By ETimes

As the Zimbabwean price increase madness continues unabated, one is left wondering as to who is really to blame for this when both businesses and government are not willing to accept the blame. For instance, businesses argue that the government’s inconsistent policies are to blame while the public is accused of going against the central bank by rejecting the local currency.

What is the motive behind higher exorbitant prices?

However, it would appear that Zimbabweans are in fact the ones shooting themselves in the foot. They do this in the sense that they tacitly approve the growing tendency of increasing prices without valid reasons. Such increases occur despite the fact wages have remained stagnant in real terms.

Just like workers, Zimbabwean companies, which are still reeling from the effects of the Covid-19 induced lockdowns, are also finding it difficult to cope with developments in the market. According to the Consumer Council of Zimbabwe (CCZ), the current cost of living for an average Zimbabwean family of 5 is circa ZWL$50 000. However, in most cases the salaries of the majority of the people are below that figure.

This means the onus is on all stakeholders to find common ground rather than “economically killing each other.”

So as some experts assert that the Zimbabwean dollar “lacks the oomph,” authorities have been unflinching on their position about the local currency; it is “here to stay.” Yet, in spite of adopting this uncompromising stance, pressed Zimbabweans are presently buying and stocking the U.S. dollars which they see as a stable store of value. As one would expect of people that reside in a country with a high rate of inflation, many Zimbabweans have no confidence in the local currency.

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This lack of confidence is supported by the fact the local currency has officially depreciated by 4,100% against the US dollar on the official market since its introduction in February 2019. The currency’s rate of depreciation is even higher on the parallel market thus proving that the stringent regulations that were introduced to ensure compliance with exchange control regulations have largely failed. At the time of writing, the Zimbabwean dollar was trading at ZWL190 to the US dollar on the black market.

Perhaps another metric that again shows Zimbabweans have no confidence in the local currency as well as the banking system has to be the growing reports of house break-ins where robbers are making off with tens of thousands of dollars in cash. The fact that individuals are risking their lives by choosing to keep their money stashed under mattresses shows the extent of the lack of trust in the Zimbabwean dollar.

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Although the adoption of the foreign currency auction system was initially hailed as a step in the right direction in terms of bringing sanity in the markets. Allegations of manipulation and control of the auction means this system cannot accurately reflect the true value of local currency hence the lack of confidence in the Zimbabwean dollar.

Are business owners just greedy?

According to economic principles price is determined through forces of supply and demand. Therefore, as far as businesses are concerned, the true value or exchange rate for the local currency is determined by market forces on the parallel market and not by the auction system. From the perspective of business owners, it makes sense to peg prices against the parallel market exchange.

That is why for instance, the popular fast food outlet like Bakers Inn charges ZWL$160 for a meal (Russian and Chips) that costs US$1. This price difference says a lot about our currency and auction market.

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However, what is even more worrying now are the U.S. dollar price increases, a phenomenon which risks another round of even steeper Zimbabwe dollar price increases. Rentals have gone up in most high density suburbs from around US$40 previously to US$60-70.

Similarly, fuel prices have been going up in both Zimdollar and U.S. dollar terms. In October this year, in Zimbabwean dollars (ZWL$) Diesel 50 went up to ZWL$122.13 from ZWL$115.15 while Blend E20 surged to ZWL$123.71 from ZWL$118.42 previously. In USD terms Diesel 50 stood at US$1.38 from US$1.34 while Blend E20 went up to US$1.40 from US$1.38 previously.

According to a notice issued by the energy regulator this month, the maximum pump price of diesel has been set at ZWL$136.44 or US$1.38 per litre while that of petrol has been capped at ZWL$138.70 or US$1.40 per litre.

Although the increase in ZWL$ seems significant, the fact that few fuel dealers actually sell the commodity in the local currency again shows the extent of the problem. High fuel prices in Zimbabwe, which are one of the most expensive in the region, play in part in the pricing of goods and services across the board. For instance, players in the public and private transport sector are known to increase their fares whenever fuel prices are increased significantly.

Although they do this in order to stay afloat, the price adjustments always add more pressure to the already stressed Zimbabweans.

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The same thing can be said of the price of liquefied petroleum gas (LPG) that rose by 9.6% to US$2.05 per kg from US$1.87 in October, 2021 following an upward review by the Zimbabwe Energy Regulatory Authority. This increase negatively affects those that are paid in local currency but must buy the LPG from dealers that mostly sell in U.S. dollars.

While authorities may have good intentions, there is doubt their actions are not exactly helping. The unwillingness to allow the local currency to find its true value is hurting many, especially those that earn a fixed Zimdollar salary.

“Any price increase on cost drivers like utilities, rates, fuel has a direct negative impact of fueling price hikes on basics and non-basic commodities.  The most discerning part is the continued decimation of incomes as the parallel market rates run,” Denford Mutashu, Confederation of Zimbabwe Retailers President told this publication.

Black market rate escalations have continued to threaten the local currency’s stability despite the recently availed IMF Special Drawings Rights of US$961 million. Parallel market exchange rates will likely remain the main driver of price increases.

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“Across both urban and rural areas, access to basic food and non-food commodities and services on the market is increasingly constrained by reductions in household purchasing power related to ongoing macroeconomic instability, limited income generating opportunities and spiking prices,” according to FEWSNET.

The cost of living is expected to continue to increase at a time when parallel market exchange rates are poised to be more than double the official exchange rates, driving much of the price increases on the markets in local currency terms.

Below are the views of the company…

GetBucks

The Zimbabwean dollar lost ground against the USD in the informal market during Q3 2021 triggering an increase in the month-on-month inflation figures rising from 2.6% at the beginning of the quarter and ending at 4.7% in September, “bringing an end to relatively long periods of stability that had been enjoyed thus far.”

Outlook

The microfinance bank said exchange rate stability is the key to economic stability and it is proving a formidable challenge. “Productivity must match money supply growth. With a forecast of another good agriculture season, hope is not lost.”

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Masimba

Construction firm Masimba revealed that the operating environment in Q3 2021 was predominantly stable as characterized by decelerating inflation, with year on year closing at 51.5% compared to 659.4% in the comparative period. “Towards the end of the quarter there was significant volatility which resulted in pricing distortions, mainly emanating from the gap between the official and parallel exchange rates.”

Dairibord

The continued depreciation of the ZW$ poses a threat to business performance. Notwithstanding the challenges faced by the auction system, the resolutions reached at the recent stakeholder engagement between Government, the RBZ and the business community, if adhered to, will have an impact on the Forex operating environment and the business at large.

Our thoughts

The authorities should work on building confidence in local currency and have market forces determine the market prices. Most importantly, let the local currency find its true value like what the Zambian kwacha did and it’s now one of the strongest currencies in the region. Otherwise, a significant number of service providers will continue tracking the unofficial parallel market rate when pricing their goods and services.

Debate has been going on whether to use either the Rand, Pula, Pound with some advocating for crypto currency. Above all, currency is the medium of exchange, no matter what currency we adopt as a nation, as long as we don’t produce and manage our resources well that currency will be bound to fail. So there is a need for Production, Production and Production for the economy to be competitive – Harare

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