- Urges for a market-determined rate that reflects real-time fluctuations
- A 122% premium exists between the black and formal markets
- Recommends a shift in the Financial Intelligence Unit's role from monitoring and punishment to advisory
- Emphasizes the need for discounted pricing strategies to make formal retail offerings more competitive
Harare- The Retailers Association of Zimbabwe (RAZ) has urged the government to abandon the pegged exchange rate system in favor of a market-determined exchange rate, believing this shift could revitalize the struggling retail sector.
RAZ members includes OK Zimbabwe, TM Pick n Pay, SPAR, Food World, Halsteds, Pelhams, Electrosales, Metro Peech and Brown, Farmbiz and Edgars.
The existing pegged exchange rate has created a staggering 122% premium between the black market and the formal market. Formal retailers operate at a rate of 14.8 ZiG per dollar, while the parallel market has surged to 32 ZiG per dollar, making US dollar prices significantly higher in formal settings.
Consequently, customers are increasingly turning to informal markets where prices are more favorable.
Suppliers are also quoting parallel market rates ranging from ZiG20 to 32 per dollar depending on the product, while retailers must sell at the official rate of ZiG14.
This disparity leads to substantial losses for formal retailers, as they struggle to compete.
RAZ warns, “The situation is untenable and could lead to company closures if authorities do not implement policy measures to protect the formal retail sector.”
For instance, Schweppes sells a 2L Mazoe at US$3.48 or ZiG74.70, while OK Supermarket must price it at US$4.60, or ZiG68.08 resulting in a 10% loss.
Similarly, supermarkets purchasing 2kg Boom washing powder at ZiG30 are forced to sell it at the official rate of 14, incurring a 45% loss.
Conversely, the Confederation of Zimbabwe Industries (CZI), the Zimbabwe National Chamber of Commerce (ZNCC), CBZ, and the Bankers Association of Zimbabwe praised the introduction of this currency in April, raising questions about their current dissatisfaction.
Trusted business leaders should refrain from misleading the government on critical issues like currency. It is either they were uninformed or deliberately misled the state to garner favors.
How can individuals, respected by shareholders for their decision-making, make such poor choices?
The ZiG was destined to fail from the start, replicating the ZWL's trajectory in a predictable outcome that didn't require expert economic knowledge.
While the ZWL had some longevity, the ZiG is facing a premature demise. Its inability to purchase fuel or passports, reliance on a pegged exchange rate that does not reflect market demand and supply, disregard for fiscal responsibility, and disputed reserves indicate that it is merely old wine in new bottles, bound to meet the same fate.
What kind of currency allows some sectors to benefit from stable US dollar sales while others are forced to use a misleading pegged rate?
Zimbabwe operates as a consumption-based rather than a creation-based economy. Before considering a new currency, fundamental issues must be addressed: correcting corruption, fostering a creation-oriented economy, and building reserves.
In fact, it is fortunate to have survived this long.
The RBZ governor on the other hand, has proven to be less effective than former governor Mangudya, who managed to maintain a premium for over five years. The premium for the ZiG is already hovering above 120% in less than six months.
The governor should have seen it coming - injecting a large amount of ZiG into the economy ahead of the SADC meeting was a recipe for disaster. This move would inevitably increase the money supply, fueling inflation and potentially destabilizing the currency. It's Economics 101: when more money chases fewer goods, prices go up.
If he recognized the potential consequences, it shows a blatant disregard for the grievances of the people who elected him, as it's the general masses who suffer the most - those who get paid in ZiG and bear the brunt of fluctuating exchange rate.
If he failed to see it, it suggests he is clueless and unfit for the role. The best course of action for him would be to resign. He has simply replicated the failed policies of the Zimbabwe dollar.
Recommendations
The Retailers have urged the government to adopt a market-determined exchange rate, reflecting real-time fluctuations and incorporating discounted pricing strategies. This approach enables formal retailers to maintain a stable official exchange rate while offering competitive prices.
By doing so, retailers can mitigate the inflationary impact in USD terms, making their offerings more attractive against informal markets.
A market-determined exchange rate provides several benefits. It allows for accurate currency valuation, reflecting supply and demand dynamics. This, in turn, improves competitiveness, as retailers can adjust prices in response to market changes. Additionally, retailers can offer discounted pricing to manage costs and stabilize demand, fostering a more responsive and adaptive retail environment.
The successful implementation of a market-determined exchange rate relies on two key components. Firstly, the exchange rate must be driven by market forces, providing real-time exchange rates. Secondly, retailers must be able to offer differentiated discounts to attract customers.
It also recommended a shift in the role of the Financial Intelligence Unit (FIU), transitioning from monitoring and punishment to advisory. This promotes compliance, cooperation, and a healthier business environment for the sector contributing handsomely to the national fiscus through various taxes.
Ultimately, adopting a market-determined exchange rate would promote economic growth and stability in Zimbabwe. By fostering a more competitive and adaptive retail environment, the government can support businesses and benefit consumers. It is crucial for policymakers to consider this approach and work towards creating a more favorable economic climate.
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