Government threatens companies over foreign exchange

By Henry Makiwa
30 October 2007

Zimbabwean companies face severe punishment if they use the foreign currency black market to finance imports, state media reported on Tuesday.

In its latest bid to tame the world's highest inflation rate, the government will now require companies to provide proof of their import costs before they set their prices, the official Herald newspaper quoted an official of National Incomes and Pricing Commission (NIPC).

"Companies and individuals caught violating price management legislation will face the full wrath of the law," the NIPC chairman Goodwills Masimirembwa told the Herald.

He added: "We will demand to see foreign currency invoices converted at the official exchange rate to determine the selling price. The commission is, therefore, warning that law enforcement agencies will demand documentation on the imported goods. Those found not complying will be dealt with accordingly."

The state-controlled NICP is closely linked to Mugabe’s office. It’s latest statement flies in the face of the policies of central bank governor Gideon Gono who warned against any new price control measures last week and said there should be no repeat of the "anarchy" triggered by the price freeze.

Food shortages have worsened since Robert Mugabe's government ordered businesses to roll back prices to mid-June levels. The move triggered panic buying and emptied shop shelves. Price controls led to a slowdown in inflation in August but the official figure shot to a record 7,900 percent last month.

Economist John Robertson says Mugabe’s policies of forcing the economy to “bend to his muscle” will not work.

He said: “Its unfortunate that Mugabe thinks that using force and printing more money will bring the desired effects.

“For starters it is impractical for companies to acquire foreign currency on the formal market because it’s just not there. Businesses therefore rely on the black market and they have many more costs to consider in transport and administration, so they can’t be taken to be investigated for every little thing they do. The new measures will only push the basics out of the shops again.”

Government has only allowed retailers to set prices at 20 percent above the wholesale price, and the pricing commission has said it would allow firms only to calculate import costs by using the official exchange rate.

The official rate is Z$30,000 to the U.S dollar. But the local unit trades at an estimated 30 times weaker on the black market, where most firms source their foreign currency due to shortages on the formal market.