Retailers reel under diminished demand

Kudzai Kuwaza

RETAIL outlets and corporates are reeling from a major reduction in sales volumes with some facing closure as a result of shrinking disposable income due to a weakened local currency and impact of the Covid-19 pandemic amid a deepening economic recession.

The Zimbabwean dollar, which was re-introduced by government as the sole legal tender through Statutory Instrument 142 in June last year, has rapidly lost value. This has worsened the country’s inflation rate, which has since galloped past the 800% mark decimating incomes and pensions denominated in the local currency. This has severely reduced the buying power of most workers, who are paid in local currency. Government has since reversed its decision to ban the United States dollar as legal tender for domestic transactions as the local unit has depreciated massively.

Figures availed by beverage manufacturer Delta and major retail outlet OK Zimbabwe reflect the impact of shrinking disposable income to the market.

In a recent trading update, Delta Beverages revenue was 5% down in inflation-adjusted terms during the first quarter ended June 30, 2020, reflecting the impact of the Covid-19 disruptions on volumes and the cost-driven price changes.

All volumes went down with sorghum beer tumbling 51% during the quarter.

Lager beer volume for the quarter declined by 18%, compared to the same period last year, noting the low outturn in prior year during the transition to the mono-currency system.

OK Zimbabwe’s sales volume for the quarter to June 30, 2020 went down 32% compared to the same quarter in the prior year as the market grappled with low disposable incomes and the impact of Covid-19.

The income of a number of workers has been slashed by as much as 50% due to reduced working hours with some losing their jobs altogether prompted by the coronavirus-induced lockdown imposed by government since March 30.

OK Zimbabwe chief executive officer Alex Siyavora said disposable incomes shrunk from two angles, namely salary cuts and reduced activity in the informal sector.

“This has impacted demand. Our volumes for the first quarter of the financial year shrunk by 32% as stated in our trading update. We also could not run the nation’s biggest promotion this year, The Grand Challenge, and this contributed to the reduced volume of business,” he said.

Zimbabwe National Chamber of Commerce president Tinashe Manzungu warned that the dwindling disposable incomes could result in some businesses shutting shop.

“Fewer clients are coming for goods and services and thereby production levels are reduced and this could finally lead to downsizing of staff and reduced profits,” Manzungu said. “Since production and income levels have been reduced, ultimately GDP has also been affected negatively. If companies do not adjust, they will be forced to close altogether.”

Confederation of Zimbabwe Retailers president Denford Mutashu said retail outlets are feeling the pinch of reduced disposable incomes.

“Business is low and customer traffic has reduced while the quality of the shopping basket is poor as it is dominated by key basic commodities whose margins are poor,” Mutashu said. “The income levels in the economy remain depressed owing to high inflation and general trends where prices are predominantly priced in US dollars yet the majority earn in local currency.”

Former Employers’ Confederation of Zimbabwe executive director and labour market analyst John Mufukare said the freefalling Zimbabwean dollar and impact of the coronavirus pandemic has left those earning in local currency in near-destitution with severely reduced buying power.

“There has been a major decrease in economic activity since the re-introduction of the Zimbabwe dollar. If you used to earn US$1 000 in the previous era and are now earning ZW$1 000, it means you are now earning US$10 even though the prices in US dollar terms have not changed. It means you are now earning 1% of what you used to earn. Workers in Zimbabwe have been completely impoverished. It is a situation that defies description,” he said.

Mufukare said the reduced income has increased cases of corruption as citizens struggle to make ends meet.

“You cannot survive without some sort of corruption. We cannot pride ourselves as a country surviving on corruption,” he said.

Confederation of Zimbabwe Industries chief economist Tafadzwa Bandama said companies have been hard hit by the rapid decline of disposable incomes.

“Industry depends on demand for their products in order to get profit. Due to currency depreciation and inflation, consumers are grappling with dwindling disposable incomes. Because incomes have not adjusted accordingly, consumers are only demanding a proportion of their usual consumer basket before inflation set in. The Zimstat July 2020 Total Consumption Poverty Line was at ZW$15 573 yet most households earn less than that figure. This affects revenue for business through contraction in demand for their products,” Bandama said.

“In addition, companies are suffering a decline in aggregate demand due to Covid-19. Low capacity utilisation and less demand are a result of Covid-19 public health response measures over and above the pre-existing fragilities that affected the economy before Covid-19.

“This means that companies cannot keep pace with inflation in terms of salary adjustments because of declines in volumes produced and sold. The Mid-Term Budget Review has released some measure of disposable incomes to consumers through tax review, but it’s not enough to ramp up demand,” Bandama added.

The reduced buying power of the local currency has brought about frustration for workers .

Health workers have been on strike for more than two months demanding to be paid in foreign currency resulting in public hospitals attending only to emergencies. This has been worsened by the surge in Covid-19 infections.

Other civil servants have said they will only negotiate for US dollar salaries when they sit down with government for wage negotiations, which President Emmerson Mnangagwa’s broke administration cannot afford. Efforts to pacify workers with Covid-19 allowances of US$75 vouchers have failed dismally.

The Zimbabwe Congress of Trade Unions have begun weekly lunch time demonstrations to force employers to pay US dollar-denominated salaries as frustration over the deteriorating value of salaries paid in local currency boils over.

The impact of reduced disposable incomes is not only confined to retailers and corporates. The tourism sector, which is looking to boost domestic tourism to make up for the absence of foreign visitors as a result of Covid-19, will struggle to lure locals whose incomes have been severely diminished.

Safari Operators Association of Zimbabwe chairperson Emmanuel Fundira said the lack of disposable incomes for the majority of Zimbabweans will hamper the country’s domestic tourism thrust.

“We do not have a middle-class in Zimbabwe. It is either you have it or you don’t. Those at the top are very few. It is not enough to fill a plate of porridge,” Fundira said.

“Therefore, at the beginning of the campaign to increase domestic tourism, we will not achieve much. It will be a gradual and painful process.”