CZI convenes crisis Indaba over currency

Manufacturers and retailers have recommended the full floating of the Zimbabwe Gold (ZiG), amid its sustained faltering and pricing distortions due to exchange rate volatility, to manage concerns surrounding the transition to a mono-currency regime.

Zimbabwe uses a multicurrency regime dominated by the US dollar, which accounts for about 60 percent of transactions in the formal economy.

However, current legal provisions provide for the dual currency system to run until 2030, after which the country plans to revert to a mono-domestic currency.

Zimbabwe dumped the mono-domestic unit in 2009 due to hyperinflation. Repeated attempts to relaunch it have hit brick walls.

This came out at a stakeholder meeting between the fast-moving consumer goods (FMCG) manufacturers and retailers, which was organised by the Confederation of Zimbabwe Industries (CZI).

This comes as the Retailers Association of Zimbabwe (RAZ) warned of dire consequences if the “controlled exchange rate system” continues in favour of a completely market-determined exchange rate.

Prices of basic goods and services have been rising in both ZiG and US dollar terms as key stakeholders namely retailers, manufacturers and authorities haggle over the new currency, which the authorities say is backed by gold and hence should track the value of the yellow metal on the global market.

Manufacturers claim that 80 percent of their raw materials is sourced in US dollars, while only 20 percent is procured in local currency.

As such, producers say it is difficult to supply formal retailers and wholesalers exclusively in local currency at the expense of informal shops, which pay ready cash in US dollars.

Much Mkanganwi, the CZI president said the key recommendation from members was for ZiG to have a floating exchange rate, since the exchange rate was the main source of problems across the value chains.

“What we are saying is that things are urgent. We have to put a lot more emphasis on dialogue, and this is on a daily basis at the moment. We have reached a stage where there is a crisis and we have all seen that.

“We just have to make sure we have a solution that works for the Government and private sector as soon as possible,” he said.

Mkanganwi added: “What we agreed on is that we all have the same problem. It just manifests itself differently, and it’s all around the pricing of foreign currency.

“So, we are friends; what we need to do is engage the authorities to give us a policy that makes the trading platform fair for everyone.”

Mkanganwi said there is strain across the value chain due to the issue of exchange rate. The value of the local unit has plummeted drastically on the black market with a premium rising to about 122 percent.

“In that regard, we do not want anyone to close their business, whether it’s retail, manufacturers, or wholesalers,” he said.

According to Archie Dongo, a board member of the Confederation of Zimbabwe Retailers, and N Richards Group director, the value chain has common challenges; hence, it makes sense to come together and understand the challenges.

“Then from there perhaps we will manage to create a platform from which we can look to address those common challenges together.

“The common problem facing all the members of the association is the issue of exchange rate,” he said.

He said currently business member organisations were engaging the Government to come up with solutions that work for both the Government and private sector in terms of the exchange rate.

“If you look at the value chain from the producer, then processed and distributed, and then comes to retail and to the final consumer as a product. At the end of the day, retail and wholesalers are the face of the value chain, so that is where there is a problem in the value chain.

“However, that does not necessarily mean the problem emanated from there; we have to go up the value chain and try to find out where the problem started and try to identify exactly that problem,” said Dongo. He noted that the biggest challenge was the adequate supply of foreign currency.

“In the banking sector, which is an input into manufacturing, retail and wholesale, we believe we need to focus on that challenge that is straining supply so that we can then improve that supply. In the consumer facing retail and wholesale, that will be fixed automatically,” he said.

Dongo said in the short term, it was about business survival by the manufacturers, retailers and wholesalers.“Government also has to survive and we need to continue dialogue until we come up to an agreed position,” he said.

OK Zimbabwe chief finance officer, Phillimon Mushosho, told the engagement meeting that the law prohibited selling products exclusively in US dollars, which has seen the CPC (Consumer Protection Commission) for violation of regulations.

“When they receive a customer complaint stating that they are refusing to trade in another currency or that we are using an unofficial exchange rate, we will be fined,” he said.

“We are in this together and are working to make it successful. In cases like ours, where we price our shelves in US dollars, it was a measure to protect the balance sheet.

“When the market is volatile and you are holding ZIG, you can get completely wiped out. If you are holding US dollars, there is at least a chance that your holdings can be re-evaluated. “However, even that may not be sufficient,” said Mushosho.

He said the dilemma was that customers were not buying in US dollars but using mostly ZIG in formal retail outlets, where prices have been distorted in US dollar terms due to the exchange rate disparities.

“Some customers buy products using ZiG, and the retailer needs to price his products in a way that allows him to cover the costs of the materials bought from the dealer. And if I have to display the price in US dollars, it looks ridiculous.

“This is the situation that we are in. But whether it is US dollars or ZiG, if the price is still relative to what is happening, the elephant in the room is the exchange rate,” said Mushosho.

He noted that if the exchange rate issue is dealt with, the prices would be fair. “The importance of this meeting is that we put our heads together and come up with a solution that will serve our businesses,” he said.

Retailers Association of Zimbabwe chairperson, Peggy Rambanepasi, said no retailer wanted to price itself out of business because not only are we competing among formal retailers, we are also competing with informal retailers.

“But the reality of it is that we are losing ground, and I think this has been happening since the beginning of the year, and we are feeling the pressure.

“We have had fines, but we have also had situations where you get suppliers who say, I just want the exclusive US dollars from you. Then if I price in USD and get fined, the manufacturer does not want to take the risk,” she said.

Rambanepasi said these were difficult times for retailers.

Allen Nhodo, the general manager of Lesaffre Zimbabwe, said there was no foreign currency for manufacturers in the formal sector that can guarantee manufacturers to supply to the retailers in Zimbabwe.

He said inputs found locally were also paid for in foreign currency.

“Therefore, it is quite difficult when we say today as manufacturers, support the retail sector.

“So, I would rather sell 80 percent of my products to this (informal) sector, which gives me USD, and 20 percent in retail.

“But it is my colleague who is now suffering because I am now restricting the supplies and cutting off the credit limits, so we need to just have a collective approach to approach the Government to get the forex exchange resolved,” said Nhodo.

He said businesses should be able to convert their ZiG into the local economy and get foreign currency.

However, according to the CZI president, there are growing concerns about introducing a single currency, which is terrifying to businesses.

“This is because if you have mono currency tomorrow and it’s ZiG, our view is that it will fail in four to five months, but by then you have to pay creditors in USD, and the debtor’s book becomes ZiG.

“We just do not want it to happen now; unfortunately, it has become louder,” he said.-ebsinessweekl