By Lincoln Towindo
Prices of goods and services in Zimbabwe are pegged at an average 50 percent above those obtaining in South Africa despite relative convergence between the Rand and the local unit on the interbank market over the last month.
While wages and fuel — the biggest contributors to production costs — are lower in Zimbabwe compared to South Africa, local products and services are priced inordinately higher than the neighbouring country.
Economic analysts believe this could indicate unfair pricing models by local businesses through arbitrage.
NHMK Capital founder and chief executive Mr George Manyere contends that since the convergence of the Zimbabwe dollar and the South African unit last month, prices of goods in the two countries should align.
“As at 23 September 2019, the prices of goods and services in Zimbabwe and South Africa, including the cost of labour should theoretically be expected to be aligned since the currencies are at par according to the interbank exchange rate.
“However, this is not the case as the Zimbabwean economy continues to suffer from the threat of hyperinflation and significant rent-seeking behaviour caused by the huge arbitrage opportunities that exist in the market.”
A comparison of prices in the two countries shows that a 2kg pack of brown sugar is retailing at R19,60 while it costs $29,99 locally, which is a variance of 53 percent.
While a 2-litre bottle of cooking oil costs R32,50 in South Africa, it is selling for $51,99 in Zimbabwe giving a price difference of 60 percent. There is a 43 percent difference in the price of a 2kg box of Maq washing powder which is pegged at R39,99 in South Africa and $56,99 locally. A 2kg pack of rice costs 122 percent more in Zimbabwe at $54,99 while in South Africa it is selling at R24,75.
Zimbabwean workers earn at least 90 percent less than their South African counterparts and this, according to the analysts, indicates local workers are subsidising their employers.
Confederation of Zimbabwean industries president Mr Henry Ruzvidzo said businesses were placing a premium on the products to ensure that they can replace their stock.
Chenayi Mutambasere the MDC UK and Ireland Province Secretary for Industry and Commerce told Nehanda Radio that the main problem was that Zimbabwe is not a producing nation.
“The country’s production line is not 100% local content (to use a familiar term) , therefore producers or distributors have to consider that to replenish their stocks whether in store or in production they will have to externally source which requires access to foreign currency.
“That said the domestic currency doesn’t trade freely on the open market the access to forex has to be done in-country with forex not necessarily readily available through the formal channels . In addition tradesmen must take into account the volatility of the exchange value of the domestic currency also affected by arbitrary government announcements.
“In the end the compounded effect of all these factors means that business tradesman must account for all these ‘transaction costs’ while pricing. To suggest that they are profiteering is tantamount to saying a bird is flying i.e. what they are supposed to do.
“What is required is a stable reformed economy that is using a steady currency that trades freely as determined by market forces. This coupled with a reformed socio-political environment will encourage investment and increase supply which will invariably reduce prices.
“As things stand most businesses will significantly slow down by January next year which will prove the profiteering claims are fallacious in any case. Nehanda Radio/Sunday News