- CZR asserts that the dual currency system favors the informal sector, disadvantaging formal enterprises and creating an uneven competitive environment
- The operational viability of formal businesses relies on access to US dollars, as suppliers prefer stable foreign currency for transactions
- The introduction of the ZiG has complicated the financial landscape for formal businesses, widening the gap between formal and parallel market rates
Harare-The Confederation of Zimbabwe Retailers (CZR) has sharply criticised the dual currency system currently in place, asserting that it disproportionately favours the informal sector at the expense of formal enterprises, thereby creating a lopsided competitive landscape.
In a statement released on 26th of January 2025, CZR highlighted the deceptive nature of compelling formal retailers to accept local currency in a dollarized economy, where approximately 80% of transactions occur in US dollars.
"One of the most pressing challenges is the dual currency system, which disproportionately impacts formal retailers and wholesalers," stated Denford Mutashu, President of CZR.
Formal players are obliged to index prices according to the formal market rate of the local currency, which is significantly overvalued. This makes their US dollar prices uncompetitive compared to the informal traders who operates outside the law.
Operational viability of the formal sector hinges on access to US dollars, as suppliers predominantly prefer transacting in stable foreign currency that does not only preserve value but is widely accepted in all forms of transactions.
For instance, retailers requires to purchase fuel for generators amid record blackouts. However, fuel is only accessible in US dollars.
A limited number of suppliers willing to accept local currency for select goods often index prices based on parallel market rates which will be twice that used by formal retailers. When the ZiG was devalued, while retailers were using a rate of 13.9, suppliers were already quoting a rate of 32 per dollar.
Recently, OK Zimbabwe, struggled with restocking, evidenced by empty shelves in certain outlets. The firm itself confirmed these challenges.
Hence, the introduction of the ZiG intended to stabilise the economy has resulted in a convoluted financial landscape for many formal sector companies, widening the gap between formal and parallel market rates, which peaked at a staggering 74% premium within the first quarter of 2024.
Also, high banking fees and stringent regulations have driven many transactions underground. The Intermediated Money Transfer Tax (IMMT) and over 30 licensing fees impose crippling burdens on formal businesses, prompting consumers to resort to cash transactions with informal traders.
To mitigate these challenges, CZR has proposed a transition to a single currency system to streamline operations and enhance financial predictability for retailers. The organization urges the government to accelerate initiatives aimed at formalizing the informal sector to promote equitable competition and tax compliance.
CZR advocates for a reduction in regulatory burdens by rationalizing current licensing and compliance requirements, thereby alleviating the pressure on formal businesses facing overwhelming operational costs.
Without such measures, reliance on short-term monetary fixes to stimulate demand will only exacerbate long-term instability.
What is particularly troubling is the apparent awareness within the government of the necessary actions, with knowledgeable policymakers in positions to implement change yet opting to maintain the status quo.
This raises critical questions about the motivations behind these decisions. Are fiscal deficits being funded through inflationary mechanisms for convenience, or are there deeper political or economic incentives at play?
The refusal to adopt known solutions implies a prioritisation of short-term gains over long-term stability.
This intransigence risks deepening economic volatility, undermining trust in governance, and exacerbating public hardship.
Equity Axis News
