Skip to main content

Ignore economics, Impose a price and punish anyone that disagrees: Zimbabwe`s approach to price controls.

Image result for price controls in zimbabwe
Industry and Commerce Minister - Mike Bimha
In the midst of the high drama ensuing in Zimbabwe following the expulsion of former Vice President Emmerson Mnangagwa, news that the cabinet had endorsed the decision to set up a special task-force on price stabilisation and supply of essential commodities – basically meaning price controls – largely went unnoticed. It comes as no surprise however, given the way politics seem to take precedence over key economic issues in Zimbabwe. Interestingly, Zimbabwe has been here before, and the results are almost guaranteed to result in wide-scale shortages and a flourishing black market.




Renowned Economist Milton Friedman once said, “We economists don`t know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can`t sell tomatoes for more than two cents per pound. Instantly, you`ll have a tomato shortage.” The suits in government however do not seem too bothered to be flouting even the most elementary law of economics, even when faced with solid evidence of how such a course of action has failed in the past. You know what they say about doing the same thing over and over again and expecting different results – the quintessence of insanity.

Zimbabwe`s Industry and Commerce minister, Mike Bimha was quoted in one of the country`s dailies saying, “When companies operate, they operate on the basis of licensing and permits, which Government has a leeway to withdraw if a company is not behaving as required.” This, in reference to what government perceives to be unjustified price hikes on essential commodities such as cooking oil, flour, rice and fuel etc. of late. Minister Bimha`s tone is hardly surprising to the discerning observer, as Zimbabwe`s government has often favoured to use the stick as opposed to the carrot, and unashamedly so.

Revoking business licenses, throwing people in jail and other similar actions by the government are not the solution to the deep-seated problems the economy is facing. The trader selling vehicle spare parts along Kaguvi street in Harare needs to source foreign currency to import his wares and re-stock, on the parallel markets where rates are on the up daily for reasons known to us all. Hard currency is now difficult to access, and the privilege to transact with the greenback offshore, will cost one an arm and two legs.  And without factoring this movement in the RTGS/Bond to USD exchange rate, margins would be wiped clean, and most traders would simply shut shop. Be that as it may, government sees price increases on the local market as being driven by greed and indiscipline.




This phenomenon is not peculiar to Zimbabwe alone however. In Venezuela, President Nicolas Maduro signed decrees to control the prices of new and second-hand cars, also accusing criminal gangs and “western-imperialist economic saboteurs” of creating artificially high prices – sounds familiar right? Mr Maduro even went further, declaring that anyone caught breaking the law would face jail sentences of 6-12 years. The results in Venezuela have been long queues and empty supermarket shelves, and one does not need to be a prophet to see what lies ahead locally.

Contrary to what the suits in Zimbabwe`s government may think, price controls are never a perfect response to market inefficiencies, but in fact, are a mistaken response to a market that is being too efficient in its response to structural economic challenges. This then, is where Mr Bimha and his team should be focusing their efforts. Attempting to control prices will just be akin to chasing the wind, but it appears Zimbabwe`s government reckons it has a realistic shot of achieving this feat.




Even after imposing the most primitive of punishments, for flouting price control regulations, this intervention never yields the intended benefits ever. History is replete with such examples. Consider, the case of Roman Emperor Diocletian who in 301 AD blamed the rapid rise in prices to the “avarice” of merchants.  He then imposed the death penalty on anyone who sold commodities at prices higher than those he had gazetted.

The penalty was also imposed on anyone who attempted to hoard goods or buy them at a higher price. The result however was that so many people died under that law to the point that it was eventually repealed, showing that in some circumstances, people would rather die than comply. It is commonly said of price controls that, in almost every place they have been enforced, you`ll find a story of overreach followed by a lesson in humility. Zimbabwe`s government would do well to take heed, and address the root structural problems facing the economy, and not the symptoms.



Comments

Popular posts from this blog

Black Friday 1997: How the Zimbabwe dollar crashed and tipped the economy over the brink

14 November 1997 – dubbed “Black Friday”-  is a day that will forever be etched in Zimbabwe`s economic history as the cataclysmic point that triggered Zimbabwe`s economic free-fall. Below is a brief chronicle of the events leading up to this seminal day, and what ensued in the aftermaths of Black Friday. In the second decade of its independence, the Zimbabwean government launched an economic reform programme essential in liberalizing the economy and dealing with the structural impediments to growth. However, fiscal policy was weak and monetary policy unsteady during the time period; and the country suffered from two serious droughts (in 1992 and 1995), which affected Zimbabwe’s agriculture, its primary economic industry. A land reform had been a highly contentious issue since independence, as the majority of prime agricultural land was owned by about 4,000 white commercial farmers; while the indigenous population continued to engage in subsistence farming. In the first five y...

The story behind the iconic Meikles Hotel and its founder Thomas Meikle

Old Meikles Hotel Buidling 1924: Credit - Meikles Hotel Twitter Feed The 15 th of November marks the 102 nd anniversary of Meikles hotel, a hotel founded by Thomas Meikle, following on a vision he shared with his brother Stewart, of establishing a hotel on the influential site overlooking Cecil Square (now called Africa Unity Square, in the heart of then Rhodesia`s capital city, Salisbury. Meikles hotel was officially opened on November 15, 1915, on the site which now houses ZB Life Towers, along Jason Moyo avenue in Harare and currently has a capacity of over 535 bedrooms. Meikles hotel holds the honour of being the first Zimbabwean hotel to attain the coveted 5-star rating, a feat it achieved in August 1983. Hotel grading was introduced in Zimbabwe in 1968, and the first results were announced in 1969. At the time, no local hotels received 4-stars, however the Ambassador Hotel, Jameson Hotel and Park Lane Hotel (now the GMB Headquarters) received 3 stars each. Interes...

Securitising Zimbabwe`s Minerals: A Case Study

Abstract Following the dollarization of the Zimbabwean economy in 2009, the country has seen its economic fundamentals improve. Inflation has been reigned in, and the Gross Domestic Product (GDP) growth has been on an upward trajectory. However, Zimbabwe`s total external debt overhang continues to stifle the recovery of the country`s economy, as investors are not willing to lend to the country, and this has had adverse effects on the country`s Foreign Direct Investment (FDI) flows. Zimbabwe`s external debt overhang is currently estimated at around US$10.7 billion, which is a gigantic, 111% of the country`s GDP. IMF Report, (2012) To circumvent the problem of external debt, which continues to be a major impediment to the economic recovery of the country, various scholars have put forward several solutions which include, declaring Zimbabwe as a Highly Indebted Poor Country (HIPC), and securitisation of the country`s mineral resources. This study looks at securitisation of...