On the backdrop of the unabated price increases and an inflationary environment that is precarious, the government stepped in through the Ministry of Finance and Economic Development with measures meant to curtail the chaos.
In this article we will dissect the aspect of lifting restrictions of basic commodities and how it will impact the economy holistically. The lifting of import restrictions entails that individuals can now purchase basic products from other countries without barriers and other taxes levied on these goods.
Increased availability of supplies
It is imperative to note that the lifting of import restrictions on basic goods will likely lead to an increase in market supplies.
Previously individuals and corporates had a limited range of supplies as most of the products were locally made, however, with the new measure implemented, there will be access to more various products and this will ultimately improve the standard of living for the citizens.
All things being equal, there will be an influx of people purchasing basic products from other countries especially if the local prices are not reduced and made competitive with imported goods. In the recent price hikes in Zimbabwe, it was evident that most individuals had limited options in terms of the products they purchase, however, with this measure in place, choice has been massively broadened.
Another fundamental change and effect that will be brought by the lifting of import restrictions is enhanced and increased competition.
Formerly, where most consumers were only purchasing local products even at exorbitant prices, they now have choice to get the basic products at lower prices.
This will increase competition because the local suppliers will be compelled to charge their products competitively to lure their customers and discourage them from relying on imported goods.
It stands to reason that the measure is very prudent in ensuring that the recent price hikes are curtailed and adjusted for the better.
It was evidently clear in the past months that the spending power of most individuals had been largely eroded with unabated price hikes.
With competition poised to get stiff, prices should be adjusted. If an industry develops without competition, it could end up producing lower quality goods, and the subsidies required to keep the state-backed industry afloat could sap economic growth
The existence of an alternative channel in accessing goods will create efficient delivery of locally produced goods. There is a natural tendency of reluctance when producers and suppliers are the only players responsible for provision of goods.
Now that consumers have alternative options of basic products from other countries, it compels local producers to be efficient in producing the best goods to attract customers.
Provision of shoddy goods can easily affect local business hence a major benefit from the imports measure that was put in place by the ministry of finance.
Reduction of Inflation
Everyone will concur that prices have massively eroded the purchasing power of the general population.
The exorbitant pricing by suppliers and producers will give in and cause prices to fall in order for the local players to stay competitive.
The fall in prices will ultimately cause the inflationary status quo to change. Without any threat of consumers opting for other products purchased in other countries, suppliers and producers will continue to increase their prices to the detriment of the consumer hence it was noble to remove the existing restrictions on imported basic goods.
The downside of lifting import restrictions
While the lifting of import restrictions on basic products has its benefits, it is important to note that there are cons associated with it.
While this kind of reallocation of resources between firms and industries is a source of productivity growth, workers in specific locations, industries, or with skill mismatches could face serious costs including wage cuts and job losses.
The local producers and suppliers have some protection taken away from them and if more individuals are going to simply turn to the basic products completely then the local industry may suffer. The multiplier effect may cause job cuts or salary reductions or ultimately lead to closure. This may be the eventuality if they fail to handle the competition they are confronted with.
Initially, firms in a new industry may be too small to achieve significant economies of scale and could be clobbered by established firms in other countries.
A new domestic industry with potential economies of scale is called an infant industry. One can imagine a situation in which firms in a country are attempting to enter a new industry in which many large firms already exist in the international arena.
The foreign firms have taken advantage of economies of scale and have therefore achieved relatively low levels of production costs. Emerging firms in the local industry facing low levels of output and higher average costs, may find it difficult to compete.
In a nutshell, not implementing restrictions imported basic goods can lead to higher prices and profits for domestic producers but at the same time increasing costs for consumers, because imported products increase in price and decrease in quantity supplied.
The measure should ensure that the current increase in prices unabated in curtailed.
Blessing Nyatanga holds a Bachelor’s Degree in Banking and Investment Management from NUST.0784909184/[email protected]