Staff Writer

The gazetting of Statutory Instrument 185 of 2020 on dual pricing policy was extremely encouraging on the business front as it ensured flexible business pricing strategies which significantly improved value preservation. 

From 2009 until early 2019, the Reserve Bank of Zimbabwe (RBZ) implemented a multicurrency system. All price data was reported in US dollars. In the first half of 2019, the RBZ transitioned away from a multicurrency system and all prices are now collected and reported in ZWL.

In its trading update for the third quarter ended 31 March 2021, National Foods admitted that the stability in the trading environment was sustained on the back of the continuation of the foreign currency auction and the ability to receive foreign currency payments from customers. 

There is no doubt that the resultant price stability following the introduction of the above measures saw a sustained and continued reduction in inflation. 

Zimplow, which is considered a buy in the market, said the environmental stability, mostly driven by currency reforms, infrastructure development projects and the prospects of a bumper harvest following a 2020/21 good rainfall season has supported capital expenditure.

In its FY2020 results, milk processor Dairibord Zimbabwe Limited (DZL) said a significant growth in domestic foreign currency sales was realised following the introduction of SI 85 of 2020 allowing firms to trade locally in both ZWL$ and US dollars. Total foreign currency revenue increased by 123% over 2019 and accounted for 13% of the total inflation adjusted revenue (ZWL$5.3bn).

Resultantly the revenues generated coupled with proceeds from the auction market contributed towards meeting the company’s import bill. 

Some of the listed firms generated most of its revenue in US dollars and was converted at the fixed exchange rate ruling at the time. 

Medium Cap stock Turnall Holdings also said the return of the US dollar as a legal means of exchange in the country, together with the introduction of the foreign currency auction system helped stabilise the exchange rate and price stability. The firm says it is now raising enough foreign currency locally to meet its import requirements.  On a monthly basis the company requires about US$300 000 of raw material cover – including spares. 

Over the years, the economy has been facing serious foreign currency shortages partly resulting from subdued exports. The coming in of foreign currency auction system managed to ease the situation a bit.

Powerspeed acknowledged that it has been able to source a portion of its foreign currency requirements through the auction system. But unfortunately, it has “failed to meet our needs.” 

Though the exchange rate had somewhat stabilised, Medtech Holdings say the market remained distorted and operating expenses continued to reflect a premium to this rate. Possible cause of this is the time lags in payment of foreign suppliers after having bid allocations on the foreign exchange auction system. Resultantly this time lag results in funds being blocked for a significant period and increases the working capital finance costs. 

NTS hoped that the foreign currency auction platform would grow further to cater for the industry’s needs. 

Nampak Zimbabwe recently said foreign currency sourcing remains a challenge. On a monthly basis the firm requires about US$3.5 million to cover for the raw materials. “For us whilst the auction system has helped we are still restricted on how much we are getting and the timing of that it continues to hamper our daily trading.”

Advertisement

While the official inflation rate shows a downward trend, fuel price increases and high parallel market exchange rates continue to drive general price increases. Despite some stability in the official market rates, parallel market exchange rates are over 30% higher. Experts say this continues to drive increases in most food and non-food prices. 

The African Development Bank projected Zimbabwe’s economy to grow 4.2% this year and 3% in 2022 if effective measures are taken to stabilize foreign exchange and avoid excessive money creation – Harare

LEAVE A REPLY

Please enter your comment!
Please enter your name here