Several local retailers are charging more than the tolerance premium of 10% on the official rate when selling their products in violation of a Financial Intelligence Unit (FIU) directive, Business Times has learnt.
The government promulgated Statutory Instrument (SI) 127 of 2021, which banned them from selling goods and services at an exchange rate above the ruling auction market rate.
But despite some retailers profiting from the foreign currency auction system, according to a quick survey conducted by this publication this week, most retailers, including pharmacies, continue to charge for goods at a rate between ZWL$6500:US$1 and ZWL$7000:US$1.
Some continue to use higher rates of up to ZWL$7500:US$1.
Executive director of the Consumer Council of Zimbabwe (CCZ), Rosemary Mpofu, said that some retailers continue to be defiant and cause harm to customers who are living on the margins.
“CCZ is still concerned that there are some supermarkets that are charging rates that are above stipulated rates by the monetary authorities. This is letting us down as consumers are buying very few things from their salaries,” Mpofu said.
“Previously some business operators were indexing their prices to the parallel market exchange rate using speculative pricing and forward pricing to hedge against inflation. Though that behaviour was not rampant during the month of August indicating some conformity in the market, there were some retailers who continue to charge exorbitantly.”
Mpofu said the basket decreased by 5.5% to ZWL$2 539 494.10 in August 2023 from ZWL$2 687 018 in July and clothing and footwear, health services, flour and education were the main drivers to the basket for the month of August 2023.
The basket also dropped by 22.9% as a result of electricity, which, unlike in the previous month, had a negative impact. This is largely because most consumers now pay for electricity with local currency, which has increased in value.
“The prices of most products in the basket went down and this is attributed to the strengthening and stability of the local currency which maintained during the month of August. Worryingly, some retailers continue to increase prices,” Mpofu said.
The Retail Association of Zimbabwe (RAZ) said recognised retailers are complying with FIU directive.
“Those that are in question are not your usual retailers but they are community registered formal retailers which are not our members. For our members we have a policy that they should not use another rate but that with a 10% mark up,” RAZ said.
Recently, Imara Asset Management CEO, John Legat, said most companies continue to ignore the official foreign exchange auction rate.
He said no company was willing to use the official exchange rate as they are procuring the majority of their greenback on the parallel market.
In its report, the Confederation of Zimbabwe Industries (CZI) said the FIU has been harshly enforcing compliance with the prescribed principle of ‘formal exchange rate plus a 10% margin.
“The enforcement of price controls through the exchange rate by the FIU is actually also inflationary as it causes an increase in United States dollar prices at a time when the American dollar has a higher weight in the blending.
In short, the United States dollar inflation is a compliance driven inflation as formal businesses tried to hedge against an unrealistic official exchange rate which they were being forced to use,” CZI recently said.
Economist Gift Mugano said the local firms peg their prices at the prevailing parallel market rate causing the Zimbabwe dollar to be on the high side as the businesses forward price to survive and if the FIU comes to enforce the indexation of the United States dollar companies would struggle.
Experts say the local firms peg their prices at the prevailing parallel market rate causing the Zimbabwe dollar to be on the high side as the businesses forward price to survive.
The government enacted Statutory Instrument 127 of 2021 which empowered the central bank to whip into line any company that abuses the forex that they have obtained from the auction.
Legat said it was difficult for businesses to run on that official exchange rate basis from a working capital perspective.
Several executives were arrested and arraigned before the courts for violating the SI 127 but no executive from pharmaceuticals has been arrested for the violation of the law.
President Emmerson Mnangagwa has vowed to wage war against those pursuing a “nefarious agenda to cause regime change” as the ruling party works to address the economic difficulties the nation is currently experiencing.
Mnangagwa referred to those engaged in a variety of evil deeds as the invisible enemy.