The Zimbabwean government has been adamant that the Zimbabwean dollar is the way to go. They even enacted some measures to try to encourage the widespread use of the Zimbabwean dollar. On Friday, the 15th of April 2022, they announced that Zimbabweans could now pay 50 percent of their vehicle import duty in Zimbabwean dollars. Another measure was that those into mining could now pay 50 percent of their royalties in Zimbabwean dollars. Most recently the multicurrency system was brought into law until 2025. These are some of the measures put in place to stimulate the use of local currency. Despite all these efforts, the Zimbabwean dollar has continued to plummet.
Some Products Now Only Being Sold In US Dollars
The week starting on the 11th of July saw some interesting developments in some supermarkets. At first, I thought it was just speculation but later on, saw it for myself. In Harare, Bulawayo, and Beitbridge you could find some supermarkets putting up notices.
Some of the notices put up in supermarkets on some products read as follows:
FOREX ONLY
To our valued customers
We regret that our suppliers are ONLY ACCEPTING USD payment for this product so we are only able to sell it for forex.
We apologize for this inconvenience and hope you bear with us through this difficult time.
This was concerning Mazoe syrups. Other products that are now being sold this way in some supermarkets are sterilized milk, sugar, and cooking oil, amongst others.
Treasury Reacts To The Forex-Only Pricing Regime
On the 11th of July 2022, Treasury made a communique to Beitbridge Juicing (Pvt) Limited. Part of it read as follows:
“…As you would be aware, Treasury, on 1 July 2022, provided a once-off suspension of duty facility for your company to import 10 000 MT of oranges and 5 000 MT of grapefruits. This measure was expected to augment local supplies, thereby minimizing supply disruptions, as well as guaranteeing affordable prices to the general public.
Treasury, however, notes that the pricing of your products is now exclusively in foreign currency, notwithstanding Government’s initiatives to promote the use of local currency. You will be aware that beneficiaries of tax incentives are expected to complement Government’s interventions with responsible pricing models to ensure the affordability of goods, which is key to achieving the Government’s developmental objectives.
Given the above, I wish to advise that, pending the conclusion of investigations on your pricing model, the Suspension of Duty Facility has been revoked.
In this regard, all newly imported consignments will, with immediate effect, be liable to duty at prescribed rates.”
The Producer (Or Supplier) Vs. Outlets Dynamic
What is happening shows that supermarkets are simply reacting to what the producers are doing? The producers are also simply reacting to the economic situation obtaining currently. Outlets realize the bulk (95 percent) of their sales in Zimbabwean dollars. Then the majority (90+ percent) of producers (or suppliers) require outlets to pay in foreign currency. It is logical why outlets become forced to insist on foreign currency-only payments. Remember they are in business and have to make a profit otherwise they would be wasting time.
The Central Bank Insists Inflation Is COVID And Russian-Ukraine War-Related
The RBZ governor said that it is those two factors that are fuelling inflation. Inflation is now back in the 3-figure zone, over 190 percent. There is no question that unchecked money printing is a culprit, amongst other factors. 3 years ago money supply in Zimbabwe was ZWL$10 billion. Today it is now over ZWL$1 trillion. That is an over 100-fold surge in just 3 years. Case in point! Yet the central bank maintains that the economic fundamentals of Zimbabwe are strong. It is astounding!
Still, Sad That We Heavily Depend On Imports – Which Require Foreign Currency
Notice the 10 000 MT of oranges and 5 000 MT of grapefruits mentioned in that communique. Beitbridge Juicing (Pvt) Limited depends on imports to cater for their raw material needs. Does this mean Zimbabwe cannot produce its oranges and grapefruits? Certainly not!
We used to have that capacity and surely we can get back to that (and even exceed). Virtually all producers have to import most of their core raw materials – things we could produce here in Zimbabwe. It is even sadder that we still import even packaging material. The pricing of basic commodities ends up being affected by these dynamics. Unfortunately, it is the end user, YOU, that ends up bearing the burden through steep prices. Juxtapose that with the fact that you probably get your income in Zimbabwean dollars and you realize you are in a fix.
It is seriously high time reliance on imports be substituted by local production. Unfortunately, imports are spiking whilst exports are going down. For example, in May 2022, Zimbabwe’s imports went up by 12 percent (US$715 million) and exports went down by 13 percent (US$513 million). Government must channel most of its efforts toward stimulating and supporting local production.
Government Says No Dollarisation In Sight
Judging by the current events, dollarization seems one of the logical things to do. The government has repeatedly emphasised that it is not planning on dollarization. The other option some people are suggesting is a currency board. Such a currency board would go a long way in stabilizing the currency and prices, in turn. This again is an option government is not keen on considering.
In light of all that is happening, the economy or markets constitute a living organism. You cannot violate the fundamental principles and expect normalcy. If you do, it reacts accordingly and any coercive measure you enact will only make things worse. In theory, there is nothing wrong with having your Zimbabwean currency. That is the ideal framework. However, it is not sustainable to use it when the economic fundamentals are not there or being upheld. Let me not even get started with the incoming gold coins; Zimbabwe is such an eventful nation.
