…Prices treble as currency debate intensifies
Decreasing exports and an inefficient interbank market have triggered a new wave of price increases over the last month as companies turn to the parallel market to get US dollars to import raw materials.
In February, the Reserve Bank of Zimbabwe partially liberalised the foreign exchange market to attract money into the formal banking system. But the willing buyer-willing seller principle has not yielded much as premiums on the parallel market remain higher than those obtaining in the formal sector.
On its own, the higher premiums on the black market should not be a problem as that is what happens everywhere in the world where a black market vies for supremacy with a formal foreign currency market.
The problem in Zimbabwe is merely the lack of forex to satisfy the high demand on the formal market. In February, while companies’ monthly demand for forex stood at a staggering US$320m, the formal market could only provide them with US$65m. This is where the problem lies.
A snap survey by Business Times showed that the price of a 2kg packet of sugar increased to ZWL$6 from ZWL$4.99 in March, while the price of 2kg flour has gone up to ZWL$6.25 from ZWL$4.85. A 2 litre cooking oil bottle is now ZWL$11.25, from ZWL$8,75 in March.
In Harare, down town tuck shops have increased their prices by 13% due to the fact that they sell their goods for cash only, hence they use the black market bond rate to peg their prices.
The surge in prices has brought back debate on the local currency after the central bank ditched the US dollar-bond note parity in February, allowing the RGTS dollar to float.
Sifelani Jabangwe, president of the Confederation of Zimbabwe Industries (CZI), told Business Times that the movement of forex rates on the parallel market had caused the increase in prices of basic commodities.
“The government, Treasury and Reserve Bank of Zimbabwe should act swiftly on the interbank forex trading platform to contain the rampant price increases of basic commodities,” Jabangwe said.
“The monetary authorities should pump in forex into the system to enable that platform to work efficiently and also to monitor banks so that they release money on time. As long as companies are accessing forex on the parallel market, inflation and price increases will continue,” Jabangwe said.
In February this year, the RBZ governor John Mangudya granted CZI a forex trade platform of ZWL$600m for its members to procure raw materials. But the platform has not helped companies to get forex. They still rely on the black market for hard currency for raw material purchases.
Mangudya recently said the Afreximbank has granted the interbank system a significant loan to ensure the platform is functional and useful to companies.
The black market rate has to date increased by 13% to ZWL$4.30 to the US dollar, from 3.8:1 in March. As a result, manufacturers have increased their prices by 25%, while retailers have hiked the prices of their goods by 75% to remain in business.
“In the past two weeks we have witnessed a sharp increase in prices of basic commodities due to an increase of goods prices by over 50% from suppliers,” says Denford Mutashu, president of the Confederation of Zimbabwe Retailers. “In order to stay in business most retailers will have no option but to increase prices.
“The high cost of production and the inflationary environment are some of the factors contributing to the price increases, and the authorities should make forex readily available to arrest the situation.”
He said the government should support small businesses to manufacture cheap goods like soap and candles to lessen the forex burden.
Despite the price increases, salaries of workers, except civil servants, have remained stagnant, eroding their purchasing power.
Civil servants received a 30% salary increment last week, which will see the lowest paid getting ZWL$570 per month. This is still below the monthly consumer basket, making the Consumer Council of Zimbabwe (CCZ) to say the economic hardships have erased consumers’ purchasing power and rights.
“The country’s monthly basket now exceeds ZWL$750 monthly and very few people are able to match that, as salaries continue to be stagnant for a while,” the CCZ says. “Under these conditions, consumers’ rights are being violated given the hassles one goes through to purchase a commodity.”
Esther Munyuki, a middle-aged vendor who sells sweets and sparkling beverages in Glenview 2 in Harare, said the depreciation of the country’s surrogate currency has made life difficult for her.
“Life has become so hard. In December last year, a packet of 2kg sugar used to cost ZWL$2, now it has almost trebled. If you were getting paid about ZWL$600 monthly in November last year, you need to now earn above ZWL$2,600 monthly to maintain the same lifestyle,” Munyuki said.
Citizens’ purchasing power had extremely dwindled in the past three months, causing very few people to afford healthy food.
Japhet Moyo, the secretary general of the Zimbabwe Congress of Trade Union, said it was worrisome that the cost of living has been going up relentlessly against stagnant salaries.
“However, the government is disputing that the economy is on its knees and many companies are facing viability situations. As the government continues with its economic rebound rhetoric, saying the economy is on a rebound, then we, as workers, expect better remuneration,” Moyo said.
“Our salaries have lagged behind because companies are saying they do not have the capacity to remunerate accordingly.”
The new wave of price increases comes despite appeals by Finance Minister Mthuli Ncube for industry to base their price increases on inflation rather than foreign exchange rate movements.
“What industry and retailers are doing in terms of increasing price on forex exchange rate basis is bad economics and wrong,” Ncube said.
“Rather, price increases should be driven by concerns about inflation, it is about the consumption basket because when you earn a salary the first thing you do is not to look for forex.”