Parallel Market Has Last Laugh As Gono ‘dollarises’ Economy

IN a clear sign that monetary authorities are losing the battle against the parallel market where the US dollar can be exchanged for $2 700 compared to the official rate of $60, the Reserve Bank of Zimbabwe has introduced Foreign Exchange Licensed warehouses and shops.

The shops will be introduced for an initial period of 18 months up to March 31 2010.
“As monetary authorities, we will remain steadfast in our efforts to innovate and find practical solutions to the challenges we see on the ground”, governor Gideon Gono told reporters on Wednesday.
Up to 1 000 retailers and 250 wholesalers would now be able to take payment in foreign currency.
Payments for fuel would also be permitted in foreign exchange, Gono said.
“It is imperative to note that the current measures are neither a condonation  nor a direct introduction of the dollarisation of the economy,” Gono said.
The move comes at a time when there are three prices for goods and services  in Zimbabwe the cash price, cheque  and Real Time Gross Settlement (RTGS).
At a local shop in Harare a kilogramme  of beef was on Wednesday being sold for $3 000 for cash. The same quantity was being sold for $32 000 with RTGS while it cost $6 500 by cheque. A 12 litre carton of Mazoe orange was being sold for $15 000 cash, $175 000 RTGS, and $30 000 by cheque. The same commodities could be bought in either US dollars or South African rands.
Genesis Bank group economist Brains Muchemwa said the price differentials between cash and RTGS’ for the same commodities was reflecting the huge premium attached to the scarcity of cash on the market.
“It stems largely from the shallow penetration of plastic money in the transaction process in the economy, as well as the availability of commodities on the informal markets that unfortunately cannot offer the transacting public the convenience of plastic money,” Muchemwa said.
“The direction of the gap between cash and RTGS values for the same commodities will depend largely on the rate of injection of cash into the system versus the rate of inflation,” he said.
Commenting on the different prices for the same product, Harambe Holdings’ Group Treasury and Investment manager Lovemore Mapanda said shortages of cash because of the withdrawal limits –– which was not enough to buy two loaves of bread –– was causing a lot of distortions on the market.
“It (Zimbabwe) is now an import economy. We are not producing anything, as such retailers are factoring in the cost of bringing the goods which will need to be charged in US dollars using transfer rates as cash is not readily available,” said Mapanda.
Mapanda said the economy was “overheated and a realistic cash withdrawal system was now needed”.
“All these price distortions will end once the country starts producing and foreign currency is readily available on the market together with our local currency,” he said.
Analysts said the move by Gono was also an attempt to bring more foreign currency into government’s own depleted coffers.
By legalising the trade, government hopes to move business from the parallel market to official channels, where it will collect 25% of private companies’ export earnings and 15% from domestic traders.
Traders in Zimbabwe have over the past two years been charging for their goods in US dollars or the South African rand.
Most of these goods are brought in from neighbouring South Africa, Botswana and Zambia because local industries have either stopped production or do not produce enough to satisfy demand.
Gono on Wednesday said that the “bold measures” taken by the bank would “if embraced in full and with positivity, enhance our preparations for the 2010 World Cup in South Africa”.
Gono said there would be “perpetual critics who would be quick to condemn the intervention as unsustainable”.
In order to be considered for licensing as a registered foreign currency denominated shop, applicants had to submit an application to the Reserve Bank, supported by a statement indicating the nature of trade, IT systems used, capacity to handle foreign exchange including the availability of counterfeit detectors and estimates of sales volumes.
A refundable security deposit had to be made to the bank ––  $20 000 for single floor retail outlets and $100 000 for wholesalers.
He added that the reforms were “a pragmatic response to the realities obtaining in the economy”.
While foreign currency has remained elusive for the cash-strapped government and in all other official channels, the dollar and the rand are readily available on the country’s parallel markets.
Zimbabwe’s approval for companies and businesses to charge in foreign currency comes on the back of a severe economic stagnation that has seen locally produced goods disappearing  from shop shelves while foreign brands like tinned foods, beer, canned drinks, and rice are readily available.
Last month, President Robert Mugabe banned the export of basic goods and commodities and waived import duty for such goods in a move that was aimed at making them readily available.
Basic goods are scarce and the Reserve Bank has repeatedly re-denominated the Zimbabwe dollar to try keep up with inflation.
Analysts say the economy is unlikely to rebound until a post-election crisis is resolved. President Mugabe and the two factions of the opposition MDC led by Morgan Tsvangirai and Arthur Mutambara are in talks to forge a new all-inclusive government after a disputed election.
Gono said manufacturers could sell to the licensed shops in foreign currency, and that both Zimbabweans and foreigners would be allowed to run the stores.
He however stressed the Zimbabwe dollar remained the official currency.
Zanu PF and by extension Gono have in the past refused to “dollarise” the economy.
The Reserve Bank said it will also sell a bond to raise foreign exchange funds to pay for imports of food, fuel, machinery and medicines.
The bond will have a maturity of 180 days and pay an interest of 15% in US dollar terms.
Other efforts by the Reserve Bank to boost foreign-currency earnings include paying gold producers at the interbank exchange rate, now 62,47 to the US dollar and giving them a 150% delivery bonus.
The  Reserve  Bank  also  increased  the corn seed price to $20 000  a metric tonne from $13 500.
“These reforms are essentially a pragmatic response to the realities in the economy. The move is in the interest of increasing the availability of foreign exchange in the formal market, as well as in the interest of promoting the general availability of basic commodities,” said Gono. See also page 4 and 5

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