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Editorial Comment: Competition in retail sector is healthy

Zimbabwe is now seeing positive inflation, that is a rising cost of living, this year after several years of level or falling prices and the National Competitiveness Commission is now being active in identifying causes and has found some increases are quite justified while others raise suspicion.

Generally, we feel the retail sector has adequate levels of competition. It would be very difficult for any supermarket, butchery or bottle store, for example, to sustain unfair pricing.

Customers would quickly move to those who price their goods properly and fairly. Indeed, much of the retail sector relies on low margins and high volumes to make money and the competition can be so cut-throat that promotions and improving customer relations play a major part in attracting the volumes or at least maintaining market share.

The NCC, backed by Zimra who can obviously see the profit margins, investigated price increases in the first quarter. Some were driven by factors Zimbabwe has little control over: foreign payment delays, foreign currency shortages, increasing global prices of some raw materials as the world economy recovers, fuel price increases, foreign currency exchange rate fluctuation and the like.

But there are suspicions that some may be taking advantage of scarcity or owning a near monopoly in supply.

SI64 brought a great many advantages to Zimbabwe, and to Zimbabwean industry, but it did limit competition. Many local suppliers are near monopolies or are one of a tiny group of suppliers.

With competing imports effectively banned, it would be easy for inefficiencies, if nothing worse, to push up prices as manufacturers lost the spur of competition.

This does not require greed or a back room decision to exploit a market. It just needs an industrialist to stop worrying about his input costs since he can pass these on to the market without having to worry about being undercut, since there is no one to do the undercutting, or at least no one who can really make a difference.

The concentration into fewer hands of some manufacturing during the bad times has cut competition, although this has also opened new opportunities for some of our more entrepeneurial Zimbabweans.

It is noticeable that there are new entrants putting Zimbabwean-made goods onto our supermarket shelves.

Price controls are sometimes seen as a panacea, but experience in Zimbabwe and the rest of the world shows there are modest short-term gains swamped by the medium-term and long-term evils.

The solution is boosting competition. We have already seen that where new businesses can move in to challenge older monopolies or duopolies then prices stabilise quite quickly. Often these newcomers were a small business in a smaller city or town and have seized the opportunities to grow. That is a good way, incidentally, to encourage growth since the newcomer gets it right in the smaller market and then can move with lower risks into the larger national markets.

The Government is busy presenting a raft of measures to Parliament to make it far easier to do business in Zimbabwe and to open a new business in Zimbabwe.

This is the real solution. We need to raise levels of competition in the manufacturing side to the sort of levels we see in the retail side, and that means we must make it a lot easier for a Zimbabwean with some good ideas to open their own business and challenge incumbents. Some may fail, but others are likely to do well. Most will start small and then grow.

So long as our playing fields are level and the difficulty and cost of entering business is reduced significantly, then this growing competition in the supply chain will keep pricing fair. Increases will be a result of real factors, everything from rising American inflation and world commodity prices upwards, not a result of inefficiencies or greed.

Source :

herald

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