Start-ups and the new ZWL currency

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Elias Pacheso

One of the questions I am often asked by start-up founders is “How do you cope in an ever changing environment where everything seems to change without notice?” This is not an easy question to answer especially in Zimbabwe where some radical policy measures were announced last week introducing the Zimbabwe dollar and removing the multi-currency payment system. One of the start-up founders I spoke with indicated that they are finding the environment almost impossible to operate in because planning is difficult. Nothing is ever cast in stone.

As an organisation that supports start-ups with networking opportunities, space, advice and mentorship, Tech Hub will this week try and unpack these changes and advise start-up founders on how to manage their ventures in the wake of these changes. Our hope is that they will be able to plan better. Sharing our insights is one of the ways in which we help start-ups figure out complex situations. When confronted with difficult changes, the easy way out always is quitting! Yet, the best founders hold and find ways of dealing with or even taking advantage of the changes.

In the run up these policy changes the exchange rate had continued to depreciate on all markets, making many goods unaffordable. When policy changes are effected it often catches us unware and our default reaction is often to do nothing and wait for direction and guidance. It is important to take stock of what the measures mean and what is expected to happen as they are implemented.

The immediate impact of the policy measures is the arresting of the depreciation of the local currency which saw a once organised market confused with no clear rate being quoted. Officially the rate is now 1USD:ZWL7.24 on average on the interbank market. This is a significant adjustment and points to a situation where the rate is largely expected to provide a fair reflection of the value of the local dollar against the USD.

How has this happened, the cost money has gone which means its generally much harder to access loans from Banks. Interest rates are therefore expected to rise to levels of around 50% and this will be costly for businesses. Unfortunately for start-ups borrowing is going to become even harder. As you plan ahead think about how you can generate more cash in your business because cash is once again becoming king in Zimbabwe.

How do you generate more cash in your business? There are many ways to do this but clearly because the environment has shifted the first thing one has to do is to right size your business. Get rid of unnecessary costs and adjust your prices to increase cash flows into your business. There was a tendency by many businesses to price products by taking the expected exchange rates to keep ahead of the rate so to speak. Such practises unfortunately meant that customers could not plan to make purchases.

Although inflation is still high, the measures introduced in the recent days are likely to see a significant reduction, barring any unforeseen pressures. As a business it is time to really look closely on what you need and what you can do without. It is time to also negotiate better with suppliers and service providers who clearly in some cases were adding huge premiums associated with the parallel market to keep ahead of the rate.

Will the rate remain stable? As long as liquidity in the money markets remains tight, its looking likely that the ZWL has now found some stability and will more likely trade between 6 to 9 to the USD, yet many businesses are still pricing products at rates of between 15 and 20. Over the weekend I tried to purchase some products at a hardware store and walked out without spending my hard earned ZWLs. The pricing was insane! Don’t overpay for goods and services and exercise your rights by keeping your money. Very soon many businesses will soon reliase that the local currency has strengthened and prices will definitely be adjusted to align to the income levels.

Start-ups or indeed businesses that re-align faster will quickly regain lost business. Those who fail to relook at their pricing will lose customers. How does one readjust to these changes, when they were accustomed to using the unofficial rate? Clearly the events of last week are starting to sink in and for a number of businesses if one is able to access funds from the interbank market at official rate prices will come down.

Time will tell, but I am convinced that the willing buyer willing seller is quickly gaining momentum on the market and may soon mean that the market is self-regulating in terms of allocating the available foreign currency. What this means is that consumers and business alike will need to adjust their mind-sets. It is never easy, changing mind sets, here in lies the biggest challenge facing businesses and consumers in Zimbabwe.

By and large the policies announced last week are very positive and usher in a free market economy that allows businesses to thrive barring policy reversals and other unforeseen interventions. As a start-up founder you must re-look at your business and move closer to your customers. Engage them and understand their needs and prepare to address them in a way that leaves them happy and satisfied that they are getting real value for money from you.

What measures have you taken to adjust to the new policy measures? I would like to hear from you. You can reach me on +263718924393 or via email athararehub@gmail.com.