Runaway prices spark fears of economic collapse

Grace Moyo

The unrelenting free fall of the Zimbabwean currency against the United States Dollar that has prompted skyrocketing prices has the nation on the edge of an economic precipice ahead of elections expected in August.

President Emmerson Mnangagwa has accused businesses of trying to sabotage his electoral fortunes in the upcoming elections by increasing prices of basic commodities.

The president’s reaction comes hard on the heels of an escalating  black market foreign exchange rate that now stands at ZW$ 4 000 to the United States Dollar. As a consequence to the sharp rising black market rate, businesses have massively increased their prices to try and keep up. 

Consumers are bearing the brunt of the worsening economic situation which has rings of the collapse of the economy in 2008 that resulted empty shelves as basic commodities disappeared from shops only to reappear on the parallel market at a premium. So rare were  basic commodities that  queues became the order of the day.

In that year, the inflation rate accelerated uncontrollably, from a rate in January of over 100,000% to an estimated rate of 250,000,000% in July. This hyperinflation was linked to the central bank’s increase of money supply in response to rising national debt. There were significant declines in economic output and exports, and political corruption was coupled with a fundamentally weak economy.

Trepidation of a return to 2008 conditions has pervaded the nation and restorative action is urgently needed. The ruling Zanu PF and the president view the latest developments as the works of political detractors throwing spanners in their works.

A 10kg bag of  Red Seal Super Roller Meal is now priced at $27 999, while a 375ml tin of peanut butter costs $131 310, and a tin of baked beans costs $5,820. 

“The government must nip this development in the bud otherwise we are headed to a hopeless state of year 2008 proportions. They must admit that the local currency has failed.

Some basic products are slowly disappearing from shelves as businesses prefer greenback transactions. There has been a build up to the madness as some retailers have been selling some basic commodities only in USD for some time now.

If government does not deal with this, they risk rejection at the polls. It is in their interests that they act decisively now,” said Oswald Ndlovu, an academic and political analyst.

The disturbing developments have rattled the corridors of power and this was evident in President Mnangagwa’s Sunday Mail weekly column where he accused the business sector of betrayal and implied that businesses were fighting a political battle against him.

“We even wonder if at all we are dealing with business anymore or with the politicians disguised as company executives seeking a political upset. Equally, politicians seeking to engineer market failures for definite political outcomes will be dealt with as political opponents and through rules of appropriate politics,” Mnangagwa said.

It was not immediately clear what the president meant by “rules of appropriate politics” but his warning sounded ominous and it remains to be seen how the rules would be applied.

The president also took a swipe at businesses that have been playing dirty in order to sell in USD only at the expense of other methods of payment that use the local currency.

“We are even aware of certain businesses deliberately disabling point-of-sale gadgets to force the consumer to buy key goods in one currency, contrary to the laws of the land.

“Any business practices which suppress the use of any currency recognised by our laws are both illegal and do undermine this unique and most favourable position which is found nowhere else in the world.

Edith Sibinda of Tshongokwe in Lupane says her area has not so much as witnessed the price madness and that she  hopes the situation does not escalate to a full blown crisis that would not spare communities in rural areas.

“As of now, there have not been any dramatic changes in terms of inflation. We are reading about it on social media but if it has started in urban areas and is not controlled, we need to brace ourselves for what is inevitably coming our way.

I am not sure what the cause could be but it may be linked to elections. The ordinary people and vulnerable groups are the hardest-hit by these price increases. We pray that this is resolved before it becomes worse,” she said.

Last week, opposition MP Tendai Biti asked Parliament to summon Finance Minister Mthuli Ncube to explain his s “blended inflation.”  concept. Through Statutory Instrument 127, government recently introduced a new mechanism for measuring inflation using a weighted average of items priced in Zimbabwean dollars and United States Dollars in a blended form.However, Biti dismissed the move saying it defies economics and science as he contended that inflation can only be measured in one currency whether in Zimbabwean Dollars or United States Dollars. He added that the measure was an insicere ploy to mask rising inflation.

Biti found an ally in Norton MP, Temba Mliswa who called for the immediate jettisoning of the local currency. “It has become imperative that the Zimdollar be set aside as a matter of convenience. This inflated ‘patriotism’ that glorifies even what isn’t working should end,” said the outspoken Mliswa.

Crisis in Zimbabwe Coalition chairperson Peter Mutasa told a daily paper that those feeling the economic heat would express their discontent through the ballot.

“The currency problem and its concomitant effects will be an important factor in the upcoming elections. The majority of voters are feeling the heat. People have not been able to express their anger by way of protests. They will do so in the ballot box,” Mutasa said.

National Consumer Rights Association co-ordinator Effie Ncube said government should deal with the root causes of inflation.

“Food inflation  will worsen poverty and hunger in a population where millions are already living below the poverty datum line.Instead of addressing symptoms, government must address the key drivers of price hikes. Shortage of foreign currency has been pushing businesses to source it at a premium on the black market.”

“Purchasing power of the Zimbabwe Dollar is declinining because the market has lost confidence in it. Everything that is denominated in the local currency is skyrocketing and is also affecting prices in other currencies,” said Ncube.

The government, however, is digging in and has not entertained any suggestions to drop the local currency for the US dollar despite calls for it reaching a crescendo. 

Recent efforts by the government to stabilize the currency have yielded very little if any in an economy that is dollarising rapidly. The measures include the 2022 declaration of gold coins as legal tender and rolling out a gold-backed digital currency earlier this month. Minister Mthuli Ncube recently attributed the economic instability to what he called a “skewed preference for the U.S. dollar as a savings currency.” The other measures taken include removing restrictions to allow people with foreign currency to import basic goods without paying duty.

In October last year, the International Monetary Fund (IMF) expressed its reservations at the gold coins as a missed chance to build the nation’s gold reserves. An IMF spokesperson said, “The sale of gold coins has contributed to withdrawing Zimbabwe dollar liquidity from the market, though it represents an opportunity cost in terms of foregone reserves for the Reserve Bank of Zimbabwe.”

With elections looming, the government  may be feeling the heat and is hard-pressed to prove its mettle. It remains to be seen how it deals with the currency crisis.