eBusiness Weekly
Nelson Gahadza
Zimbabwe’s retail sector has come under increasing pressure from global geo-political tensions and rising shipping costs, with captains of industry calling on the Government to intervene, as it did to stabilise fuel prices, in order to curtail potential widespread price increases.
Retailers warned failure by the Government to take measures to contain the situation would see inflationary pressures continue to pile rapidly on pricing regimes, leading to frequent commodity price increases, according to a key industry executive.
Some of the interventions they want include provision of cheap forex at official Reserve Bank of Zimbabwe rate, introduction of rebate systems for major manufacturers − tax based on volumes, scrape the 2 percent Intermediate Money Transfer Tax (IMTT) that had choking effect to businesses given that they were already paying 40 percent corporate tax.
The also want Government to intervene in the pricing of services such as electricity, water and fuel as some of these providers were demanding an arm and a leg from businesses.
This comes against the backdrop that Zimbabwe, which saw inflation touch a post dollarisation high of 837,5 percent in 2020, was already experiencing growing inflationary pressures with its currency, now $350/US$1 on the black market, continuing to slide against major currencies.
Zimbabwe reintroduced its domestic currency in February 2019, at $2,5 to the greenback, but the currency has kept depreciating amid acute shortages of foreign currency required for key imports, following collapse of most productive sectors during a decade of meltdown up to 2008.
Outside of rising energy prices due to geo-political tensions, Russia and Ukraine are key producers of agricultural commodities such as wheat and corn that are critical ingredients sought after to make bread and other related products.
Together, Russia and Ukraine supply roughly 30 percent of the global wheat exports while Ukraine accounts roughly 17 percent of global corn exports.
Export disruption, combined with the expectations of lower crop yields in the Ukraine, have contributed to year-to-date wheat and corn prices surging by approximately 39 percent and 23 percent, respectively. Phil Mushosho, the chief finance officer at OK Zimbabwe, speaking at a business forum last week, said oftentimes, the retail sector was accused of driving inflation through unjustified price hikes, but said this time traders would have little choice but increase prices due to the global developments.
“As the retail sector, our biggest volume movers are the commodities, sugar, cooking oil, rice, flour, and what has happened because of the global pandemic (Covid-19) as well as the Russia-Ukraine crisis, has resulted in a crisis because of unavailability of vessels, containers and this has created long lead times and also the prices for global shipping have gone up significantly,” he said.
He said the retail sector also imported other goods such as electronic goods, general merchandise and a number of products from as far as China, which has reportedly told its western partners that they should expect lead times of up to 180 days. Mushosho said Zimbabwe imported a lot of materials from China through South Africa, and the lead time between South Africa and Zimbabwe was 90 days, which combined, meant it would take about 270 days to land products in this country.
“The tragedy of it is that we have to prepay for those things, and this is your capital being tied up for nine months, and by the time they land here, the landing costs would have gone up and that is what we are discovering in the retail sector,” he said.
He said in terms of internal inflation, judging by the retail industry’s calculations using its own basket of products, the cost of the consumer basket reflected an inflation rate that is at least two times higher than the official inflation rate the Zimbabwe National Statistical Agency publishes.
“That is what we are witnessing; the retail sector is not pushing inflation, so I would like to call on the Government (to say), just like (it did with) fuel, there is need to intervene in commodities as these are basic things the common man should access,” said Mushosho.
The cost of basic commodities in Zimbabwe, according to Confederation of Zimbabwe Retailers (CZR) president, Denford Mutashu, have witnessed huge price increases since 2020 and this has affected the purchasing power of consumers.
He said since 2020, cooking oil has gone up by 1 013 percent, standard bread by 1 000 percent, 2kg sugar by 867 percent, beef by 2457 percent and that these were huge increases affecting the purchasing power of citizens in the country.
“The Afreximbank has come up with a US$4 billion intervention facility to mitigate against the challenges of the Russia Ukraine war. As Zimbabwe, we could also come up with similar interventions on health, education, and the general cost of key basic commodities,” he said.
Due to rising wheat prices on the global markets, which are being driven by shortages caused by the Russia – Ukraine war, Lobels bread increased its wholesale and recommended retail price for bread and confectioneries.
Bread is now retailing at $341 from $237 representing a 30 percent price increase in local currency.
This leaves a loaf of bread now costing US$2,27 using the official exchange rate. However, using the parallel rate the price of bread falls to a range of US$0,97 to US$1,03.
On the wholesale side, bread now costs $310 per loaf, whilst in US dollar terms; bread now costs US$2,06 for wholesale. This leaves the retailer with a profit of $31 and US$0,21 respectively.
This comes after the Grain Millers Association of Zimbabwe (GMAZ) reviewed upwards prices of mealie-meal and flour, following the increase of maize and wheat prices due to short supply caused by the Russia – Ukraine war.
On the exchange rate, Mushosho said the retail sector is grateful to the government, that they had allowed the retail business to be able to trade in both currencies, the local currency and the US dollar currency.
“We have also engaged the RBZ and we have an understanding of an alternative exchange rate that we can use throughout our stores, it was a robust discussion. It was a formula based on the fundamentals and the facts we are seeing on the ground.
“It has been working very well, until recently where it has become more subjective, and we are told you cannot go beyond this.
“But the reality is that the manufacturers are not getting enough foreign currency, so we have run out of stock on key products that consumers need,” he said.
Mushosho said the manufacturers are now pushing most of their products into the informal sector where they are picking foreign currency in cash form.
