The devil lurks in the details

29 Nov, 2019 - 00:11 0 Views

eBusiness Weekly

Business Weekly Last Word

The foul-up over the implementation of a rational change in how subsidies on basic food items need to be applied shows the vital need for operational systems to be put in place in parallel to changes in policy, and the need for policy makers to have far better communication with operations managers.

The policy, as announced by Minister of Finance and Economic Development Mthuli Ncube in his National Budget for 2020, was a very good idea. He wanted to replace the present extraordinarily inefficient and untargeted subsidies on maize products, soya products and wheat products with efficient and targeted subsidies on essential foods, to be precise roller meal, cooking oil and standard loaves of bread.

Even if there was no cost savings, and that would be a separate policy decision, the subsidy budget would go a lot further. More importantly it would subsidise standard bread, not chocolate éclairs; it would subsidise roller meal, not super refined mealie meal or fancy fried snacks; it would subsidise plain cooking oil, not weird derivatives.

It would also remove a lot of temptation to cheat. Under the old system, the subsidy came at the level of the Grain Marketing Board or the importers. For maize, the GMB would buy at one price from farmers and sell to millers at a lower price if the maize was Zimbabwean grown.

An unscrupulous miller could easily buy at the lower price, switch the bags into another truck and sell the same maize back to the GMB at the higher price. There was no way the GMB could tell that the same tonne of maize was rotating through its silos.

For imports, some maize because of the drought, plus most of the wheat we eat, plus most of the soya bean, the subsidy was in the exchange rate. Importers were allocated cheaper foreign currency from the Reserve Bank of Zimbabwe and so could import these grains for less than what is now the market price.

This, as Minister Ncube noted, produced a lot of market distortions and hid the subsidy from the taxpayers who would eventually have to find the difference.

It was also grossly inefficient since it subsidised fancy cakes made from cheap flour as well as basic food in the form of roller meal.

And the temptation for fiddles was there. We noted that with the old fuel subsidy fed through cheap forex allocations whereby middlemen drove whole tankers of fuel through the loophole and re-exported the product to black markets in neighbouring countries and sold it for foreign currency that they could, if they actually repatriated it, sell for far more Zimbabwe dollars.

The Minister did not go into detail on how his new subsidies would operate. But because he does have reasonable contact with practical experts, and has even brought them into his Ministry, it would be possible to devise a workable and temptation-free system.

This would probably involve millers buying the grains at the real price, that is what farmers were paid or what the actual import cost was using interbank forex, milling it and then delivering it at the agreed lower price. The subsidies would be paid fairly promptly after the claim, backed by delivery notes for the subsidised products and probably the original supply receipts.

Embellishments would include a certified stock-take of supplies bought under the old subsidy system still held by millers, so that the final product subsidies could be adjusted if necessary for a week or two, and a total ban on exports of the subsidised products, with customs officers enforcing the ban. That would stop a repeat of the fuel fiddling rampant in 2018. But in any case, with double documentation showing how much maize a miller bought, and how much roller meal and other products the same miller delivered to Zimbabwean customers, cheating would be difficult. The total tonnage of roller meal, plus the unsubsidised refined products, plus the brans delivered to stockfeed producers, would have to add up to the tonnage of maize bought from the GMB or other suppliers.

The Government was aware of other possible cheating, like millers not giving consumers the full advantage of the new subsidy and instead shoving up their margins, or even retailers increasing margins on these essential goods, although competition in the retail trade usually forces everyone involved to use tight margins.

That seems the best explanation for the decision to remove customs duty from imported maize meal and wheat flour.

Since Zimbabwe’s millers can process all the grain required for these products, it was not potential shortages that caused the change.

Larger imports of maize and wheat grains would be cheaper than larger imports of milled meals and flours, and chew up less foreign exchange. But those imports of refined products put a price cap on the local products.

So all the bits were there. The problem was that the implementation of the policy of discarding the old subsidy on whole grains was not seamlessly tied to the implementation of the new policy of subsidising processed basic food.

So we had sudden, unexpected and large jumps in the retail prices first of bread and then of roller meal.

But it should have been. Budgets are secret for good reason.

If the details leak out there are always the “wide boys” working the angles and making money at the expense of the general population by manipulating the lack of knowledge in the market place.

But the subsidy policy does not appear to be in the same category as, say, an increase in excise duties on whiskey or a widening of tax bands.

It would have been fairly easy to have assembled an implementation team from the appropriate ministries, the GMB, and trusted members of the private manufacturing and retail sectors and work everything out in advance so as the last bag of roller meal subsidised under the old system was sold on Monday the new bags subsidised under the new system would be unloaded from the delivery trucks ready for sale on Tuesday.

Considering that our fiscal and monetary authorities have successfully managed more complex policy changes in the raft of required economic reforms, it is easy to understand the high level of irritation exhibited by President Mnanagagwa this week and his instructions to fix the mess immediately, with the default being a return to the old system.

Military operational plans tend to be very detailed, not because anyone expects that they will work perfectly, but because bitter experience has taught generals, and by implication every other operational manager, that the more detail you can control in any operation the more likely you can make instant corrections as the fog of war descends, and the greater likelihood that these corrections will be limited in number and modest because so many other things are actually working.

“The devil lurks in the details” is a phrase that needs to be displayed prominently before planners, so that they ensure that they have done sufficient homework on the implementation of their plans that the announcement and the well-thought-out detailed operational plan are announced simultaneously.

The lapse this week cannot be repeated.

 

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