Economist Criticises Government Move To Restrict Purchases From Manufacturers
Economist Tinashe Murapata has criticised the Zimbabwean government for implementing measures which authorities say are aimed at protecting the integrity and transparency of the value chain, as well as countering unfair competition from informal traders. Murapata argues that these measures, announced by Finance Minister Mthuli Ncube, are regressive and hinder economic progress.
The government says the measures, enforced through the Zimbabwe Revenue Authority (ZIMRA), aim to promote the use of the Zimbabwean dollar (ZWL) in the market. One of the measures restricts purchases from manufacturers, stating that only registered wholesalers can buy directly from them, excluding retailers and individuals. Additionally, informal traders are limited to purchasing from wholesalers and not directly from manufacturers. Individuals are also restricted from buying more than $1,000 worth of goods per month from wholesalers and are prohibited from buying directly from manufacturers.
Murapata argues that these measures contradict global practices in the distribution chain, which have evolved since the 1970s. Modern practices, such as just-in-time management, online shopping, and globalization, allow manufacturers to sell directly to consumers through online platforms, reducing costs and bypassing traditional distribution channels. This approach benefits consumers by lowering prices and eliminating the need for extensive warehousing. The economist said:
The short sighted measures are not in congruent with world wide practices of the disruption of the distribution chains since the 1970’s. The minister is turning back the hands of time. Just in time management practices, online shopping and globalization is such that the manufacturer can sell directly to consumers through mostly online sales. Internationally that can be as much as 50% of goods, bypassing the entire distribution chain and consequently reducing the price to the final consumer. Vat is charged by the manufacturer.
Consumer prices have come down because the cost of storage for finished goods has reduced substantially over time. The manufacturer does not need to wait for the wholesaler to order, nor the wholesaler wait for the retailer. Thats why a tour of old manufacturing plants had hectares of space for finished goods warehousing. The product range was very limited. The cost of storage, bank financing was further borne by the consumer.
The liberalization of the market was such that a farmer or shop keeper in a remote part of Zimbabwe could bulk buy from the manufacturer. This direct demand from consumer reduced the storage/warehousing costs for the manufacturer, since, they need not wait for wholesaler to sell. This increases the stock turn. Therefore the manufacturer came up with extra merchandise and hues. They had more cash sells than credit.
This evolution happened around the world. Amazon and eBay are direct to customers platforms.
But direct to customers approach did not cannibalise the wholesaler. On the contrary, the wholesaler merged into a retailer of sort, because consumers demand variety and shop hop. Wholesalers naturally specialized in certain product lines or became competitive in pricing in particular product ranges. Typical of oligopoly competition.
Retailers were not worse off because they increased their margins on breaking bulk. Consumers buy a chocolate bar with 100% margin at a retailer and never at a wholesaler. That’s why retailers focus more on the aesthetic appearances of their shops than wholesalers. My favourite bread costs $4 a loaf. I’m enticed by the shopping experience and ambiance to buy. The same loaf at a wholesaler would never sell because my mindset at a wholesaler is fundamentally different.
The tuckshops in Zimbabwe serve a purpose- in many regards it’s Africa’s version of eBay and Amazon. They get product from manufacturer and break bulk to the bare minimum called tsaona. In turn they help manufacturer with cash cycle. Bank financing is expensive in Zimbabwe.
Murapata warns that the government’s measures will lead to goods being rationed as manufacturers face increased storage costs and limited financing options. This may result in manufacturers focusing on fast-selling products and reducing production of slower-selling items. Consequently, informal traders will step in to import goods and fill the gap left by shortages from manufacturers.
The economist believes that the government’s approach hinders progress and fails to recognize the changing dynamics of the global market. He suggests that embracing direct-to-consumer models, like Amazon and eBay, can benefit both manufacturers and consumers, while wholesalers and retailers can find their niche in the evolving landscape.
