Botswana News

Zimbabwe prices near regional parity

PRICES of basic commodities in Zimbabwe are approaching parity with those in neighbouring South Africa and other parts of the region, with some goods actually now priced lower on the domestic market, a local research company has said.

According to IH Securities, the parity is likely as a result of greater efficiencies and normalising margins ‘forced’ by ‘dollarisation.

“Zimbabwe is shifting towards pricing parity within the region in key staples; this is partly the result of greater efficiencies and normalising margins ‘forced’ by ‘dollarisation’ and to some extent continued indirect subsidies from government on certain goods,” read part of the research note.

The country used to import the bulk of foodstuffs consumed in the country from South Africa and other regional countries such as Zambia, Mozambique and Botswana. However, Zimbabwe is anticipating bumper harvest from the 2020/21 agriculture season, which is expected to cut the country’s food import bill by significant margins. According to the report, consumption expenditure by commodity type in Zimbabwe remains dominated by food; this by itself is not unusual.

“Interestingly from the food poverty line it can be seen that food prices in real terms are near historical averages, utility costs drastically decreased for a season, but utility and fuel costs are now on an upward trend putting further pressure on consumer earnings,” the report noted.

It noted that year on year inflation had decelerated from triple digit to double digit at 56 percent as at July 2021 for the first time in two years which has provided both stability and relief to consumers.

“Using a Government teacher as a proxy for the formally employed, our observation is that salaries crashed in real terms from a base of circa US$450 in 2016 to below US$50 equivalent in 2019.

“Against a stabilising rate and subsequent salary increments, we have begun to see a recovery in 2020/21 to around the US$200 mark. “We believe this is a pattern that is likely mirrored within the traditional private sector albeit using differing salary bases.

“This crudely affirms our thesis that Zimbabweans became significantly poorer during 2016 to 2019, however from 2020 we have begun to register some recovery in incomes, although still a long way off the 2016 baseline earnings.”

The research company said that the moderating inflation and USD indexing had led to a more stable but competitive environment and goods are readily available on the shelves and pricing in real terms has begun to normalise.

It said the usage of hard currency has created a more disciplined and price competitive consumer — the businesses that will out-perform will need to be well managed and efficient relative to the recent past in which there was a greater proliferation of purely arbitrage driven businesses. Mr Eddie Cross, a former member of the Reserve Bank of Zimbabwe monetary policy committee, said policies adopted in the past three years were gradually opening up the economy.

“. . . it is about time, and this is giving rise to both price stability and greater competition,” he said in an interview.

According to IH Securities, Diaspora remittances which make up 6 percent of Zimbabwe’s Gross Domestic Product (GDP) were used to bridge the gap between incomes and consumption which also had implications on economic growth and poverty reduction in Zimbabwe.

“Diaspora remittances as a percentage of exports remain sizable in Zimbabwe unsurprisingly as more than 30 percent of the population is in the diaspora.

“They provide a cushion from economic shocks for local consumers,” said the research note.

IH Securities noted that as the disparity between the official and parallel market rate grew between 2016 and 2019, diaspora remittances seemingly decreased and likely resulted in the decreasing use of formal channels in the face of uncertainty. However, IH Securities noted that the Covid-19 induced travel restrictions forced a return to use of formal channels.




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