FORMAL small businesses that need foreign currency to purchase wares and accessories not on the Reserve Bank of Zimbabwe (RBZ)’s import payments priority list are finding ways to survive.
The Brett Chulu Column
The reality on the ground is that small businesses are mostly being paid in bond notes, making it very difficult to finance imports on which their businesses depend. There are at least three ways small businesses are getting around the restrictive priority list.
First, an informal forex market is discounting the bond note and the Real Time Gross Settlement (RTGS) “dollar”. The laws of supply and demand are still alive.
The desperate Zimbabwean small business owner who needs to keep the business afloat is willing to offload the bond notes at a discount. Since the RBZ insists that there are no separate bank accounts for the US dollar and bond notes, RTGS transfers to get hard US dollars is now a de facto forex market. Effectively, RTGS balances are another currency, albeit unofficial. The clearing price for purchasing US dollars using hard bond notes is happening at a premium of 5%. The RTGS “dollars” are purchasing hard US dollars at a premium of 15%.
This possibly explains why inflation is ticking up as businesses need to recover these premiums. Clearly, market forces are overpowering the forced parity of the bond notes. Market forces are evidently pricing in the risk of funds locked up in bank accounts and the mixing of US dollars and bond notes in bank accounts.
Second, some innovative small businesses are entering into barter deals with connections in foreign countries to avoid the bond notes premium. In this system, local small businesses make purchases locally on behalf of foreigners using bond notes. There are three options for completing the barter deal. The foreign connection can be instructed to purchase goods directly and ship them to Zimbabwe. Alternatively, the Zimbabwean resident travels to obtain the hard currency and makes purchases there. Thirdly, money can be transferred to Zimbabwe via formal transfer systems. This third option merits further analysis.
If that money comes through formal channels the RBZ will classify it as diaspora remittances. This means the RBZ will award an incentive. This is problematic from the perspective of the RBZ bond notes incentive scheme. How do you classify that inflow? Does this money transfer really qualify for the incentive since this constitutes a reward for circumventing the priority list? It is difficult for the RBZ to detect that the money transferred into the country is settling a barter deal. Thus, through the barter deals, local banks are disintermediated. There is little the RBZ can do about this disintermediation. In fact, barter deals are making the cost of importing cheaper in that bank charges are avoided and an incentive from the RBZ is received.
The RBZ, in the Monetary Policy Statement (MPS), announced that it was putting in place a facility to enable cross-border traders to make payments through formal means. I hope the RBZ factored into their thinking that cross-border traders could be engaging in barter deals. If the new system the RBZ is introducing results in marginal losses relative to the barter system, there might be a low uptake.
Research into the semi-formal commuter omnibus (kombi) sector, not too dissimilar to cross-border trading, shows that operators are very sensitive to marginal losses. The RBZ might want to know that the main reason EcoCash suffered a stillbirth in the kombi sector is this phenomenon called micro-margin sensitivity. Operational crew side-lined EcoCash because it threatened to eat into the kombi crew’s personal marginal gains. If the RBZ’s facility eats into the cross-border traders’ personal marginal gains, it is likely to suffer the fate of EcoCash.
Third, some importers have increased prices to compensate for the bond notes. The thing is quite subtle. The overpricing is done on small items that move relatively fast. The thinking behind this is not too hard to decipher.
It would appear that the overpricing is meant to cover the cost of paying premiums for forex in the informal forex market.
It is not hard to find similar goods with a 40% difference in pricing. What is interesting is that people still buy from these shops where there is overpricing. It looks like consumers are not that pressed to compare prices before shopping.
Businesses have done a Swot analysis with the RBZ’s import payments priority list turning to be both a threat and opportunity. Life goes on.
Chulu is a management consultant and classic grounded theory researcher. He has published research in an international peer reviewed academic journal.