eBusiness Weekly
Business Writer
Demand for commodities and services has started weakening as consumers continue feeling the pinch of the rising cost of living, economists and business executives have said, suggesting a fast-deteriorating outlook at least in the short term.
The depreciation of the Zimbabwe dollar in the past few weeks has massively eroded the buying power of many people, particularly those formally employed and earning local dollars with businesses now beginning to see weakening demand, they said in separate interviews.
Economics professor Gift Mugano, said disposable incomes in local currency have been significantly eroded by inflation, leaving consumers with little to spend.
Mugano said while about 80 percent of the transactions were now being conducted in US dollars, there “is no sufficient liquidity” in that currency to stimulate demand.
“It’s not about dollarisation or the US dollar dominance, but it is about liquidity, which is quite small,” Mugano said.
“That is why we have seen prices in the US dollars going down because there is no money to stimulate demand.”
He said while the bigger share of trades was now in US dollars, the majority of workers in the formal sector (partly getting a portion of salaries in foreign currency) and informally employed were not earning “decent” incomes to stimulate demand.
“Buying power has been eroded and the US dollar incomes have been typically quite low.”
Last month, Finance and Economic Development Minister, Prof Mthuli Ncube, announced policy measures aimed at stabilising the economy, particularly the exchange rate that saw full implementation of the real Dutch auction system, (timely payment, notification of funds available in advance, and selecting the highest bidder will improve transparency and efficiency in the trading of forex in the economy).
When the auction system was introduced in June 2020, it was supposed to be a foreign currency price discovery mechanism that would eliminate the parallel market.
The bidding platform was supposed to be the Reuters Foreign Currency Auction Forex System (a real-time electronic trading platform between banks linked to the export payments control system). The domestic currency has since depreciated by roughly 393 percent against US$1 from $1 404 on May 16 to $6 926 last Tuesday.
Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza, weighed in, saying companies were beginning to witness a massive decline in aggregate demand.
“Certainly until and unless the pay adjustments match the depreciation (of the currency), aggregate demand naturally diminishes and more importantly, would the employers be able to match the salaries to the levels of (currency) depreciation? I don’t think so,” said Matsheza.
“What we are seeing in our businesses is the coming down of demand; it is drying up even the order quantities have also come down.”
He said while people earning US dollars have been cushioned as a result of declining prices in foreign currency, the drop in prices reflected the weakening demand for goods and services.
Some analysts have, however, suggested that the decline in order quantities for manufacturers might not be a reflection of weakening demand, but rather changes in trading terms, which have seen companies insisting on upfront Zimbabwe dollar payments.
“It’s self-evident that the disposable incomes are low and are affecting the aggregate demand, especially for some non-basic commodities,” Schweppes managing director Charles Msipa said.
“But is still early to determine the demand patterns due to changes in trading terms, particularly with the formal sector.
“The formal sector predominantly uses the Zimbabwe dollar and due to currency volatility, we need them to pay upfront but it’s hard for some so we end up failing to supply.
“Under such a scenario, it then becomes difficult to know if the uptake of the product is low when the retailers do not have our products on their shelves,” he added.
Chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Christopher Mugaga, however, said the aggregate demand would not be affected by the erosion of the Zimbabwe dollar incomes since the economy “is almost dollarised.”
“Aggregate demand is not determined by incomes and salaries from the formal sector because they are very insignificant. That insignificant portion is compensated by artificial demand because there are already fears of shortages of products,” he said.
However, Reserve Bank of Zimbabwe Governor, Dr John Mangudya, recently said that full dollarisation of the economy would lead to weakening demand for goods and services.
“We cannot sustain dollarisation, the rate at which US dollars go out is faster than the rate at which US dollars come in. If we dollarise aggregate demand will fall and companies will scale down and jobs will be lost,” the central bank chief said.
