HomeOpinion & AnalysisSI 127: When two elephants fight it is the grass that suffers

SI 127: When two elephants fight it is the grass that suffers

By Learnmore Nyamudzanga

When two elephants fight, it is the grass that suffers.

Currently, there is a fight between the government and unscrupulous businesses, among others, who have been abusing funds from the Dutch Foreign Exchange Auction system.

This fight will cause ruthless suffering for the poor Zimbabweans, if it fails to achieve its intended objectives.

There are claims that unscrupulous businesses were getting foreign currency from the auction at official rate, but selling their goods and services using prices determined by black/parallel markets rates.

  • Sell in US$, but in their books of accounts, they would record them as RTGS.
  •  Selling using black market rate but record in their accounts using the official rate.
  •  Shopkeepers using their swipe cards or those of their relatives to swipe for clients buying with US$ and give them rates slightly above the official rate, but less than the black-market rate.
  •  Using the self-determined rate which would keep them in business and safe from these fluctuations.
  •  Selling in US$ and not recording them at all.

All this was happening as a public secret.

I used to ask in one of my economic groups that; who was using the official rate? The question was never answered.

I had moved from one shop to another looking for one that was charging at the official rate.

Only parastatals and local councils were using the official rate, but they had joined the band of offering discounts to clients paying rates using the US dollars.

How those funds were recorded we shall hear in future audits if they are honestly done, but I predict the abuse of those funds.

Back to the fight between the two elephants, guess who suffers in this fight, it is poor consumers.

Some businesses for example represented by the Confederation of Zimbabwe Industries (CZI) are calling for the suspension of SI 127 of 2021 I quote “CZI recommends that implementation of the SI be suspended, and urgent stakeholder consultations be held between government and business to come up with a way forward that will not jeopardise the rebound witnessed in the economy to date…”

It is clear that this fight is between government and business and poor consumers are nowhere to be found.

It is said if you are not at the table, you are on the menu.

Indeed, in all these policies being celebrated for short-lived stability, guess who carries the burden — it is poor consumers.

Let’s now give the human face to the SI 127 of 2021 from what I would call a poor consumer’s perspective.

Poor consumers were happy that in the midst of their suffering their friends and relatives in the diaspora would send them foreign currency, and they would enjoy the discounts for buying using US dollars.

We then saw the coming of an overnight non-consultative SI 127 of 2021 blocking that avenue that had brought relief to these poor consumers.

Guess who immediately felt the pain, it these poor consumers.

In this analysis, I will use RTGS instead of ZWL because most poor consumers earn RTGS electronic money and it’s a mammoth task to convert them into bond notes.

I also support the view that the government was trying to control inflation, eradicate the use of the black and informal markets, bring stability/ sanity to the foreign currency markets, and prevent abuse of the foreign currency obtained on the auction for profiteering and other opaque activity (CZI 2021).

However, I am of the view that the SI 127 0f 2021 will bring more harm than gains to the poor (consumers) Zimbabweans and time will tell.

The following points will explain how.

For long, the poor Zimbabwean consumers have been crying that the prices in RTGS were so punitive in the sense that they were pegged using black market rates even in shops like OK, TM, Mohammed Mussa, N Richards, and Metro Peach just to mention a few.

A closer analysis would tell you that these guys were indirectly using the black-market rate.

It’s just that Zimbabweans have developed a thick skin when swiping to use their RTGS balances.

Those RTGS balances are hurriedly and improperly spent with the fear that those amounts would lose value whilst in your hands, so no one would take a closer look at those prices charged by the above retails to see what I am talking about.

RTGS prices are also punitive through merciless bank charges and non-progressive 2% tax (IMTT), all these are the costs or burden that is imposed on poor consumers/Zimbabweans.

On the day the punitive SI was introduced we saw US$ prices skyrocketing so as to result in the same RTGS price prevailing prior to the SI.

To be frank, these are the prices, poor consumers have been complaining that they were pegged using the black market so, the coming of SI 127 rubber-stamped those prices meaning its suffer continue for the poor consumers.

In short, goods are now expensive in both RTGS and US$.

To make it worse this means an immediate spike in US$ inflation, a component of our blended inflation rate.

We are also coming from the background where poor civil servants are earning peanuts after the government imposed the no work no salary principle, which silenced the poor civil servants.

This may promote corruption but this is a discussion of another day, for now, it’s aluta continua.

With this SI, suppliers/businesses, in general, will charge exorbitant RTGS prices to safeguard themselves from unpredictable and unstable policies from the policy makers.

And in all these shenanigans it is the poor consumers who will bear the burden, though inflation, merciless bank charges, and regressive indirect taxes like the 2% tax (IMTT) and VAT.

This year we had received good rains and had a bumper harvest and we are forced to sell our grains to monopoly buyers which are of course parastatals like Grain Marketing Board and Cottco.

This SI will be a thorn in the flesh of farmers as we expect the parallel rate to take over and crash the market.

Farmers will be paid through a fixed price for their grains, which do not reward farmers for their efforts.

There are also fears that government is or is likely to print money to pay farmers, which is suspected to be the major driver of the recent black-market rate which the government is trying to address through the recent SI.

Even if the SI 127 of 2021 is to be reversed today, past experiences have shown that the increased US$ won’t be reduced as the businesses will be cushioning themselves from our ever-changing policies which our Finance and Economic Development minister call reforms.

If this happens SI will cause a permanent scar to the poor consumers

Other areas that will increase the suffering of poor consumers caused by this SI include loss of jobs, shortage of basic commodities, undesirable shortage of fuel, increase in cheaper imports and the Zimbabwe Revenue Authority will collect fewer taxes in foreign currency negatively affecting the much-needed social service felivery (SSD) that rely on foreign currency.

This will promote importation and smuggling of basic goods (leading to job losses) and the practice that has begun of converting US$ to ZWL/RTGS on black market prior purchasing in retails which are claimed to be using official rate.

Any rational human being would do the same because the goods are extremely expensive in these retails yet they would want you to change using the official rate, only to be welcomed by the bank charges and regressive taxes such as 2% tax (IMTT) other transaction cost.

Many times, poor Zimbabweans are forced to bear the negative effects of inconsistent government policies. It is my humble desire to see stable policies, which are pro-poor and that come after proper consultations, policies that do not paint everyone black and punish them for the crimes of the  bad apples that are publicly known.

 

  • Nyamudzanga is an independent economist, tax consultant, ZES member, and holder of a Master’s Degree in Tax Administration. Email: lnyamudzanga@gmail.com.
  •  These weekly articles are coordinated by Lovemore Kadenge, independent consultant, past president of Zimbabwe Economics Society  & past president of the Institute of Chartered Secretaries & Administrators in Zimbabwe (ICSAZ). Email— kadenge.zes@gmail.com or mobile +263 772 382 852.

 

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