Business Unpacked

Blame-game, politicking won’t reduce prices

Times are hard.

Prices of consumer goods are on the fast lane and there doesn’t seem to be a speed hump ahead to slow them down, at least, in the short to medium term.

To make matters worse, prices of petroleum products keep rising, largely worsened by the Russia-Ukraine conflict which has disrupted global supply chains.

By Tuesday evening this week, nearly all countries, except Malawi, had adjusted upwards pump prices of fuel. Malawi is sitting on a ticking bomb largely because of months of procrastination influenced by politics at the expense of economic fundamentals. One of the variables is an overvalued currency, the kwacha, currently trading at officially distorted rates.

Perhaps the first glaring price increase was one on cooking oil. Manufacturers blamed it on the 16.5 percent value-added tax (VAT) which has since been removed effective April 1 2022. It has been a long battle with the producers, arguing that introduction of VAT contributed to the skyrocketing of cooking oil prices while government said that their claim had no basis because they were claiming input VAT, as such, consumers were supposed to be spared.

Prices of other consumer goods followed suit in climbing up the ladder such that it has become common to see shoppers in supermarkets and using calculators on their smartphones in desperate attempts to balance the equation as the centre can no longer hold. Before we knew it, a loaf of bread went up to K1 000-plus from around K400. The list is endless.

There are many factors contributing to the commodity price increases globally, including the slow recovery from the economic slowdown caused by the impact of the Covid-19 pandemic that disrupted global supply chains. The recent Russia-Ukraine conflict has further compounded the projected recovery and supply chains for various commodities, including fuel, wheat flour and gas.

In the circumstances, I found it out of order for the Ministry of Trade and Industry to suggest that the situation could be due to some elements of alleged sabotage by some retailers and manufacturers. With due respect, the energy the ministry invested in summoning some operators of retail chain stores was unnecessary. Such energy should have been invested in productive ventures such as exploring interim solutions to the problem.

In the case of cooking oil, it is a fact that the skyrocketing prices are due to the rising cost of crude oil on the international market. Worse still, the business climate for manufacturers is badly riddled with high corporate taxes, high import tariffs and delays in clearing imports. All these contribute to high prices.

Most of the local cooking oil producers find it cheaper to import crude oil and refine it instead of processing their products from locally available raw materials such as soya bean, groundnuts, sunflower and cotton seed.

My question has always been: Why is government failing to convince cooking oil manufacturers to use locally sourced materials? If local materials are expensive, maybe we need to find a solution such as investing in commercial farming that can generate low prices through economies of scale as opposed to expensive smallholder farming. This is one strategic solution to high prices as opposed to petty fights with producers and retailers. Prices of cooking oil may drop effective April 1, but certainly not to the levels that will make a big difference.

Of course, cooking oil producers do not have clean hands in the whole issue either. Instead of the blame-game, government would do consumers justice by commissioning a study into the pricing in the chain for transparency’s sake.

To further stabilise the situation, authorities also need to tame variables such as inflation rate, foreign exchange rate and even interest rates. In the face of the prevailing macroeconomic instability, the going will continue to get rough for many a Malawian.

A comparison of commodity prices in other jurisdictions may not be very helpful as the realities such as salaries and income in general vary.

Truth be told, expecting prices to come down could be a long wait equivalent to the Last Judgement Day as prices tend to be sticky downwards while people’s incomes and wages are often static and rarely go up.

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