Zimbabwean retailers are warning of severe financial constraints due to the devaluation of the newly established currency, the Zimbabwe Gold (ZiG). The official exchange rate has made it increasingly untenable for businesses as it differs significantly from black market rates, leading to heightened price instability and losses. The Retailers Association of Zimbabwe has called for a market-determined exchange rate in response to these challenges.
HARARE – Retailers in Zimbabwe are raising alarms over the adverse effects of the official exchange rate of the newly launched currency, the Zimbabwe Gold (ZiG), which threatens their financial viability. Launched in April 2024 as a strategy to combat inflation, the ZiG has seen a staggering 80% devaluation against the US dollar on the black market, thereby fostering severe price instability and creating a bifurcated pricing structure within the economy. Prominent retail chains, including TM Pick n Pay, OK, and Edgars, have voiced their concerns to the Reserve Bank of Zimbabwe (RBZ). They argue that the current official exchange rate of US$1 to ZiG13.9 – an overvaluation when compared to the South African rand – is untenable. Represented by the Retailers Association of Zimbabwe (RAZ), the retailers noted that while ZiG was allegedly designed to stabilize the economy, it has instead heightened price volatility and exacerbated operational challenges. It has been reported that suppliers are increasingly resorting to the black market exchange rate, which currently stands at ZiG26 to the US dollar, to set their prices of goods and raw materials, rather than adhering to the official rate. The RAZ stated, “Our suppliers face a severe foreign currency shortage and excessive volatility in ZiG exchange rates on the black market, which has now become the basis of their pricing framework,” during their submission to the RBZ. Despite the illegality of black market trading, it dominates the sourcing of foreign currency for Zimbabwean businesses. Retailers find themselves trapped between the dilemma of significantly raising prices to bridge the financial gap or risking substantial losses of up to 50% per sale should they comply with the official exchange rate. Consequently, it is increasingly common for suppliers to maintain two distinct price structures: one in local currency and another in foreign currency, with the latter reflecting elevated black market rates. Some retailers have opted to deactivate their point-of-sale systems to evade transactions in ZiG, while others witness a decline in customer patronage towards formal shops in favor of entities that refuse to accept the new currency. Lacking appropriate government protections, there is a foreboding sentiment among formal retailers regarding potential business closures. A stark example of the repercussions of this volatility is the popular Boom washing powder, currently trading at ZiG102.45 based on black market pricing, whereas the official rate would equate to ZiG47.46. Retailers are confronted with the unpalatable choice of either selling at a loss or inflating prices in USD, which inevitably deters customers from purchasing. Mike Ncube, a local trader, encapsulated the prevailing anxiety surrounding the trajectory of ZiG, drawing parallels to Zimbabwe’s historical currency failures. He stated, “All the currencies introduced in Zimbabwe with the slashing of zeros and renaming of money have led to one thing—spiraling inflation.” Mr. Ncube concluded, “The government is backing their money with arrogance, not reality.” In response to the situation, RAZ has urged the government to relinquish control over the exchange rate, a sentiment they have advocated for since the introduction of the bond note in 2016. As formal retailers continue to navigate the myriad challenges presented by the ZiG, there are growing fears that without prompt governmental action to reform the exchange rate system, Zimbabwe’s economy may encounter additional destabilization.
The introduction of the Zimbabwe Gold (ZiG) currency forms part of Zimbabwe’s ongoing efforts to stabilize its economy, which has been plagued by hyperinflation and a collapse of previous currencies. The government aims to restore confidence in local currency by establishing a controlled exchange rate. However, the swift devaluation of the ZiG on the black market, alongside formal retailers’ struggles to cope with price discrepancies, has underscored significant flaws in this approach, raising concerns about economic viability and inflation.
In conclusion, the introduction of the Zimbabwe Gold (ZiG) currency has intended to stabilize the economy; however, it has exacerbated the struggles of formal retailers and increased price volatility. The significant disparity between the official exchange rate and black market rates highlights the urgent need for reform and adaptability from the government. Without intervention, the current trajectory threatens to further destabilize Zimbabwe’s economic landscape, putting many businesses at risk of closure.
Original Source: www.thezimbabwemail.com
