Government in Catch-22 situation


The government, which has been toying around with informal price controls since the food riots in January 1998, and is threatening to formalise them if millers do not rescind a 15 percent price increase in flour they introduced in February, is in for a fix. The controls are apparently not benefiting anyone.

Manufacturers have nearly been brought down to their knees. Food inflation has more than doubled despite the controls. And the government could end up paying $10 million a day if the Grain Marketing Board continues to sell maize at $3 000 a tonne.

Millers are threatening to shut down if the government gazettes controls, but they believe the introduction of price controls could force government to look at subsidies properly.

With millers already heavily indebted, the government is not likely to allow them to collapse because if they do this could plunge the country into a financial crisis as they owe banks $2.5 billion.

But if prices are increased, the government could face a backlash from the public.

With Workers Day just weeks away the Zimbabwe Congress of Trade Unions, whose key leaders, Morgan Tsvangirai and Gibson Sibanda, have indicated that they would like to enter into politics, could take advantage and call on workers to demand wages well above the February inflation rate of 50 percent since wages are now generally below 1980 levels.

According to the Confederation of Zimbabwe Industries, although the industrial body agreed to cooperate with the government on informal controls to avoid social and political problems, the government has been insensitive to their plight of late.

Since the informal controls in February last year, the baking, milling, oil and fats and sugar industries have lost $2.25 billion with the milling industry incurring the biggest loss of $1.2 billion.

The baking industry has lost $500 million, the oil and fats industry, $300 million and the sugar industry, $250 million.

The CZI says its members can no longer contain the costs which have almost doubled since the agreement with the government.

Maize which was pegged at $2 400 has gone up to $4 600 with imported maize costing $7 300 a tonne. Oilseeds have gone up from $5 600 to $8 300 while imports costs $9 500 a tonne. Wheat has increased from $4 600 to $7 300 with imports costing $8 300.

Although the three industries applied to the government for a price review on December 4 and an agreement was reached with government officials on December 13, with the intention being to increase the prices before the new year, there was no response until January 21 when millers informed the government that they were going to increase the price of flour by 15 percent with effect from February 1, and by 20 percent in March and April.

No increases for sugar and maize were implemented as they were in a less critical state . Although the government finally approved a 20 percent increase for sugar on April 8, the delay had already cost the industry $120 million.

Millers said they were losing $2 500 a tonne on every tonne of flour they sold from mid- December to the end of March.

Since they process 1 000 tonnes a day, this meant they were losing $2.5 million per day, the CZI says. It says TA Holdings, which runs Blue Ribbon Foods, incurred a loss of $42 million in the food division alone while National Foods had to pass a dividend for the third year in a row.

“Despite these losses, these companies were still required to pay their assessed taxes on other operations and this, plus the higher costs of operating and holding stocks has forced all the food companies to increase their borrowing. These now stand at over $2.5 billion and the bankers have said no more,” the CZI says.

“Despite all the discussions we have had with the government and the task force (on prices), in particular, over the past year, they still show no understanding of the effect that this situation is having on individual companies or industries concerned,” the CZI says.

“They have not acknowledged the contributions of the companies to the general welfare of the nation over the past year and instead have threatened formal controls if the industry does not go back on its decision to increase prices outside of the informal control system.

“We have welcomed formal controls since in our view this will then force the government to deal with the issue of subsidies properly through the Ministry of Finance instead of forcing the private sector to make sacrifices they cannot afford.”

The CZI says if the government fixes the price of bread at $9.50, retail, they will have to sell wheat at $4 000 a tonne since flour currently costs $7 920 a tonne. It says this will cost the government $150 million a month and the GMB will have to be the sole supplier of wheat to the industry. Buying existing stocks of wheat in the private sector will cost at least $750 million, it says.

With maize landing at $7 300 a tonne and the new crop expected to cost $5 000 a tonne and the GMB selling it at $3 000 a tonne, the government will have to pay a subsidy of $10 million a day.

“Soon, the oils industry will require a 50 percent increase in their prices to accommodate the higher cost of the new crop and another 20 percent increase in flour prices is expected in May.

´There are no maize stocks in the country and we are living from hand to mouth on imports from South Africa. Any delays in delivery or any increase in consumption will disrupt the supply of basic staples to the urban population.

“If the ministry controls the price of flour without providing wheat at the required prices, the millers will be forced to stop production. The effect of that would be felt very seriously on basic food supplies.

“We use 35 000 tonnes of wheat a month and about 75 000 tonnes of maize,” the CZI says.

But the government is in a Catch 22 situation. Despite price controls food inflation has risen from 24.2 percent in February last year to 65.7 percent in February this year. According to the Consumer Council of Zimbabwe the cost of basic food items for a family of six ( a father, mother and four children) has gone up from $1 288.49 in February last year to $1 639.32.

This basket only consists of two by 2kg of margarine, three packets of 20 kg roller meal, 10 kg of sugar, 750 grammes of tea leaves, 1.5 litres of cooking oil, a pint of milk every day, a loaf of bread every day, meat and vegetables.

Other basic requirements such as transport, drinks and tobacco, soap, rent, health, education, clothing and footwear and household goods have gone up from $3 469.50 to $3 571.87. A family therefore now requires at least $5 211.19 a month for these basic requirements up from $4 757.99.

The Consumer Council clearly notes that these items “are only the basics that a human being cannot go without” but it also points out that the majority of Zimbabweans do not earn anything close to that figure.

Even the ZCTU has been trying to bargain for a minimum wage of $2 400 which would only meet half the requirements of such a family. The CCZ says the majority of people in Zimbabwe earn less than $4 000 a month and are therefore in the red.

It says these people cannot depend on their salaries and because they do not know exactly how much they are spending on basic food this has resulted in squabbles among families. Most of the families are now having to supplement their incomes by selling fruits and vegetables and running small tuckshops.

Women, the backbone of ZANU-PF support, are even in a worse position.

According to Regis Mushininga of the Zimbabwe Congress of Trade Unions although a family requires about $5 000 a month most women are required to make do with a monthly allocation of between $500 and $1 000 a month. But he also argues that in some cases, people have to make do with reduced earnings because real wages over the years have been declining with the exception of electricity and mining where wages are at least better than 1980, which was sued as the base, but are still below the peak in 1982.

All the other sectors have seen a decline with 1992 generally the worst year for most sectors. Wages in agriculture for example are now 85 percent of those in 1980.Manufacturing is down to 89 percent, construction 66 percent, distribution 75 percent, public administration 60 percent and domestics, 25 percent.

Overall wages are down to 88 percent having slumped to 67 percent in 1994.

With this data, the Zimbabwe Congress of Trade Unions is likely to make a meal out of it when it organises its May Day celebrations. The labour movement has been getting real wage increases since 1994, demanding wages above inflation but with inflation in February at 50 percent, most employers are not likely to afford such increases.

But having seen their wage increases for last year wiped off by a spate of price increases soon after the collective bargaining exercise, workers are likely to demand even higher wages. Recent examples of demands for increases of up to 200 percent by some parastatal workers cannot be completely ruled out.

With elections around the corner it is difficult to predict what the government will do, but any huge salary increases will not only fuel inflation but could also see a number of company closures.


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Charles Rukuni
The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.


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