New pricing law to stifle market growth

July 1, 2022

RYAN CHIGOCHE

 

The emergence of a new pricing law criminalising the use of any other exchange rate except the interbank rate in commercial transactions signals the return of price controls, experts have said, warning the move will stifle market growth.

The government has also legislated the use of the United States dollar and the Zimbabwe dollar using the interbank rate in a multi-currency regime.

The new measures under Statutory Instrument 118A of 2022 (Presidential Powers (Temporary Measures) Amendment of Exchange Control Act Regulations, gazetted this week, are part of efforts to instill confidence in the depreciating local currency.

The new law provides criminal and civil penalties including US dollar based fines, suspension or cancellation of business licences for offenders among other penal measures.

The law will be valid for the duration of the government economic blueprint, the National Development Strategy 1, which runs up to 2025.

Confederation of Zimbabwe Industries president Kurai Matsheza said there was no need to control the exchange rate “because the market will determine that price”.

“Maybe it [the government] is signalling that it won’t be a market price but there will be control somewhere and we are (forced) to be working within that controlled interbank rate. If that interpretation is correct that is equivalent to price control and as we all know price controls have never worked,” Matsheza said.

He said the multi-currency system has always been operating like that and does not understand what the government wants to achieve by coming up with legal instruments.

Economics lecturer at the University of Zimbabwe, Moses Chundu, said the government has effectively introduced price controls.

“It’s price control by another name with all the negative outcomes of price controls that we have seen before,” Chundu told Business Times.

“Laws should be enacted to regulate the market not to stifle or fight markets. The markets always find a way of winning.”

Added Chundu: “An SI is a legal instrument though of a lesser strength than an Act but the real question is on what will be done differently to ensure economic agents comply with an Act when they could not comply with an SI.

It comes down to enforceability and if a law is created to be broken it makes it very difficult to enforce.”

The economy has continued to deteriorate. To control the situation the government has tried to use Statutory Instruments.

The use of these instruments in the economy has been pointed out as one of the reasons there is no confidence as it brings about unpredictability which is bad for business planning.

A legal expert Nqobile Munzara said the frequent use of SIs by the government was criminalising business people.

“If you look at the fines and penalties, people are going to be arrested and it’s a very unfortunate situation because business leaders end up spending more time trying to understand the SI and navigating around the law instead of focusing on the core business their companies have been set up for,” Munzara said.

“This will take us back to 2008. We know the evils of that as lawyers spent a lot of time navigating price controls for clients. And so we know where it leads to when we start having these statutory instruments come out criminalising business activity.”

A price freeze or control usually results in subdued production or better still, limited supply to the formal retailers where prices are controlled.

As a result of this law the US dollar prices are expected to be inflated as business people try to cushion the local currency price which is going to be strictly at the interbank rate.

Another likely occurrence is that people will see more empty shelves as manufacturers will channel their products to the informal sector where they can recoup the greenback which is easily available in the informal economy.

 

Related Articles

0 0 votes
Article Rating
Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments
Back to top button
0
Would love your thoughts, please comment.x
()
x