Results Out On Drivers Of Price Hikes, Impact Of Import Duty Removal
The Competition and Tariff Commission and National Competitiveness Commission conducted a joint study on the pricing disparities of basic commodities, cost drivers of recent price hikes, and impact of import license and duty removal on price stabilization.
The Ministry of Finance and Economic Development recently implemented measures to stabilize Zimbabwe’s exchange rate and macro economy, including lifting restrictions on importing basic goods. The Ministry also listed 11 basic commodities benefiting from the policy: maize meal, rice, milk, flour, salt, cooking oil, sugar, petroleum jelly, toothpaste, bathing soap, and washing soap.
The study, conducted by various government agencies, assessed pricing disparities, investigated cost drivers of recent price hikes, monitored the movement of basic commodities into the informal sector, and tracked the impact of import license and duty removal on price stabilization.
Summary of Findings:
Price increases of basic commodities in Zimbabwe have been witnessed in local currency (ZWL) terms, while remaining stable in the US$ informal market, indicating that the exchange rate is the primary driver of price increases. US dollar-denominated cost drivers were relatively stable compared to those charged in ZWL, suggesting a positive relationship between the depreciating exchange rate and increases in ZWL-denominated cost drivers.
The lower prices in the informal market are due to local manufacturing discounts for US$ and attractive cash purchase terms over ZWL purchases. Smuggling of basic commodities such as toothpaste, washing powder, and bathing soap into the country is evident, finding their way into the informal market.
The removal of import licenses and duties on basic commodities may strengthen price stabilisation in US$ terms in the informal sector, but it is unlikely to stabilise ZWL prices due to the pricing models of local manufacturers heavily linked to exchange rate movements. Removing duty and licenses on imports of basic commodities will harm local industries producing maize meal, toothpaste, and washing powder as these products are not competitive against imports. For maize, the producer price set by the government is higher than in countries such as South Africa and Zambia.
The report made the following recommendations:
- liberalize the exchange rate to allow market forces to determine prices and attain efficiency,
- properly fund the Reserve Bank of Zimbabwe (RBZ) to purchase export surrender in a money supply-neutral manner,
- carefully manage large payments to contractors to avoid surges in local currency liquidity,
- monitor all sources of money supply growth by the RBZ to contain exchange rate movements,
- reverse the opening of imports for mealie meal, toothpaste, and washing powder in the short run to protect local industry gains and domestication of local value chains in line with NDS1 aspirations.
- The Zimbabwe Revenue Authority (ZIMRA) must strengthen measures to combat smuggling of imported goods, which could reverse the country’s reindustrialization. ZIMRA should also conduct post-clearance audits to ensure that foreign goods sold on the local market follow customs procedures properly.
