Zimbabwe Retailers Face Closure as ZWG Devaluation Worsens

Retailers warn of imminent closures due to massive losses caused by Zimbabwe's collapsing currency and distorted exchange rates

by Victor Adetimilehin

KEY POINTS


  • Retailers in Zimbabwe face significant losses due to distorted exchange rates.
  • Suppliers are maintaining higher exchange rates than the official rate, causing major discrepancies.
  • Basic goods are disappearing from formal retail stores as the ZWG loses value

Zimbabwe’s retail industry is currently grappling with significant financial losses driven by the ongoing depreciation of the Zimbabwean Gold-backed Dollar (ZWG) and distorted exchange rates.

Top retailers, including OK, TM Pick n Pay, and Halsteads, have expressed concerns that unless the exchange rate policy is addressed, many companies in the sector will be forced to close.

Since its introduction in April 2024, the ZWG has seen a dramatic loss in value. Initially, it traded at US$13.68 against the dollar, with parallel market rates remaining fairly stable.

However, the local currency has since weakened considerably, with the black market now valuing it at around ZWG32 to US$1.

This has sparked widespread concern across multiple sectors, especially in the formal retail industry, which is feeling the brunt of the distorted exchange rates.

Massive losses push retailers to the brink

The Retailers Association of Zimbabwe has raised alarms about the growing discrepancy between the official exchange rate and the rates imposed by suppliers.

As of Monday, the association reported that many suppliers have started maintaining two separate price lists – one for local currency transactions and another for foreign currency, with the latter pegged at much higher rates.

For instance, Schweppes, the maker of Mazoe Orange Crush, is selling the products selling the product at US$3.48, or ZWG74.70, effectively using a rate of ZWG 21.45 per dollar effectively using a rate of ZWG 21.45 per dollar.

Similarly, Willowton is selling D’Lite Cooking Oil (2 liters) at US$2.89, with the ZWG price equivalent reflecting an exchange rate of ZWG23.21 per dollar. Colcom Country Style sausages are priced at US$3.98 but sold at ZWG119.85, implying a rate of ZWG30.11 per dollar.

These pricing discrepancies mean that formal retailers are left selling goods at significant losses, with margins ranging from 10 percent to 48 percent below cost.

Meanwhile, suppliers continue to cite foreign currency shortages as the reason for the inflated prices in ZWG.

“Manufacturers and distributors are using various exchange rates depending on where they source their foreign currency, but formal retailers are stuck with the official Willing Buyer Willing Seller rate, currently pegged at ZWG14.80 to the dollar,” the Retailers Association said.

This disparity has left retailers in a difficult position, as they are mandated to use the official rate despite buying products at much higher rates from suppliers.

Government measures fail to stabilize ZWG

The Reserve Bank of Zimbabwe (RBZ) has attempted to stabilize the situation by injecting US$64 million into the Interbank Market in September alone.

The goal was to absorb excess ZWG liquidity and curb the spiraling exchange rates. However, these efforts have not yet yielded the desired results, and retailers continue to face significant challenges.

Last week, the central bank introduced a series of measures designed to support the ZWG. While RBZ governor Dr. John Mushayavanhu had initially defended the currency, claiming it was backed by the country’s vast mineral resources, the ZWG has failed to maintain its value.

Shortages in formal retail sector worsen

A visit to several supermarkets in Harare revealed that basic products like sugar and mealie meal, which are essential for many Zimbabweans, are no longer available in ZWG-dominated outlets.

However, these same products are readily available in informal sector tuckshops, where transactions are conducted in US dollars.

Many experts blame the authorities for injecting the ZWG into the economy without providing sufficient mechanisms to ensure easy access to the much-needed US dollar.

Before it was disbanded, the RBZ’s Foreign Exchange Auction had played a crucial role in supplying local businesses with foreign currency, helping them meet their import needs.

Retailers are now urging the government to take swift action to resolve the exchange rate crisis before more businesses are forced to shut their doors, exacerbating Zimbabwe’s already fragile economic situation.

 

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