Zvamaida Murwira, Harare Bureau
RESERVE Bank of Zimbabwe Governor Dr John Mangudya yesterday slammed businesses for wantonly raising prices of basic commodities based on the movement of the exchange rate saying it was not a significant factor to determine the value of a product.
Dr Mangudya said businesses were exaggerating the effect of the exchange rate in determining prices of goods and services.
He said this while giving oral evidence before the Parliamentary Portfolio Committee on Information Communication Technology and Courier Services chaired by Kuwadzana East legislator, Mr Charlton Hwende (MDC Alliance.)
“Let me remove the myth about the exchange rate. Not all the costs of production come from foreign currency. Sometimes in a product, maybe the import component is 10 percent, or 15 or 20 percent. You cannot use an exchange rate for determining the price of a product everyday.
“You do not need to track the exchange rate on a daily basis. If your cost of production is 20 percent foreign currency, I think it would be wrong to use exchange rate as a price determining factor, which I see in Zimbabwe,” said Dr Mangudya.
He said in several other countries, exchange rates constantly move but prices remain static.
“In South Africa, you hear that everyday, the rand has moved from 12 to 13, 14 or whatever to the US dollar but they do not change the price because of the movement of the exchange rate.
“If you go to Zambia, the Kwacha moves from 9, 10, they do not change the price. We do not necessarily want this tracking mechanism. I think it is a disease that needs to be removed in this country. Yes, we know that Zimbabwe depends on foreign currency, but let us not overemphasise that dependency,” said Dr Mangudya.
He said production of beer had between 15 to 20 percent import content, and it would not make sense for the firm to increase prices with that percentage should the exchange rate move.
“You do not expect the price of beer to rise by 15 percent, 15 percent is almost negligible. In Zimbabwe you find that some people have a linear relationship with the exchange rate, when the exchange rate moves from 2,5 to 3 percent they will also increase the price. That is not proper for business in this country, even in the whole world.
“You look at the import content in the price of the product that is being produced,” said Dr Mangudya.