Zim on the path to recovery

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A man counts Zimbabwean dollar notes and coins next to a ten US dollar note on the streets of Harare, Tuesday, June 25, 2019. Zimbabwe President Emmerson Mnangagwa on Tuesday praised the re-introduction of the Zimbabwe dollar as the sole legal tender in the troubled country as a "return to normalcy." Zimbabwe had for 10 years used the U.S. dollar and other foreign currencies after the Zimbabwean currency was dogged by hyperinflation. (AP Photo/Tsvangirayi Mukwazhi)

RATE rakamira sei? (What is today’s exchange rate?”) had become a common enquiry on social media platforms.

Exchange rates would leap twice or thrice a day.

Prices were increasing almost on a daily basis.

Salaries had lost their buying power.

The Zimbabwe dollar often referred to as the Bond note was shunned as retailers would not want anything to do with it.

But since the introduction of the foreign exchange auctions three months ago, the exchange rate on the black market has remained unchanged and in some instances declining significantly.

Though it is too early to celebrate, it seems Zimbabwe is moving towards economic transformations after several interventions were put in place to weed out speculative economic activities as well as restore the confidence needed to grow the economy.

A raft of measures introduced by Government have managed to stabilise the exchange rate after introducing the auction system, which replaced the interbank and the temporary fixed rate regime adopted in March, and this has had a positive impact with the prices of goods and services now largely stabilised. 

On June 23 the Reserve Bank of Zimbabwe replaced the interbank market with weekly foreign exchange auctions to determine the Zim dollar exchange rate together with industry and commerce, and also to improve transparency and efficiency in trading of forex in the country.

Again in the same month, RBZ introduced other support measures such as tight control of money supply growth, caps on mobile money transfers, suspending or abolishing bulk payment mobile facilities and integration of all national payment systems with ZimSwitch. 

The move was also meant to discourage the parallel market.

Choose day’s Auctions

The introduction of a Dutch foreign exchange auction trading system on June 23 2020, was met with mixed views from all economic agents.

Reservations were a result of past experiences stretching back to the early 2000s when the local currency was eventually demonetised due to some policies.

However the performance of the new system has already, in 15 auctions, demonstrated its sustainability going forward.

On Tuesday, the Zimb dollar marginally gained and closed the official forex auction stronger as it traded a few cents lower than last week’s official rate of ZWL$81,49 per US$1.

According to this week’s auction, the Zim dollar will trade at ZWL$81,4439 per US$1.

The new system has generally led to the rebuilding of market confidence, improved access to foreign currency for companies, stabilised the exchange rate and prices, as most companies applying for forex are getting it.

The last three weeks have seen valid bids and allotments hitting new records each week with just over US$21 million allotted two weeks ago, the giant leap to more than US$32 million last week and this week a drop to US$24 million.

And more than half of this week’s allotments going on raw materials, machinery and equipment, is a clear indicator that the productive sectors are rapidly climbing out of the lockdown-induced economic standstill.

The Tuesday auctions are aimed at selling foreign currency retained by exporters, which must either be used or sold within 30 days, at the discretion of the exporter or be subject to compulsory sale after 30 days.

Foreign currency availability on the formal market and, resultantly, allocations in recent weeks have been buoyed by the 20 percent foreign currency surrender policy that the RBZ introduced in August’s Monetary Policy Statement for all those who accept foreign currency for payment of local bills, putting retailers and many professionals into the same category as the most favoured exporters. 

Surrendered currency is bought at auction rates by the RBZ.

Curbing inflation…price stability

The effectiveness of foreign currency auction system was also buttressed by the latest inflation figures released by the Zimbabwe National Statistical Agency (ZimStat).

According to the statistics body, the country’s annual inflation rate declined to 761,02 percent in August 2020, down from 837,53 percent in the previous month. 

Prior to the introduction of the auction and tight regulatory controls on mobile wallets, Zimbabwe experienced rapid inflation increases from a lowly 5,39 percent to a post dollarisation peak of 837 percent by June 2020.

“The month on month inflation rate in August 2020 was 8,44 percent shedding 27,09 percentage points on the July 2020 rate of 35,53 percent,” reads the ZimStat report.

Finance and Economic Development Minister Professor Mthuli Ncube is on record saying the fiscal and monetary policies being implemented were stabilising the exchange rate and keeping inflationary pressures under check.

The net effect of rising inflation in the past has been that it continued to limit options for consumers who were suffering diminishing spending power as prices kept increasing in response to changes on the exchange rate

The Ministry of Industry and Commerce’s recent report indicated that prices of most products, especially chickens, economy beef, bath soaps, eggs, flour, vegetables such as cabbages and tomatoes had stabilised.

A snap survey by The Patriot this week revealed that prices of basic

commodities had marginally decreased and in some cases, stabilised for a month.  

A kg of economy beef which was averaging $400 two months ago, has gone down to around $290.

Rice is averaging $215 per 2kg packet since August while sugar is still pegged at $225 since July.

Bread has also remained stagnant at $66.

Even on the US dollar side, prices are falling significantly.

Zuva Petroleum, which was selling blend at US$1,28 per litre last month, is now retailing at US$1,18 whereas Trek Petroleum reduced blend from US$1,18 to US$1,06.

Information from the Consumer Council of Zimbabwe (CCZ) shows that the cost of a monthly basket for a low income urban family of six, has largely been stable since June. 

The monthly basket for July was at $14 256,98 and there was a steady rise for August to $14 438.23.

CCZ executive director Rosemary Siyachitema said although there was some form of stability, it was too early to celebrate.

“We need to keep on tracking. Prices have declined but it is not enough. Some prices were too high and they are still high even if there is a reduction so it is not yet enough but we want a trend that prices continue to fall,” said Siyachitema.

Confederation of Zimbabwe Industries (CZI) president Henry Ruzvidzo said the supply consistency at the auction system has created confidence for sustained stability of prices.

“The auction system does appear to have resulted in sustained stability of the macro environment,” said Ruzvidzo.

“Inflation has slowed down significantly and businesses are managing to secure foreign currency for raw materials and other requirements from the auction, a very desirable state of affairs.

“Some fine-tuning on pre-qualification to participate at the auction is, however, necessary to ensure equitable access by industry players.

The CZI president said whilst lowering of prices is a possibility, what is more important is stability which helps establish equilibrium as earnings catch up with prices of goods.

Bankers are optimistic that the auction system will be sustainable going forward into the future.

 “The auction system is expected to gradually allow the market to trade on its own without having to wait for the auction dates,” said Misheck Ugaro, a former expatriate banker.

“The banks are expected to take the lead by starting trades amongst themselves for their clients mid auction dates and also with the Bureaux which should ultimately lead to continuous trades on a daily basis.”

Although it will take some more time for the market to eventually grow in confidence, the results do indicate that the authorities have finally hit the correct buttons.

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