Punitive interest rates spark fresh price hikes

LIVINGSTONE MARUFU / LETTICIA MAGOMBO

High interest rates and inflationary pressures have triggered fresh price increases of basic commodities and raw materials amid revelations the industry is battling high production costs.

Two weeks ago, the Reserve Bank of Zimbabwe hiked the bank policy rate to 200% from 80%, meaning higher interest expenses have hit companies’ bottom line and driven down cashflows.

Annual inflation for the month of June surged to 192% from 132% in May.

“There are serious concerns over the high interest rates which are affecting business operations,” the Confederation of Zimbabwe Industry president, Kurai Matsheza told Business Times this week.

He said most businesses have increased prices to survive these onslaughts in the economy hence there will be some difficulties in stabilising prices.

“The increase in interest rates will push up the cost of doing business, this has happened and prices of goods in shops continue to rise relentlessly,” Matsheza said.

He said some banks have started removing overdraft protection to ensure that companies honour their obligations on time.

It also means that most local companies will find it difficult to start new projects or expand as they will not easily afford to take out credit, due to higher charges.

The government said the sharp increase in the cost of borrowing, the second in a space of three months, was part of efforts to tame the unrelenting annual inflation rate and discourage borrowing for speculative purposes.

But, Matsheza said the businesses have been exposed as firms depend on borrowing to survive.

He urged the authorities to review the interest rates to reasonable levels to do the balancing act on industry survival and cut borrowing for speculation purposes as this will make our goods uncompetitive.

Economist Gift Mugano said authorities should first consult before coming up with a unilateral decision on a rate hike.

“There is no bonafide business which has the capacity to absorb a 200% interest rate where it can get good margins unless there is something that business is doing to survive,” Mugano said.

“The consumers will concentrate on basic commodities which have no option but to buy them but volumes of purchasing will certainly go down thereby affecting companies that manufacture those goods.”

The aggregate demand has seriously gone down resulting in companies pushing the prices up to survive.

In its latest report CZI said the trajectory of price increases was a clear sign of the worsening situation for consumers.

“The price of cooking oil and bread is thus now out of reach for many people, especially those earning in local currency, despite them being considered basic products by many consumers,” CZI said.

CZI believes electricity was the biggest  cost driver of prices  resulting in an increase in the cost of production.

“The highest increase on a month on month basis was electricity, which increased by 218% from May 2022 to June 2022. This has a direct bearing on the cost of production, which in turn results in increases in the prices for goods and services,” the country’s biggest business lobby group said.

A  survey conducted by Business Times revealed  bread was now selling at  ZWL$700 per loaf from ZWL5$60  at the end of June while a 2kg bag of sugar was selling at ZWL$1699 from ZWL$1200 two weeks ago.

A 2kg of flour was this week selling at ZWL$1499 from ZWL$1100 a fortnight ago while 2litres of cooking oil was at ZWL$3699 from ZWL$2880 a fortnight ago and a 10kg bag of mealie meal was selling at ZWL$4000 from ZWL$3200 a week ago.

“We are not managing; we are not able to buy anything from the big chain supermarkets because of the rapid price increases and the exorbitant ZWL prices. Right now we are finding it cheaper to purchase food items from our local tuck shops because they charge in US$,” a consumer, Zivanai Guguta, told Business Times.

Another consumer Chipo Musandu said, “We are not able to buy anything from the big shops because everything there is too expensive and with the way the US$ to ZWL$ is rising it’s making the situation much harder for us. When we are able to get ZWL$ we buy but even then the situation continues to be difficult for us. We are finding it easier to purchase goods in US$ despite shops offering both currencies as a method of payment.”

“As a vendor I am able to survive on a hand to mouth basis. The little money I make I can immediately go and purchase goods but even with that things are becoming more difficult for me. Before it was easier for me to sell my produce and then be able to purchase what I needed but the situation has changed drastically. People are not buying as much as they used to,” she said.

The Consumer Council of Zimbabwe’s (CCZ) said prices of basic commodities have increased unabated as some retailers were now selling exclusively in foreign currency.