eBusiness Weekly
It now appears that the banking system is handling slightly more foreign exchange trading than the auctions, but using the weighted average generated by the auctions as the exchange rate.
Economist and member of the Monetary Policy Committee Eddie Cross let drop this week the interesting fact that banks are now selling around US$8 million a day on average but that the Reserve Bank is not fussed since the deals are going through at the auction rate. Assuming a five-day week this means that the banks are between the handling trades of around US$40 million a week.
A few weeks ago RBZ Governor Dr John Mangudya was predicting that up to 70 percent of all foreign currency trading would eventually go through the banks, but with the auctions setting the price. WE are not quite there yet, but with around 60 percent of the trading now in the banking system we are getting there.
There are many advantages to using the banking system, when you think about it. For a start you can buy currency five days a week, not just Tuesdays, and secondly, and this must be a critical factor for many, you do not have to agonise over the price you are prepared to pay. You pay the auction price with an adjustment for your bank’s commission. But that figure is up front.
Bidders at an auction have to try and predict roughly where the price will be and then, after considering what category they are in, put in a bid that will ensure they get their currency but hopefully not paying a premium. That someone at the last auction was willing to pay a premium of more than $5,65 for their foreign currency is in some ways an alarming signal.
Even if that bid of $87 had been for the minimum US$50 000 that bidder still paid more than $280 000 for that block of US dollars.
That sort of bid, and this week the highest bid was $1 higher than the highest bid last week, means there are still some who assume the auction system undervalues the US dollar and that there will be a day of reckoning.
Most bidders now appear to accept that the high levels of stability we have seen for more than two months are the new normal, and this explains the tiny weekly firming of the Zimbabwe dollar even as top and bottom bids rise. Mathematically the only way to explain that otherwise counter-intuitive result is if a significant majority of bidders are adjusting their bids to something very close to the previous week’s result.
In the stable period we have seen since mid-August top and bottom bids tended to be at the beginning around $6 above and below the mean. Then the bottom bids rose slightly and by this week the average was $2,34 above the bottom bid, a sign that a lot of people were getting it right. However, the top bid, after falling for two weeks, rose to $5,35 above the average, meaning that someone had money to waste on following a hunch.
It seems that there are still people occupying fairly high positions in industry who firmly believe that the black market is the true market and that sooner or later the auctions must reflect that weird belief. Some of the drivel on social media platforms, driven by non-economists or at least by economists who cannot do basic mathematics, continually predicts a foreign currency crisis,
Some of this is distorted analysis based on expectations that continued lifting of the lockdown will allow cross border traders to resume their trips to South Africa to fill suitcases with consumer goods, but fails to note that cross border traders were not locked out of the market by the travel restrictions.
They were allowed to continue importing their small loads, under well-thought-out concessions by the Government, but had to use an agent in South Africa who consolidated the shipments until they filled a truck and then sent that truck north.
To no one’s surprise, the tax collectors at the border found that documentation for these consolidated loads frequently misstated the actual items and the quantities involved, and that quite a lot of customs duty was still owing. Apparently many of the traders had been using the small rebates for accompanied luggage in the past. But even then there must have been some high-levels of smuggling since that rebate is hardly enough to justify a bus fair to Johannesburg, or even Musina, and bring back a small consignment of some item.
If nothing else, Zimra must now be ready to physically check a lot more suitcases when cross-border travel does resume as it seems that smuggling was far more rife than previously estimated.
In any case, with foreign currency now so much easier to obtain, and with the SME auction and the banking system working well for the smaller sums, a lot of goods that were coming across the border in suitcases should now be shipped at wholesale prices by established merchants in South Africa. Things like motor spares, artists materials and pencils, and many other goods that were suitcase imports should be either on the priority list. Even if only as category 2, or if they are not then a very good case can be made to have them put on that list.
This might move a block of items for those many small shops along Kaguvi Street from the suitcases to a local wholesaler, but restoring normal business systems rather than using the emergency runners Is surely an advantage. It will, however, require a great deal of competition at the importer and wholesaler level to work properly. We have seen too many cases of sole agency leading to profit margins that are breathtaking.
Sole agencies have certain advantages for suppliers entering a market, simply because they need someone who they trust who is willing to take a gamble on introducing a new product and needs an incentive. But in many cases it is no longer necessary.
The motor trade was chosen as one example of the sort of business that had become over-reliant on runners because of the plethora of different makes and model of vehicles on Zimbabwean roads, largely driven by used car market relying on cheap imports. This meant that the total number of a spare parts of a particular item might just be a dozen or so each year in Zimbabwe.
But a lot of parts, especially those that need replacing, are in fact standard across whole ranges of vehicle. Few manufacturers make even the majority of the own parts any more and the global motor industry has set up standard specifications for a wide range of consumables. Admittedly there are quality differences and sections of the motor industry being what they are, there are those who charge for low quality the same price that someone else will charge for high quality.
But that same fragmented market at both shop and mechanic level provides competition and opens the door to a number of decent wholesalers to move in. Even if those wholesalers are in South Africa and make up weekly shipments combining small orders from 100 Kaguvi Street shops, the runner problem can be overcome. And Zimra is likely to be far more impressed with a container from a reputable company with a proper list of the contents than bales of funny little parcels from small shops in down-town Polokwane.
Small businesses are the lifeblood of a growing economy, and there is no need to wreck them or discourage them. But in the end consumers can demand expertise, good advice and honesty and the skilled person setting up shop should be able to make a profit by following those basic rules but operating within a normal business environment, not the weird make-shift systems that were developed in Zimbawbe in dollarisation days and continued into the black-market days. Perhaps the Motor Trade Association needs to think how to bring those small traders within its orbit, perhaps with a special membership category for the small shops and suppliers, and work out ways where they can co-operate on supply, cutting prices and bringing the whole system under a benevolent self-control.
