Fuel Sector Liberalization : What it means to the Ordinary man.
By Hosia Mviringi
Wednesday, 13 March 2019.
Liberalization of the Fuel sector in particular and the energy sector at large is a major milestone in opening up the Investment environment in Zimbabwe.This is in keeping with the government's pledge to move away from a regulated( controlled ) to a free economy where government ceases to be both player and regulator in industry.
This follows hot on the heels of another milestone in the monetary policy system which saw government floating the exchange rate of the local unit to a near match with parallel market rates.
Now the country has a truly free floating currency and a subsequent free economy.For starters this will encourage investment into the economy.
If one looks closely, historically Zimbabwe had lagged behind in terms of its share of Foreign Direct Investment inflows regionwide.The reason is that the country was still practicing primitive economics where government would want to have its hands in all sectors of the economy.
This was creating a fertile breeding ground for corruption , arbitrage and rent seeking behaviour.
This was until President Mnangagwa took over as leader of the Second Republic.
The result , especially in the fuel sector, was that Petroleum investors, meaning those with free funds within and without the country's borders could not bring in product due to import restrictions and more importantly due to price distortions on the market which were a direct result of the fictious 1:1 exchange rate.
Most consumers may think that the price was cheaper then than now but nothing can be far from the truth.Prices of commodities were more expensive then at 1:1 exchange rate because consumers were subjected to a lot of arbitrage and price manipulations at every turn, not talking about lost productive time due to unavailability of fuel.
Scarcity of products open up opportunity for profiteering and price manipulation.Those few retailers that could stock up on the product would charge exhorbitantly due to lack of competition.
Add to that the government was bleeding the little foreign currency available while subsidising the whole SADC region by supplying cheaper fuel at a sub-economic exchange rate of 1:1.Thus our market suffered perenial fuel shortages and government was left poorer.
The general populace was deprived of social services while government tried to run and subsidise SADC economies with cheap fuel which the country does not produce.
Strange isnt it? But that was the reality.
Now with a floating exchange rate and a liberalised fuel importation regime we will have competitive prices regionally so that noone will come from the DRC to buy all our fuel here at black market rate.
Also because of a realistic pricing structure and a liberalised fuel importation scheme many Zimbabweans and foreigners alike who hold free capital outside the country will use it to bring in fuel to Zimbabwe.This will increase fuel supply on the market thus impacting positively on the prices of fuel.
Private players will plug the fuel supply gap while bringing relief to the already constrained government foreign currency coffers.
Prices will start to go down as supply increases and this will be sweet music for the consumer.
Increased availability of fuel on the market will act as a catalyst to the local industry which had been hamstrung by shortage of fuel.
Production will increase, employment will be created , prices of goods will decrease in response to increased supply and revenues to government will rise.
Increases government revenues will see improved social services provision and infrastructure development.These are the core services that a government should provide in ideal situations.
This is exactly what has been missing in this economy.Government involvement as a market player has got to be kept to the very minimum.
Extensive government participation in the economy encourages market distortions which in turn scare away private sector investors.
But for the government to function it needs revenues.So the vicious cycle goes on and on and it is the consumer who suffers in the end.
So to me the most signifi ant steps / reforms that the government of President Mnangagwa has undertaken so far are the floating of the local currency (currency reforms) and the liberalization of the Energy sector, fuel industry featuring prominently there.
This has been the most significant step towards improved ease of doing business.
When Private enterprise thrives in an economy the biggest beneficiary is the consumer due to increased supply of commodities and reduced prices .Government benefits also through increased tax revenues.
President Emmerson Mnangagwa has so far exhibited unparalleled economic sobriety which should inspire confidence and hope in private sector investors and consumers alike.
So far so good.President Mnangagwa and His team at Finance Ministry , Energy and Power development Ministry and the Reserve Bank of Zimbabwe have done tremendously well so far.
Lets give them a round of applause please.
Kutsho Mina !
By Hosia Mviringi
Wednesday, 13 March 2019.
Liberalization of the Fuel sector in particular and the energy sector at large is a major milestone in opening up the Investment environment in Zimbabwe.This is in keeping with the government's pledge to move away from a regulated( controlled ) to a free economy where government ceases to be both player and regulator in industry.
This follows hot on the heels of another milestone in the monetary policy system which saw government floating the exchange rate of the local unit to a near match with parallel market rates.
Now the country has a truly free floating currency and a subsequent free economy.For starters this will encourage investment into the economy.
If one looks closely, historically Zimbabwe had lagged behind in terms of its share of Foreign Direct Investment inflows regionwide.The reason is that the country was still practicing primitive economics where government would want to have its hands in all sectors of the economy.
This was creating a fertile breeding ground for corruption , arbitrage and rent seeking behaviour.
This was until President Mnangagwa took over as leader of the Second Republic.
The result , especially in the fuel sector, was that Petroleum investors, meaning those with free funds within and without the country's borders could not bring in product due to import restrictions and more importantly due to price distortions on the market which were a direct result of the fictious 1:1 exchange rate.
Most consumers may think that the price was cheaper then than now but nothing can be far from the truth.Prices of commodities were more expensive then at 1:1 exchange rate because consumers were subjected to a lot of arbitrage and price manipulations at every turn, not talking about lost productive time due to unavailability of fuel.
Scarcity of products open up opportunity for profiteering and price manipulation.Those few retailers that could stock up on the product would charge exhorbitantly due to lack of competition.
Add to that the government was bleeding the little foreign currency available while subsidising the whole SADC region by supplying cheaper fuel at a sub-economic exchange rate of 1:1.Thus our market suffered perenial fuel shortages and government was left poorer.
The general populace was deprived of social services while government tried to run and subsidise SADC economies with cheap fuel which the country does not produce.
Strange isnt it? But that was the reality.
Now with a floating exchange rate and a liberalised fuel importation regime we will have competitive prices regionally so that noone will come from the DRC to buy all our fuel here at black market rate.
Also because of a realistic pricing structure and a liberalised fuel importation scheme many Zimbabweans and foreigners alike who hold free capital outside the country will use it to bring in fuel to Zimbabwe.This will increase fuel supply on the market thus impacting positively on the prices of fuel.
Private players will plug the fuel supply gap while bringing relief to the already constrained government foreign currency coffers.
Prices will start to go down as supply increases and this will be sweet music for the consumer.
Increased availability of fuel on the market will act as a catalyst to the local industry which had been hamstrung by shortage of fuel.
Production will increase, employment will be created , prices of goods will decrease in response to increased supply and revenues to government will rise.
Increases government revenues will see improved social services provision and infrastructure development.These are the core services that a government should provide in ideal situations.
This is exactly what has been missing in this economy.Government involvement as a market player has got to be kept to the very minimum.
Extensive government participation in the economy encourages market distortions which in turn scare away private sector investors.
But for the government to function it needs revenues.So the vicious cycle goes on and on and it is the consumer who suffers in the end.
So to me the most signifi ant steps / reforms that the government of President Mnangagwa has undertaken so far are the floating of the local currency (currency reforms) and the liberalization of the Energy sector, fuel industry featuring prominently there.
This has been the most significant step towards improved ease of doing business.
When Private enterprise thrives in an economy the biggest beneficiary is the consumer due to increased supply of commodities and reduced prices .Government benefits also through increased tax revenues.
President Emmerson Mnangagwa has so far exhibited unparalleled economic sobriety which should inspire confidence and hope in private sector investors and consumers alike.
So far so good.President Mnangagwa and His team at Finance Ministry , Energy and Power development Ministry and the Reserve Bank of Zimbabwe have done tremendously well so far.
Lets give them a round of applause please.
Kutsho Mina !
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