike and apply for ridiculous price increases.
Jokonya: That is a misinterpretation of what is happening in the economy at the moment. Does the NIPC agree that the foreign exchange rate is changing daily? If they are aware, what do they expect business to do. In a way, it is a suggestion that business is the enemy.
They should not ignore issues to do with viability in the production cycle. Business has to remain viable at the same time observing the law. Business cannot afford to run at a loss in this economy.