Monday, October 23, 2006

Eddie Cross: Price Control Arrests

The Arbitrary Arrest of Businesspersons.

During the past week many hundreds of businessmen and women have been arrested and detained for short periods by the Police and other StateAgents. In addition literally thousands of businesses have been raided –some on a daily basis, in an effort to intimidate and force wholesalers and retailers to reduce prices and margins.

One business that I know personally has had individuals from State agencies literally camped on the premises for more than 10 days. They issue tickets and when managers have gone to the local Police Station to pay “Admission of guilt” fines they have been confronted with a wide range of arbitrary

Three such charges that I have seen read: -

Docket number 3627023 “Wrongfully and unlawfully offering for sale”

Docket number 3625426 “Failure to furnish information”

Docket number 3625427 “ Failure to display prices”

In each case a fine was paid of Z$10 000.00 – much cheaper to pay the fine than go to Court with all that that involves. The authorities are trying to enforce a maximum retail mark up on a wide range of goods of 10 per cent. What they are demanding at wholesale level is anyone’s guess – perhaps 5 per cent?

By my calculation a wholesaler must operate a net (after taxes) margin on at least 15 to 20 per cent and turn their stock every month to make enough money to pay taxes, finance new stock (at significantly higher prices) and pay overheads and direct costs. A retailer requires double that level of margin, as their sales are smaller and costs higher.

If you do not make these sorts of margin then you might cover costs but will not generate the additional funds to buy new stocks. If I take sugar as an example, I bought 7 tonnes of sugar in November 2005 for Z$94 000.00. Today sugar costs Z$351.00 per kilo – my 7 tonnes would cost Z$2 457 000.00 – that is 26 times what it cost just 12 months ago. If I bought 7 tonnes every two
weeks my mark-up at 10 per cent would only finance a small part of this huge increase in the unit costs. The rest would have to be financed from borrowings or from margins on other products.

You can see this happening to retailers and wholesalers – they stay open but their stocks shrink. If I borrowed the funds to pay for the higher costs, interest at today’s rates would cost me Z$25 000 a day on 7 tones of sugar –in 14 days that is Z$350 000 or much more than 10 per cent of the cost of
the product.

One or two reports say that the officials carrying out these raids have shown copies of the Notice that established their right to act in this way. The one report said the new authority would expire at the month end. Directors of business are obliged by law to trade in such a way as to protect the business. They may not trade under conditions that would knowingly lead to the firm’s insolvency and threaten creditors interests.

Most managers are now out on bail. It will be fascinating to see what happens when they get in front of a magistrate.

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