Businesses demand 25 pc premium above official exchange rate
The country’s formal retail and wholesale sectors have recommended employing an exchange rate comprised of the auction rate supplemented by a trading premium of no less than 25 percent to mitigate exchange rate-related losses.
Businesses currently use an exchange rate for trading that is 10 percent higher than the auction rate, but this has resulted in significant exchange rate losses.
This has seen a massive loss of US dollar sales in the formal sector every time there is a wide parallel market premium.
The exchange rate, which stood at $5 903:US$1 on December 12, 2023, now sits at $9 414.
The current exchange rate on the parallel market stands at an average of $15 000 Zimbabwean dollar to US$1, reflecting a continued depreciation of the local currency.
The Confederation of Retailers Association president, Denford Mutashu, said his lobby business group is “actively” engaged in discussions with the Government.
They advocate for raising the current 10 percent cap on exchange rate adjustments to a range of 25 to 30 percent, should the Government choose not to repeal the law.
“We have made submission and we are engaging intensively,” Mutashu said in an interview.
“We are saying if the Government is reluctant to repeal the 10 percent cap, our appeal is to have it moved to between 25 and 30 percent.”
The current 10 percent cap on exchange rate adjustments is perceived by formal retailers and wholesalers as a veiled form of price control.
This has resulted in situations where some supermarket chains are forced to sell goods at near wholesale prices, impacting their profitability.
“At 10 percent, the formal retailers and wholesalers feel that the cap is being used as a price control mechanism,” said Mutashu. “Formal supermarket chains are retailing at wholesale price.”
Data recently compiled by Business Weekly from major retailers, with analysis assisted by two veteran economists, showed that the formal retail sector could have experienced financial losses of between U$730 million and U$750 million between 2021 and 2022.
In a recent submission to the Government, the Confederation of Zimbabwe Industries (CZI) proposed the use of an exchange rate of not more than 20 percent below the official rate to minimise exchange losses.
The CZI says a more flexible exchange rate policy would help to reduce exchange rate disparities and create a more level playing field for formal and informal retailers.-businessweekly
