Local firms in limbo

TAURAI MANGUDHLA/ BLESSING MADZIWANZIRA

Local companies are sinking deeper into the throes of an economic meltdown due to rising overheads with consumers feeling the pinch as costly fuel prices and foreign exchange movements on the parallel market paralyse operations, it has been learnt.

Zimbabwe is facing a plethora of economic challenges which include rising inflation, erratic fuel supplies, rolling power outages and foreign currency shortages.

Business Times this week established that most retailers are struggling to restock with some having empty shelves due to bottlenecks in accessing foreign currency on the formal market and depressed production in the manufacturing sector.

This has fuelled a thriving informal sector which continues to charge basic commodities in hard currency despite a government directive barring pricing in United States dollars.

This has evoked memories the economy will recede into hyperinflation after year on year inflation raced to 175.66 percent in June, the highest in 10 years buoyed by food and non-alcoholic beverages inflation. In May, annual inflation was 97,85 percent.

According to national statistical agency, Zimstat, the country’s year on year food and non-alcoholic beverages inflation at 251,94 percent while the non-food inflation rate was 143,94 percent.

The month on month inflation rate in June 2019 was 39,26 percent gaining 26,72 percentage points on the May 2019 rate of 12,54 percent.

This comes after Zimbabwe recently reintroduced local currency, effectively ending the decade-long multiple currency regime that had been dominated by the US dollar. Fears remain inflation will maintain an upward trajectory until currency woes are solved.

Prior to the policy, foreign currency shortages were blighting companies forcing them to turn to the parallel market thereby driving up prices of the greenback on the informal market.

The demand for foreign currency came despite the introduction of the interbank open forex market which largely proved ineffective and trailed by a large gap the rates on the parallel market. The gap has been narrowed.

Experts say the continued depreciation of the local unit against the greenback has eroded the purchasing power throwing Zimbabweans into poverty.

Analysts say the situation will worsen as parallel market rates, currently driving prices, move from current rates of 9,5 against the US dollar to a point of stability at 20.

So far, prices of goods and services have been chasing the rates while wages have remained flat.

Economist Prosper Chitambara said: “It’s all about cost structures which are going among retailers; they are trying to minimise costs.”

“Uncertainties in the economy and also the high prices of fuel in the country are affecting production; that is our big problem.”

Confederation of Zimbabwe Retailers president Denford Mutashu said industry is not getting adequate support to produce with essentials such as power not available consistently.

“Power and fuel supplies are neglecting production,” Mutashu said.
Introduction of the local currency came with a strengthening of the inter-bank market, whose resource however remains insufficient.

Central bank chief John Mangudya said US$664m had been traded between
February and June on the inter-bank market, averaging about US$132m a
month.

This is nearly half of the economy’s monthly foreign currency demands for the importation of imports such as fuel (US$80m) and US$40m on electricity and raw materials for oil expressers.

This excludes industry’s demands which saw a huge backlog of about US$1 billion by mid-2018.

Since the multi-currency was banned last month, prices have trekked north as they chase the interbank rate.

Washing powder prices in major retailers have, for instance, increased to ZWL$13,99 for 500g  from ZWL$3 before the introduction of the local currency.

A snap survey by Business Times shows there are huge price differences between shops and the black market for imported and locally manufactured products.

A 2kg packet of locally packaged rice costs ZWL$11 on the black market against ZWL$18 in the retail outlets while cooking oil is sold at ZWL$17 on the streets and tuck-shops against ZWL$26 in shops.

Related Articles

Leave a Reply

Back to top button