eBusiness Weekly
Michael Tome
Corporates and other major economic actors should adhere to Reserve Bank of Zimbabwe (RBZ) exchange regulations that provide for businesses to only add up to 10 percent margin above the official interbank rate when setting prices in Zimbabwe dollars.
For instance, if the official rate is at $5 000 to US$1, enterprises are not allowed to exceed $5 500 when valuing their stock in local currency.
This comes as businesses, particularly those in the retail and wholesale sector continue to price their goods at exchange rates of around $10 000 and $12 000 at a time when the official exchange rate has been coming down.
Both the official and parallel market exchange rates are far below the markup being set in these retail and wholesale shops. The business community has for long overlooked these exchange regulations citing the need to eliminate exchange rate losses and their inability to acquire cheap foreign currency from official markets including the RBZ auction.
In the obtaining situation, service providers and prominent retail outlets are still pricing their offerings way past the 10 percent margin mark leaving costs at an elevated level, beyond the reach of ordinary citizens.
During the second quarter of 2023 local foreign exchange rate plummeted significantly, with RBZ’s weighted average foreign exchange rate reaching the weakest of $6 926 to US$1 auction on June 20, 2023, while the parallel market exchange rate reached an all-time low of up to $8 500 — $9 000 to the greenback.
During that small stint of foreign exchange rate and inflation craze (between March and June 2023), major retail outlets effected price hikes, pricing their commodities even beyond the parallel market rate.
The pricing in many of the formal retail shops has remained at that elevated level albeit the firming local currency in the last three consecutive weeks.
Foreign exchange auction conducted on July 20, 2023 saw the official exchange rate firming to $4537 against the greenback while the parallel market is strengthening on the other hand.
Even with this, prices remain elevated except for selected products, which they chose to reduce.
This is a great contrast to the informal sector which has grown to price reasonably in US dollars, attracting more traffic and preference from consumers, apparently deserting major retail stores.
Some sections have indicated that formal businesses especially in retail will push themselves out of business if their pricing regime continues to be outrightly divorced from prevailing exchange rates.
That kind of pricing actually paints a grim picture for a workforce that still earns Zimbabwe dollar salaries, as their income can no longer match pricing dynamics leaving them indigent.
Economic commentator, Goodwill Nyanza, said the pricing exhibited in most retail shops were inhumane as they had no basis given the firming local currency.
He said the country had seen a modicum of stability in the few past weeks thereby calling the retail shops to slow down on price increases.
“Some of the prices observed in these retail shops are twice the official exchange rate or more, how is that possible when the exchange regulations say their prices should be within the 10 percent margin.
“Yes, it can be too little, but then we are seeing a product like 500 grammes Cerevita going for almost $60 000, this is more than a 50 percent margin, where is this kind of pricing coming from? It is apparent greed,” said Nyanza.
Driven by the firming local currency, the government has come out guns blazing against enterprises that are not benchmarking Zimbabwe dollar prices at the official rates.
Ministry of Finance and Economic Development, recently released a communique termed, “Violation of Exchange Control Directives and Government Policy” where it named 17 pharmacies that were practicing “destabilising forward pricing and speculation” through the use of parallel market rates higher than the stated rate from the official willing-buyer willing-seller (WBWS) interbank rate.
Local think tank, Zimbabwe Coalition on Debt and Development (ZIMCODD), said the recurrent currency volatility was leading to confidence deficit by the business community hence continued elevated prices.
It, however, urged the Government to be careful as it moves to regulate pricing by business saying this kind of regulation bordered on price controls.
“The continued fragility of the local currency has forced many companies to defy these regulations by engaging in forward pricing to cushion themselves from excessive exchange rate losses.
“This is because transacting businesses have all but rejected the local currency with some businesses only taking foreign currency.
“As seen in past years (such as in 2008), regulating formal business prices causes products to disappear from shelves only to reappear in the informal sector,” said ZimCodd in its periodic review.
Adding that focus should be directed at solving the core causes rather than reprimanding a few businesses.
“ . . . it is a mere tip of the iceberg when one looks at the businesses across sectors that are using a rate higher than the official rate.”
Last week in an interview, Finance and Economic Development Secretary, George Guvamatanga said the Government took bold steps to ensure stability in the market but expressed disappointment with firms that continue to sell products and services at extortionate prices.
He said the government would swoop on rogue retailers and wholesalers that continue to sell using the exorbitant exchange rate.
“What we have witnessed in the past two months is not inflation as we understand it in economic terms, but rather greedflation which is fuelled by greediness from the corporate sector where their forward pricing resulted in an escalation of prices in the shops without any justification.
“Of concern though is that we continue to see some sections of the corporate be it in the manufacturing sector, the retail sector continues to price goods, not in line with the current exchange rate, technically if the official exchange rate is at $5000 and you are still pricing your goods and services at $10 000, that is money laundering,” said Guvamatanga.
Greedflation refers to price inflation caused by corporate greed for high profits. Consumer Council of Zimbabwe (CCZ) executive director Rose Mpofu said prices were starting to fall but called on the retail players to immediately adjust to prices that match the obtaining exchange rate.
“When exchange rates were going up, these retailers raised their prices so fast, and now we expect them to reduce prices at that same rate.
