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Of small business pricing, monetary policy statement

05 Oct, 2018 - 00:10 0 Views

eBusiness Weekly

Kudzai M. Mubaiwa
This week started with an announcement of the Monetary Policy Statement by the Reserve Bank of Zimbabwe governor, with measures that directly impact those running small-scale enterprises in Zimbabwe.

Among the salient points is the immediate separation of our present accounts — named “RTGS FCAs” and “proper” foreign currency accounts.

Other announcements include the increase of tax from transactions of two cents per dollar — effectively 2 percent flat and a phenomenal increase from the prevailing 5 percent per transactions.

There are also other interesting items such as the requirement for foreigners to pay for goods and services in foreign currency only. All of these instructions will have some impact on small business operations, particularly so on pricing.

Separating accounts is a fair move that will ring fence foreign currency for those that receive and/or generate it from this day going forth, but it leaves a lot of room for confusion on what the lot of those who do not make any will be.

It is a known fact that we have had an “unofficial three tier pricing” as a response to the movements of money in the market. One can get goods in a formal store and pay through swipe or Ecocash.

Cash is also accepted — in either the local use bond (notes and coins), or any of the foreign currencies acceptable under the multi-currency regime we are in.

In a perfect world all three mediums of payment should be acceptable and be uniform in quantum. Not so in present day Zimbabwe. I recently needed to change one of my vehicle tyres, three years after last replacing all four.

The small business I support for this has always given me a decent deal and I drove in to see the owner for a quote. He asked me how I wanted to pay for the tyre. I indicated that I could swipe or send it via Ecocash and for these he gave me one price. He went on to qualify that if I had physical bond notes I could get a further discount and finally indicated that if I had United States dollars, well the price would then be the exact same amount I had paid for each tyre back in 2015!

Formally we know that there is a 1: 1 conversion rate. It is just unfortunate that it is not the lived experience of most small business owners.

Business has had to take such a stance of multi-pricing because the reality has been that one dollar in your account could not get you a dollar in bond note cash, let alone a United States dollar! You just do not have a guarantee that after selling product you can still be able to restock and repeat the cycle.

This has given rise to disparities in pricing as business owners try to maintain a sane cycle and make some kind of profit. Granted this would frustrate those whose types of business generate foreign currency if they would end up.

They will certainly welcome the move to draw a distinction between proper foreign currency accounts (Nostros) and the other (RTGS) foreign currency account — which account many have interpreted to mean we do have a local currency. We wait to see how easy or feasible it will be to move funds across these two types of accounts and at what rate. It is very likely some de-facto rate will emerge.

A more obvious component in the statement that will impact pricing is the tax increase due to the levied 2 percent flat on transactions. This additional cost will be heavy on those doing business in Zimbabwe.

It is a rather huge movement from a base of five cents per transaction and signals an attempt to collect from those moving money to no productive end, but sadly in the process increases the costs of doing business, a cost that will land on the consumers.

Our prices for many things are already high and this will not make things any easier, turnover will likely reduce as buyers realign spending and labour issues will give additional pressure, one cannot raise wages in such an environment yet the very same staff are expected to enable production and sales.

There should be considerations on disaggregating the types of transactions that can attract such high tax, perhaps removing them from traceable ones like utilities payments and bank charges for those who are productive.

All business that makes small margins is set to take another haircut on the tax alone. It also looks like this was a way to indirectly tax informal business, there is sufficient evidence to suggest that a lot of small, medium and micro-enterprises have not been in any way remitting tax.

Sadly, a lot of innocent individuals will be caught up in the cross fire if it can be so called.

This move, especially, sounds rather counter-productive to those who were getting ready to build the nation through enterprise and has caused discouragement and panic, which emotions may be reflected in pricing soon.

Finally — the announcement on foreigners being required to pay in foreign currency for some purchases made locally — namely fuel and other goods. This should be a good thing, allowing our local businesses to get some of the critical foreign currency.

Perhaps this should be reason enough to get the additional Nostro FCA, in preparation. Enforcing this though, will be next to impossible.

Some have joked that it presents an opportunity for new business to emerge through arbitrage and that is likely but not intended, neither is it sustainable.

However, it does in a way confirm that multiple pricing is acceptable, and points towards something that small scale enterprises must start thinking about doing — aiming for the export market, regardless of their sector, location and size — expanding beyond the borders of Zimbabwe.

We can only come out of economic doldrums when we are productive and this is not limited to the traditional mining, agriculture, manufacturing and tourism sectors but those in services, information technology, education, construction must begin to think about building enterprises that can compete on the world stage and name the price they want.

We all hope for better days, these are just the first steps to what we hope will be a full national economic recovery. We will look more into how we can all become exporters in the coming week.

Feedback: [email protected], Twitter-@kedukudzi

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