Barring a miracle, Zimbabweans are in for one of the most low-key festive seasons since 2008. For consumers, price increases and shortage of basic commodities will leave them with not much food on the table on Christmas day. If you are a business person, persistent fuel shortages, foreign currency challenges as well as reduced production capacity definitely have not spared your business. US dollar pricing is now on the increase as businesses try to cushion themselves from the harsh economic conditions.

Simbisa Brands

After a few days of speculation and uncertainty, Simbisa Brands, the fast food giant that owns Chicken, Inn, Pizza Inn, Nandos and others has finally broken the silence. In an Operational Notice to its customers on 19th December 2018, Simbisa Brands said, “As a company, we require foreign currency to meet franchise fee obligations, and to import franchise related raw materials, which cannot be substituted locally due to intellectual property agreements on brands such as Nandos’, Ocean Basket, RocoMamas and Steers. The import duties and taxes on imported raw materials also have to be settled in foreign currency.” They went on to say,” Due to the prevailing national circumstances all our bankers are failing to provide us with foreign currency at the regulated exchange rate of 1:1 between USD and local dollars…For us to remain in business and continue serving you your favourite meals, we have resolved to discount our prices to below cost where prices are payable in USD so that we start generating the foreign currency we need.”

Two things are clear from this statement. Firstly, accessing the US dollar at the rate of 1:1 is impossible even for big companies like Simbisa. Foreign currency will have to be found elsewhere, for a rate around 1:3.5 maybe. Looking at prices at Nandos’, a quarter chicken is priced at US $2.50 or Bond $8.75. Chicken Inn prices follow the same exchange rate as well. Secondly, we can see that pricing in US dollars is a necessary survival strategy which Simbisa Brands and others will try to employ in order to cover foreign obligations which require to be settled in foreign currency. While Simbisa is not the first organisation to charge in USD in Zimbabwe, the importance of this development is in the size of Simbisa’s national network of outlets.

RBZ allocations

Currently, local firms requiring foreign currency have to apply to the Reserve Bank of Zimbabwe (RBZ) and wait for their turn to receive the greenback. However, the list is too long and RBZ is failing to allocate to everyone. First preference goes to critical requirements like medicines and fuel. Even they are not getting enough. With government insisting that the exchange rate between US dollars and the local bond is 1:1, currency issues remain a headache for most companies. There have been some calls for government to liberalise the foreign exchange market. However, so far what government has done is to criminalise the parallel market. As many companies are left frustrated by not accessing foreign currency, allegations of favouritism and corruption associated with foreign currency allocations have been levelled against the central bank. These allegations have not been substantiated, however.

Survival strategies

In a country perceived to have great potential, many businesses would rather hang by the thread than sink completely. Renewed investor interest breathes an air of hope, but the situation seems to be deteriorating. Businesses and individuals just have to cope for now. It comes as no surprise that Dr Shingi Munyeza announced that he had opened an Ocean Basket shop in South Africa. In a Twitter post on 20th December 2018, Dr Munyeza said, “ Today we opened an #OceanBasket at Kollonade Mall in Pretoria East. Wishing the team the best as we showcase great food and great service.” This is the same Dr Munyeza who is believed to have ceded his Ocean Basket shop in Harare to Simbisa Brands a few months back, after foreign currency shortages were believed to have started taking their toll on the business. In South Africa, this shop will not face challenges in raising foreign currency to pay franchise fees. Also, it may be a survival strategy to raise foreign currency to fund his local operations’ forex needs. What better strategy than to go and open in foreign lands where you sell in forex. Another fast food business, KFC temporarily closed in October this year, only to reopen a month later with increased prices. At the time of closing, they were citing currency challenges.  Another survival strategy perhaps.

As US dollar pricing seems to be gaining ground, the Progressive Teachers Union of Zimbabwe (PTUZ) today also requested to be paid their salaries in US dollars. If, government cannot pay them in foreign currency, they have requested their salaries to be increased to bond $3 000. If goods are charged in US dollars, maybe workers salaries should be paid in forex too. Tit for tat.