BY TAURAI MANGUDHLA WHEN Zimbabwe announced a return of the local currency in 2019, memories of hyperinflation, de-industrialisation of 2008 and empty retail shelves lingered on people’s minds.
The decision was in disregard of the government’s promise to the market that the Zimbabwean dollar would only return once adequate reserves were built.
Fears the local currency would trigger another wave of company closures and incapacitation among manufacturers, coupled with rising inflation were rife. And three years on, they have become a reality.
The government ignored obvious signs that the local currency had been rejected by the market when bond notes failed in 2016.
The market only used bond notes for change and prices in bond notes — which were legally at par with the US dollar — in fact, were higher with premiums being charged.
The premium kept rising to a point bond note prices became five-fold those of the US dollar.
Still, the government ignored expert advice and introduced the local currency and banned the use of foreign currencies.
Then in 2020, the state made a major climbdown and reintroduced the US dollar through the guise of ameliorating the impact of the Covid-19 pandemic.
On the introduction of the auction platform, on June 24 last year, the local currency traded at US$1:ZW$57. It has been on a slippery slope and breached the US$1:ZW$200 on the parallel market.
The official rate, however, is arguably not a true reflection of the currency situation given that about US$500 million is circulating outside the formal banking system. This is higher than the US$300 million in the formal system.
Economist Chenayimoyo Mutambasere said Treasury needed to appreciate that Zimbabwe is a forex-backed economy with most local products made from imported raw materials which creates a huge demand for the hard currency.
“This demand for foreign currency is then compounded by the state of flux the country finds itself in, wherein there is no clear direction in terms of monetary policy. We are peddling a multi-currency system that in itself is suffocating any chance of revival of a local currency. It would be better to dollarise,” Mutambasere said, adding that the auction system remains inefficient because the banking system does not hold enough deposits to sustain the discounted sale of foreign currency.
“We urgently need this ship to be stirred towards stability. We need to abandon the pegged exchange rate and revert to price discovery mechanisms. We need a clear direction of travel preferably towards dollarisation to assure the economy given the prevailing times,” she said.
Economist Rutendo Masawi said shops will soon struggle to stock up due to forex shortages.
“Some goods are imported using forex which is in short supply and the manufactures here also need USD for spares and raw materials otherwise plants are down for a long time, which creates shortages,” Masawi said, adding that some retailers are already demanding payment strictly in US dollars to hedge against forex shortages.
Masawi also said consumers’ disposable incomes have always been under pressure due to a combination of poor salaries, high unemployment and the fact that Zimbabwe is a high cost producer. This, she said, has a bearing on the success of local industry.
The government needs to remove import barriers for key raw materials and capital equipment and spares.
“There is also a need for a long-term vision to address de-industrialisation and revive the agricultural sector, which is the backbone of the economy,” added Masawi.
Zimbabwe’ largest milk processor Dairibord Holdings has reportedly been struggling to meet demand lately.
However, Dairibord CEO Anthony Mandiwanza said his company was meeting market demands.
“People who buy in bulk know that they can easily sell these products and, at law, everyone can sell using a currency of their choice. The fact that they buy our product using local currency for resale in US dollars is their prerogative and has nothing to do with us,” he said in a telephone interview on Tuesday.
However, some manufacturers who requested not to be named said they struggled to import raw materials in time due to shipping delays as a result of Covid-19. They said freight charges had also gone up significantly and were eroding profits.
“We are struggling to get foreign currency and even when our bids are approved, banks are taking forever to process our telegraphic transfers,” said a top executive with a Zimbabwe Stock Exchange (ZSE)-listed manufacturer.
“Shipping has become an issue because companies were not releasing their vessels from China, for instance, to Africa because they would go back empty; instead, they prefer Europe and this has been a challenge.”