Local commodities pricing in parity with region 

14 Sep, 2021 - 00:09 0 Views
Local commodities pricing in parity with region  Eddie Cross

eBusiness Weekly

Business Writer

PRICES of local basic commodities are approaching parity with neighbouring South Africa and other countries in region with some goods actually being priced lower, according to a research firm. 

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

“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. 

Eddie Cross, an economist and former member of the Reserve Bank of Zimbabwe monetary policy said policies adopted in the past three years are 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.

The country used to import bulk food stuffs from South Africa and other regional countries such as Zambia, Mozambique and Botswana.

However, the country is anticipating bumper harvest in the 2020/21 agriculture season which is expected to cut the 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 has decelerated 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,” IH Securities said.

The research company said that the moderating inflation and USD indexing has 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.

According to IH Securities, diaspora remittances which make up six percent of 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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