Concerns Mount for Zimbabwean Retailers Amidst Exchange Rate Crisis
Top retailers in Zimbabwe caution against store closures due to an official exchange rate deemed harmful to their competitiveness. The Zimbabwe Gold (ZiG) currency has lost considerable value, trading at significantly lower rates in the black market. Retailers are mandated to set prices using this overvalued rate, forcing them to increase prices, ultimately driving customers to informal shops. Immediate government intervention is urged to protect the formal retail sector from collapse.
Retailers in Zimbabwe have expressed significant concerns regarding the sustainability of their businesses due to an official exchange rate that they believe is excessively high, thus undermining their competitive stance. The new gold-backed currency, known as the Zimbabwe Gold (ZiG), launched merely five months ago, has already depreciated by nearly 80% in the black market, trading at values between 20 to 26 ZiG for every US dollar. Government regulations mandate that retailers use the official rate of 14.8 ZiG to one US dollar for pricing, and those who fail to comply face penalties. Major retail chains, such as OK Zimbabwe, Spar, and TM Supermarkets, which is aligned with South Africa’s Pick N Pay, contend that this inflated rate is making their offerings costlier compared to informal retailers, hence diminishing their customer base. As articulated in a recent letter to the Ministry of Finance by the Retailers Association of Zimbabwe (RAZ), they noted: “The situation is clearly untenable and will lead to company closures if authorities do not intervene with policy measures to protect the formal retail sector.” The retailers further stated that, while they are obligated to adhere to the official rate, their suppliers charge based on black market rates, forcing them to increase prices. Solutions proposed include implementing a pricing strategy that accurately reflects the market’s real-time exchange rate fluctuations, thereby enabling them to maintain competitiveness while managing operational costs. As this situation develops, the treasury’s response remains pending. The Zimbabwe Gold is the country’s sixth effort to establish a stable currency within a mere fifteen years, and its recent devaluation raises questions about public confidence in its viability.
The economic landscape in Zimbabwe has been tumultuous, marked by hyperinflation and multiple currency revaluations over the past fifteen years. The introduction of the gold-backed ZiG currency was intended as a stabilizing measure to address issues stemming from previous financial systems. However, the disparity between the official and black market exchanges has persisted, creating a challenging environment for retailers who are required by law to use the official rates for pricing their goods. This has placed undue pressure on formal retailers, causing them to grapple with heightened operational costs and diminished sales as customers gravitate towards cheaper, unregulated market options.
In summary, the Zimbabwean retail sector is under substantial threat due to the government’s insistence on maintaining an overvalued official exchange rate. Retailers assert that unless immediate policy action is taken to adjust this rate or allow more flexibility that reflects market realities, a wave of store closures may ensue. The situation underscores the critical need for government intervention to ensure the viability of the formal retail sector and restore consumer confidence in the new currency.
Original Source: www.investing.com
