Foreign currency problems continue to hamper business performance each passing day. The 2019 Annual Budget announcement appears to have done little to address day to day pressing issues around the shortage of foreign currency. Long fuel queues are still the order of the day despite assurances that the situation would improve after a few days. Basic commodities are still in short supply. Prices of raw materials have gone up as well. To make purchases abroad, where prices are cheaper, one needs to look for foreign currency, a very scarce commodity in the banking system right now. There is more than enough foreign currency on the black market, but a 10 year jail term awaits whoever is found doing business there. It is now more than ever that businesses need to keep their ears on the ground, eyes wide open, to be able to come up with strategies to survive this onslaught.
Prices are going up
The reality on the ground is that we are in an economy characterised by inflation. Many wholesalers like Delta Beverages have exonerated themselves from this whole mess. They simply say they have not increased their prices for soft drinks and beer. The retail prices tell a different story though. Prices have gone up. The point is, supply is constrained and with demand not being met, prices of the scarce commodities are forced to go up. An unusual situation prevails in the fuel sector. At an average price of Bond $1.40 per litre for petrol, our fuel is among the cheapest in the world. This translates to about 40 cents per litre in US Dollars. In South Africa, the average price of petrol is around R15 per litre which translates to more than US $1 per litre. But, fuel is hard to come by in the country at the moment. Again, fuel is abundant on the black market but the prices are very high. Businesses need to try and make sense of these and other scenarios to ensure they do not sink amid such price distortions and uncertainty. Worse still, the government insists that there is enough fuel in the country.
The fast foods industry has not been spared the confusion. The situation is so dire that it needs to be assessed regularly and decisions should be made fast. Back in October, KFC temporarily closed their restaurants due to currency challenges. A month later, they reopened, but this time, coping strategies were in place. The Streetwise Two, which is essentially two pieces of chicken and a portion of chips, has now gone up from $5.50 to $9. A 15 piece meal is now a whopping $50. These prices are in the surrogate bond currency. The price of potatoes has gone up. So has the price of chicken and cooking oil. Packaging material prices have gone up too. Businesses have to safeguard themselves by implementing survival tactics and this is exactly that the fast food industry is doing.
Most big grocery retailers like OK and Pick n Pay have continued to charge in bond. However, the prices have gone up drastically, in most cases, more than three fold. Imported goods are even worse. The truth is that these retailers are charging a rate that allows them to quickly go and buy foreign currency to stock their shelves and remain in business. Economy beef which used to cost between $4.50 to $7 has now gone up to about $14. There may well be a few unscrupulous retailers who are overcharging but the underlying problem that has led to this madness is the foreign currency scarcity. In a normal economy, no one will have an opportunity to charge exorbitant prices because market forces will determine the normal price. There are many retailers who have now revised their shifts in order to remain in business. They have cut the working hours of their staff to reduce their wage bill. Others have temporarily laid off their workforce. One hopes it is truly a temporary lay off.
Many schools struggled towards the end of last term. Some boarding schools contemplated closing earlier than normal because they had run out of basic supplies. Others requested parents to pay school fees to ups. The current price hikes meant that the fees that they had charged was not going to be enough to sustain their children to the end of the term. As 2019 beckons, it is clear that desperate times call for desperate measures. A number of schools are quoting school fees for next year in both bond and US dollars. Interestingly, the exchange rate they are using is not 1:1. It is the black market rare of 1:3 or more. As is the case with Gateway School, some, schools have factored in a US Dollar component to the school fees. According to Gateway School, a 25% US dollar component is to cover direct operational costs, staff salaries and inflation based adjustments. Others like Riverton Academy in Masvingo are using rates that are unusually high. You either pay US $2000 or Bond $9 600 for a secondary school child in boarding next year. The exchange rate here is 1:4.8. The bottom line is that schools are also trying to remain in business, although clearly there are some that are out to make a killing.
It cannot be business as usual in the current environment. Business needs to watch and be proactive or they will close shop. There is not time to wait for bureaucratic decisions made once a quarter at the board meeting. You cope and adapt as you go.