Black market fears grip Zimbabwe

LIVINGSTONE MARUFU AND CLOUDINE MATOLA

Zimbabwe is facing renewed black market pressure after the government ordered all public sector suppliers to be paid exclusively in local currency, triggering warnings from economists that the move could drive businesses into the parallel market in search of  US dollars, despite urgent efforts by the Reserve Bank of Zimbabwe (RBZ) to calm mounting panic and defend the multi-currency system.

The directive by Finance Minister Professor Mthuli Ncube, intended to boost demand for the ZiG, has unsettled industry and financial markets, with analysts cautioning that it risks worsening currency distortions in an economy that remains heavily dollarised.

With anxiety spreading across financial markets, the Reserve Bank of Zimbabwe (RBZ) has moved swiftly to calm nerves,seeking to reassure both businesses and the public that the directive does not signal an abrupt end of the multi-currency system.

“The stance taken by Government to pay its local suppliers and contractors exclusively in ZiG does not signal the end of the multicurrency system,” Mushayavanhu said.

“The country has enough foreign currency to cover all bona fide foreign payment requirements through the Willing-Buyer Willing-Seller interbank market.”

Despite these assurances, economists warn the policy risks pushing suppliers toward the black market to access hard currency needed for imports, potentially fuelling inflation and exchange rate volatility.

Economist Eddie Cross yesterday told Business Times, the market leader in business, financial and economic reportage, that :“There’s no doubt that this decision will create further difficulties for the government on the procurement side. The government is not meeting its ZiG obligations, especially to exporters, and I don’t see the rationale behind this decision. Many suppliers require payment in US dollars to maintain their supplies to the domestic market.

“I cannot see any financial advantage for the government at this stage; it’s simply another attempt to force the economy to accept ZiG as a means of transaction. I don’t think this will gain much traction.”

Another economist Vince Musewe also warned: “Payment in ZiG presents a huge problem if you need to import materials to supply government. The parallel market is back as suppliers will look for US dollars elsewhere. This policy could create a self-manufactured currency crisis.”

Yet another economist Tony Hawkins echoed the same sentiments.

He told Business Times: “This is another example of government ignoring market forces. Setting prices and payments through a command structure, without understanding production costs or market realities, risks higher prices and shortages. Civil servants cannot replace market dynamics.”

Enock Rukarwa, another economist, highlighted the broader risk.

“Even if suppliers are paid in local currency, the economy is 95–99% dollarised. Suppliers will need to convert ZiG into foreign currency to operate, which could flood the market with local currency and put pressure on exchange rates and inflation. The way government implements this policy is critical,” Rukarwa said.

Yet another economist Moses Chundu noted that while the intent is to standardise public procurement, continued reliance on USD reference had previously brought stability.

“Whether shortages occur depends on ZiG performance and Treasury’s speed in settling suppliers,” he said.

Business groups stressed operational realities. Zimbabwe National Chamber of Commerce (ZNCC) president Tapiwa Karoro said:“The National Standard Price List aims to strengthen value for money and limit excessive procurement costs. But if benchmark prices are below actual costs, suppliers may struggle to meet them sustainably. Predictable access to foreign currency is key.”

ZNCC vice president Josephine Takundwa added: “Standardised pricing can improve procurement efficiency and transparency, but operational realities,like imported inputs and local currency convertibility,will determine whether the policy succeeds or triggers shortages.”

Economist Malone Gwadu offered a cautiously positive view saying: “The government is taking a step toward entrenching the local currency. If payments are largely production-based and accompanied by strong currency management, ZiG circulation can increase without destabilising prices or the exchange rate.”