EDITORIAL COMMENT: Implementation of subsidies should benefit the poor Professor Mthuli Ncube

In his 2020 national budget statement recently Finance and Economic Development Minister Professor Mthuli Ncube said the Government will remove the subsidy on grain purchases by commercial millers from the Grain Marketing Board (GMB).

He also said the Government will permit commercial users of grain to buy their stock from wherever they found competitive prices and quality, even if it meant importing. Anticipating the price hikes, the minister said he would come up with targeted subsidies to cushion the vulnerable.  It was clear that following the removal of the Government’s support commercial millers would pay more for maize and wheat from the GMB. We knew that this would have the obvious effect of increasing the prices of maize meal and bread.

The subsidy removal has just been effected and when it was, commercial grain millers immediately increased the prices at which retailers buy mealie-meal from them. In turn, retailers had on Monday increased the price of mealie-meal, a 10kg bag of it retailing for $100, from around $50. It was a shockingly sharp price adjustment for the basic commodity, the veritable most basic of basics.

In view of this, the Government moved very swiftly to suspend customs duty and scrapped import permits and licences for grain, mealie-meal and wheat flour to plug potential food supply gaps and counter the effects of drought experienced in the last agricultural season. Thanks to Statutory Instrument 247 of 2019 Customs and Excise (suspension/amendment) Regulations that has already been gazetted to give legal effect to the decision, companies and individuals can now import grain products without the need for a permit or to pay duty.

In a joint statement on Monday, the Ministries of Finance and Economic Development, Industry and Commerce and Lands, Agriculture, Water and Rural Resettlement, said the relaxation of import conditions was effective 22 November 2019 and covers a period of six months up to May 2020. 

“In order to ensure the continued availability of essential food stuffs on the market and to counter the effects of the drought that was experienced during the 2018/19 agricultural season, the Government of Zimbabwe has undertaken the following temporary measures, which will be implemented with immediate effect.

“Removal of control of goods import permits for maize grain, mealie-meal, and wheat flour with immediate effect. The Ministry of Industry will put wheat flour on the Open General Import Licence (OGIL) with immediate effect. 

“Ministry of Finance and Economic Development through Zimra will suspend all import duties currently applicable on the following products as indicated,” the statement said.

Raw maize and mealie-meal, which used to attract 25 percent duty, have both been exempted. Government further explained that wheat flour in packages of more than 50 tonnes, which used to attract 20 percent duty and wheat flour in packs of less than 50kg that attracted 10 percent duty, are now both exempted.

Government also noted that the GMB has informed millers and commercial users of grain that following the pronouncements in the 2020 National Budget, the subsidy on grains has been removed with immediate effect.

“All users of grain, including millers will now buy grain at cost price, which currently stands at ZWL$4 000 for maize and small grains and ZWL$8 612.08 for wheat,” reads the statement.

“The Government of Zimbabwe will also be unveiling a mechanism for targeted subsidies for basic foodstuffs, particularly roller maize meal and bread flour as outlined in the 2020 Budget Statement once the finer details of the mechanism are worked out as an additional cushion for vulnerable households and the generality of Zimbabweans.”

We are glad that the Government continues to take very bold policy decisions to remove distortions from the market, distortions which contributed to high public expenditure and the resulting budget deficit. We are glad too that authorities have intervened by opening up the borders for grain imports in a way that will cushion the poor from the steep prices that were already on the market.

The bold move on subsidies, was great as we all know that maintaining subsidies not only provided good conditions for arbitrage but were also one of the prime causes of the prevailing economic challenges. From now on therefore, the market will determine the prices of wheat flour and maize and by extension, the prices of bread and maize meal.  

But the Government recognises that free markets are often harsh to the vulnerable among us, hence the targeted subsidy that is being worked on. 

We keenly await the implementation of the subsidy and are hopeful, given Prof Ncube’s record for judicious utilisation of public funds, that the subsidy will, as intended, benefit the resource-poor, not create opportunities for the corrupt to steal, not only from the Government but also the vulnerable.

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