So it’s now evident that SI 142 of 2019 has dealt a blow to the parallel as rates have gone down. The new law which stipulates that foreign currency is no longer legal tender has given birth to some interesting developments. What’s happening now is that the once-shunned interbank market is actually offering much better rates than the parallel market. Whether that’s going to be so for the long haul is a story for another day. The SI 142 of 2019 caught people unawares especially parallel market dealers. One of the interesting changes that are now taking effect is the decrease in prices; some brands have already started slashing their prices.
What SI 142 Of 2019 Has Done
This new law has effectively decimated the demand for USD that was now sky high. The parallel market used to rely heavily on injections of funds from big brands who would buy the US dollars. From the point SI 142 took centre stage that narrative was reversed altogether. So the scenario now is activity and volumes on the parallel market have somewhat decreased as people (especially the big brands I highlighted earlier) are believed to be resorting to the interbank market. Other measures such as the interest rate hike are believed to have stopped the practice of taking out bank loans for use in buying USD. The opportunity to make profits through the exchange appreciation (approximately 60% in the half year) that were way higher than interest rates (15% per annum) was eliminated by increasing base interest rates to 50%. So with the overall decline of the USD’s value on the parallel market and the favourable conditions prevailing on the interbank market, prices must somehow go down. The fall in demand for the USD against the RTGS$ means prices should also go down since pricing was now being pegged against the USD. Of course in economics they say prices are sticky downwards – business is quick to increase prices but slow to reduce.
Simbisa Brands which focuses on fast foods has put into effect some marginal price slashes for its products. Simbisa Brands includes several popular outlets namely, Chicken Inn, Pizza Inn, Haefelis, Creamy Inn and Steers. It’s most probable this development has been made possible by the decrease in value of the USD on the parallel market. A one-piecer that cost RTGS$15.75 now costs RTGS$14 whilst a two-piecer is now RTGS$20 down from RTGS$25. Basically, as for Chicken Inn some prices have been slashed by 11% whilst some have been slashed by 20%. As for Pizza Inn most of the of prize slashes have been by a factor of 20% with for instance a Med Classic pizza now RTGS$32 down from RTGS$40. Haefelis has also slashed some prices by a factor of 20% with a small portion of chips now RTGS$8 down from RTGS$10. The 20% slash in prices has also been applied to prices for Steers.
Mahomed Mussa Wholesalers
This is one of the largest wholesalers in the country. They recently slashed prices of goods they offer and that sparked widespread claims that they had been arm-twisted to do so by government. Mahomed Mussa did refute the claims and clearly stated that they operate their business within the dictates of the law and market forces. He pointed out that if their suppliers slash price then they simply follow suit by also slashing their prices and vice versa. He even went to castigate people who actually hoard goods from his outlets and charge extremely high prices when reselling them. He also highlighted that whenever suppliers improve supplies then demand will decrease thus leading to price decreases. Some of the price changes include Sona soap (10x250g) that used to cost RTGS$70 but now costs RTGS$44 (37% decrease). Gloria self-raising flour (10x2kg) used to cost RTGS$258 but now costs RTGS$175 (32 % decrease). Sunlight washing powder (1kg) used to be RTGS$38 and is now RTGS$30 (21% decrease).
If the prevailing situation continues and we see a further appreciation in the value of the Zimbabwean dollar on the parallel market then we might see price decreases becoming main-stream. Some people are even confident that the demand for the Zimbabwean dollar (i.e. the bond/RTGS$) might continue to surge. This would end up strengthening local currency but we wait to see if this will hold for a stretch. Recently President ED Mnangagwa pointed out that the government was going to decisively deal with those that are still maintaining or adopting unscrupulously high prices of goods and services.
Have you noticed that both exchange rates for interbank and parallel markets are rising again?
In view of the above-mentioned, will prices of goods and services go down, in your opinion?
Well, this presents a real challenge to the price reduction ideology. Where prices will go, theoretically at least will be determined by how far up the rates go; if they go beyond the 13 that was the parallel market peak they will definitely go up.