Government has stepped up efforts to improve the doing business environment in the country through initiatives aimed at encouraging investment and making local producers competitive in light of the strong US dollar which has affected local manufacturers. Among the initiatives is the rebranding of the National Incomes and Price Commission into the National Competitiveness Commission.
Government has also identified cost drivers and given a directive for companies to reduce costs of goods and services especially energy and power, telecommunications and transport.
The economy is not dying but rather economists say the depreciation of the South African rand against a strengthening dollar is the main driver of the low inflation currently prevailing.
“There must be an entity which will continuously look for cost drivers and be able to make recommendations to the country’s investment climate to be competitive,” said Minister Bimha.
This comes as the Zimbabwe National Statistical Agency reported last week that annual inflation, change in prices over a given period normally a year, for February was -1,40 percent, shedding 0,12 percentage points on the January rate.
Economists say the strong US dollar makes the country uncompetitive, a situation which has impacted on industry’s capacity utilisation. According to estimates, the US dollar today is 20 percent too strong for Zimbabwe.
Head of IMF country office for Zimbabwe Mr Christopher Beddies said the low inflation reflected the impact of an overly weakened rand and stronger US dollar.
“Inflation remains low, reflecting the impact of the depreciation of the South African rand, weak domestic demand, and more generally a correction of prices,” he said.
He observed that what Zimbabwe is going through was disinflation, not deflation.
The perspective concurred with the school of thought held by several local economists that the economy was going through price self-correction following the high price mantra that gripped Zimbabwe after transition to a multi-currency regime.
Zimbabwe suspended its currency in 2009 after the unit was rendered worthless by a decade of economic instability induced largely by Western economic embargoes.
“At this time we would much rather call it disinflation. That said, with a sluggish economy we need to be mindful of potential deflation risks in the future,” Mr Beddies said.
The difference between the two is that disinflation only relates to a slower rate of increase in prices over a measured period while deflation denotes a situation inflation falls below zero and prices start falling as retailers push volumes to stay afloat.
Alternatively, it is a sustained fall in general price level, which is the opposite of inflation, generally defined as an increase in the overall price level over a period of time.
Disinflation is a period when the inflation rate is positive, but declining over time. Technically, while the economy appears to be in a mode characteristic with an economy mired in intricacies of a down spiral, Zimbabwe’s case was ironically different because prices had initially been set too high following a decade of hyperinflation.
“One can argue that price/cost levels in Zimbabwe are on the high side, so a downward correction has benefits,” Mr Beddies said, corroborating what IMF head of mission to Zimbabwe for the Staff Monitored Programme Mr Domenico Fanniza said recently.
“Your economy is suffering from the appreciation of the dollar against the South African rand,” Mr Fanizza said last week after a review visit for the IMF’s SMP in Zimbabwe.
“Your imports from South Africa now cost much less that what they used to cost a year ago.
“You import inflation through dollarisation of the economy; in this case you are importing deflation,” he said.
It means local retailers of goods and services, including producers of fast moving consumer goods, have had to adjust prices downward to push volumes otherwise they are out competed at a time cheaper imports have flooded the market.
Economists also believe that this is, however, also not to discount the fact that because the Reserve Bank of Zimbabwe currently does not exercise its right to print money, the prevailing liquidity crisis also restricted prices from trending northwards.