In Zimbabwe, a troubling economic trend is intensifying as retailers face significant challenges in restocking locally produced goods. The root of the problem lies in the overwhelming preference of manufacturers and wholesalers for transactions in United States dollars (USD), sidelining those attempting to procure goods with the rapidly depreciating local currency, the Zimdollar. This shift towards dollarization has left many retailers grappling with potential critical shortages of essential commodities, such as sugar, signaling a deeper economic malaise.
The Confederation of Zimbabwe Retailers has highlighted this alarming trend, with its president, Denford Mutashu, pointing out that the supply chain for basic commodities is now predominantly dollarized. This situation has placed retailers, especially those transacting in local currency, in a precarious position, unable to secure necessary goods for their businesses. The stark preference for USD among manufacturers is a testament to the currency’s high demand in the market, driven by the Zimdollar’s sharp decline in value against the USD.
This currency crisis has escalated to a point where, as reported, the Zimdollar’s value plummeted to 1:17,830 against the USD in the interbank market, with even more drastic depreciation in supermarkets and the parallel market. The implications of this depreciation are widespread, affecting not just the retail sector but the broader economy, with Zimbabwe’s inflation rates soaring to unprecedented levels. Renowned American economics professor Steve Hanke has even pegged Zimbabwe’s year-on-year inflation at 1,630%, the highest globally.
Authorities’ claims of having measures in place to contain inflation starkly contrast the ground reality, with official statistics reporting an annual inflation rate of 47.62% in February. This disparity has compounded challenges for the Consumer Council of Zimbabwe (CCZ), which struggles to calculate the monthly cost of a family food basket due to continuous price hikes.
The dilemma extends beyond retail, affecting manufacturers who cite the necessity of USD payments for raw materials and services as a primary reason for their currency preference. This cycle of demand for USD at every supply chain level exacerbates the difficulties formal retail outlets face in stocking up, pushing many products into the informal market.
Meetings with wholesale industry business owners have revealed the untenability of the current economic environment, further complicated by new finance legislation requiring QR codes for tax tracking. This has led to a lack of compliance among suppliers, who prefer dealing with the informal market to avoid these regulations.
The introduction of the Zimdollar in 2019 by President Emmerson Mnangagwa, intended to stabilize the economy after a decade of dollarization, seems to have backfired. With the local currency’s continued devaluation, there are increasing calls for a return to full dollarization as a means to curb the spiraling prices of basics and services.
Despite the grim outlook, the CCZ reports a silver lining with a slight decrease in the cost of living measured in USD, attributed to discounts offered for transactions in foreign currency. This suggests a complex economic landscape where, despite the local currency’s depreciation, some stability can be found in USD transactions. However, this stability is fragile, with looming threats such as anticipated mealie meal shortages due to drought conditions, underscoring the volatility of Zimbabwe’s food security situation.
The current state of Zimbabwe’s economy, marked by the preference for USD transactions, reveals deep-seated issues that necessitate comprehensive and sustainable solutions. The move towards dollarization, while offering a temporary reprieve, may not address the underlying economic challenges. As Zimbabwe navigates through these turbulent economic waters, the need for strategies that foster stability, inclusivity, and growth becomes ever more critical, ensuring that all citizens can access basic necessities without the burden of an unrelenting currency crisis.
Source: Newsday
