The pot that is the Zimbabwean monetary space has been heating up. First, it was the rather sudden shooting of the exchange rate after some months of stability. Next, the RBZ chose action when it named 30 and then 47 people who were handed bans because they were accused of abusing social media and telecommunications services to influence the parallel market rate. Social media added to the storm with viral images of receipts from a popular quick-service restaurant which implied an exchange rate of 200. On Thursday the 7th of October the minister of Finance waded into the stormy waters introducing new rules to deal with the retail foreign currency price pegging aspect of the issue though these new rules seem oddly familiar.
In a 5 page document that wasted 2 and a half pages on the preamble and known issues, the Minister eventually got to the point announcing 7 measures to deal with the pricing of goods in Zimbabwean dollars and the rate used to arrive at those prices. The fact of the matter is, as has been pointed out by many observers, Zimbabwean prices are US dollar prices that are converted into Zimbabwean dollar prices. The 7 measures are;
- ZIMRA to carry out audits to determine gains from capitalising on exchange rates and tax due in respect of this.
- ZIMRA to carry out location tax audits
- FIU to continue to monitor transactions
- FIU and law enforcement to investigate and prosecute violations
- Public Accountants and Auditors Board to impose sanctions on members involved in aiding parallel market pricing and activity
- Suspension of licences for businesses that trade using the parallel market rate
- Members of the public encouraged to report instances of parallel market rate based pricing
Reading through that two main things speak out to me.
What have these guys been doing all along?
The departments mentioned and the activities they will be undertaking sound like something they should’ve been doing all along. Setting aside whether or not this is the right button to push it does sound like a reiteration of what they should’ve been doing all along. The question begs what have they been doing all along?
Price control by any other name…
Shakespeare wrote “a rose by any other name is still a rose” and I have to say it fits our situation here. I mentioned earlier how pricing in Zimbabwe is US dollar-based because historically the Zimbabwean dollar has proven a poor store of value and unit of account. If we read the plain meaning of the words here the good Professor intends to prevent any pricing that is over and above the auction-rate which stands at 89 compared to the 175 that prevails on the parallel market. This amounts to price control and we all know how that goes.
What is comical about the crusade is that government departments, including law enforcement, have also had images go viral that show they are also using rates in the range of 160 to 170. It seems there is a strange belief that certain exchange rates are acceptable while others are not. Management of the quick service restaurant accused of pricing at 200 defended the pricing by stating it is a discount offered for change reasons and the effective rate is 160. The problem with this is allowing government departments to price at 160 but holding the official exchange rate at 89 doesn’t make sense. This then seems like a case of picking and choosing which violators to go after.
Ultimately the effects of exchange rate depreciation hit consumers and citizens the hardest but so does the poor allocation and availability of foreign currency. It’s high time the powers that be faced facts; we agreed with many who said the auction system would not work from the onset.