Last week the Business Times reported that Finance and Economic Development Minister Professor Mthuli Ncube had made indications that it was time for a crackdown on the parallel market for foreign currency as it had resulted in the continuous increase in prices that had severely eroded Zimbabwean incomes and the purchasing power of the now sole legal tender, the Zimbabwean dollar. Over the weekend video surfaced of police chasing after individuals in the Harare CBD. Those individuals were identified as black market foreign currency dealers.
Time for action
“The [currency] level is good but we now need to de-link it from rising prices,” Ncube said. “That’s what it has been like, where retailers are using forward pricing strategy, where they look at replacement cost instead of current costs.
“Going forward, we are dealing with the cash crisis by introducing physical cash into the market. In other words, we will be swapping RTGS for cash to contain prices going forward. New currency notes are coming in the fullness of time.”
Ncube’s words are of course not new in the conversation. Quite the contrary and have echoed words of the president Emmerson Mnangagwa. However, the seriousness of the current utterances was foreshadowed by the previous clamp down on mobile money agents who were accused of selling cash and participating in the foreign currency parallel market. Previous measures by the government have failed to contain the parallel market for a sustained period and the currency continues to lose value against the US dollar and therefore other currencies.
A video posted on twitter yesterday shows the police chasing after parallel market dealers. There is no clear indication of what is happening or a comment form the police on the matter but this may signal the action that was promised by Mthuli Ncube. If that is the case then we can expect a protracted battle. The parallel market has grown quite extensively in Zimbabwe and due to the demand for foreign currency operations have spread all over the country.
A popular theory, of course, is that there is a centre of power in the parallel market and this seemed believed when the freezing of accounts belong to Sakunda and other companies believed to be at the centre of the parallel market surge in exchange rate temporarily lead to the decline in the exchange rate. It did not take long the rate to pick back up again and we are currently approaching the peak rate of 21.
The link between the exchange rate and price increases cannot be dismissed. Ncube spoke about how business is now you using a forward rate (the rate they expect to pay for foreign currency later when they go to purchase it) instead of the current rate for pricing. Price increases continue and utilities such as ZESA have announced they will review prices regularly with respect to exchange rate movements, albeit at the subdued interbank rate. Prices have continued their rampage with another month on month increase recorded last month. the government is unwilling to publish year-on-year inflation data and this has left much room for speculation as to the actual year on year inflation rate with independent sources placing it between 300 and 500%
It would seem that moves thus far have failed in controlling the parallel market. The moves against mobile money, the outlawing of US dollar pricing and transacting for domestic transactions and the preexisting 10-year jail term have all failed to dent the parallel market. It will be interesting to see how this clampdown will affect things.