eBusiness Weekly
Business Writer
Prices of most goods and services in formal retail shops and wholesale have doubled in the past two weeks after the Zimbabwean dollar plunged against major currencies.
The relentless surge in prices has eroded the purchasing power of the Zimbabwean dollar, with workers bracing for a showdown with employers over shrinking incomes.
The exchange rate, which stood at $5 903:US$1 on December 12, 2023, now sits at $9 414.
The current exchange rate on the parallel market stands at an average of $15 000 Zimbabwean dollar to US$1, reflecting a continued depreciation of the local currency.
Currently, businesses apply an exchange rate of the auction rate plus 10 percent when trading.
This has seen a massive loss of US dollar sales in the formal sector every time there is a wide parallel market premium.
A recent survey by Business Weekly found that prices of most goods and services have more than doubled over the past three weeks, further exacerbating the economic hardship faced by ordinary citizens.
The dramatic devaluation of the Zimbabwe dollar is largely attributed to a combination of factors, including, increased demand of the green back as a result of lack of confidence in local currency, Reserve Bank of Zimbabwe governor Dr John Mangudya said recently.
Zimbabwe’s export earnings have been declining in recent months, further putting pressure on the availability of US dollars in the formal market.
The consequences of the exchange rate hike are being felt by ordinary Zimbabweans, who are struggling to afford basic necessities such as bread, cooking oil, sugar, laundry soap, mealie meal, meat, salt among others. “It is getting very difficult to survive,” said Sly Magunda, a secondary school teacher in Mutasa District said.
“Wages have not gone up, but prices have doubled. I don’t know how I am going to survive.”
While some employers are offering partial US dollar wage supplements, full forex salaries remain exceptionally rare, leaving the majority of Zimbabwean dollar earners at the mercy of the volatile exchange rate while rendering them incredibly vulnerable in an economy where over 80 percent of the transactions are in US dollars.
“We earn in Zimbabwe dollars, but live in a US dollar world, a worker with a local State-owned telecoms company said. “It is like watching the price of your groceries rising time to time while our salaries stay the same. It’s impossible to keep up.”
Japhet Moyo, secretary general of the Zimbabwe Congress of Trade Union, said there was need to review the US dollar wage component to insulate workers from foreign exchange volatility.
“At the moment, the US dollar salary component that is being paid is still very low, at most 40 percent, and the majority of workers fall into this category,” said Moyo.
Moyo said a large number of workers are affected because most wages have not been reviewed in a long time, leaving upcoming salaries (for January) inadequate.
Wage negotiations
However, while acknowledging that most sectors have initiated wage negotiations with salary reviews in mind, Moyo expressed scepticism about positive outcomes given the disappointing outcomes of previous attempts.
“It’s a process that we cannot predict but it has not been easy over the past years,” Moyo said.
While full US dollar wages would be ideal, most businesses lack the resources to make it happen.
“We are balancing our survival but of course with the harsh reality of workers facing a shrinking buying power as a result of the local currency depreciation,” a senior executive with a local beverages company said in an interview with Business Weekly.
Offering full US dollar salaries would be a “morale booster”, but for many businesses, “it is simply not financially feasible at the moment,” the executive added.
Economists warn that the situation is likely to worsen in the coming months if the Government does not take decisive action to address the underlying causes of the currency crisis.
“The Government needs to implement a comprehensive economic reform package that includes measures to boost exports, attract investment and restore confidence in the economy,” Carlos Tadya, a Harare based economist said.
Weakening aggregate demand
As consumer demand weakens due to eroded purchasing power, factories across various sectors are likely to face reduced orders, potentially leading to production slowdowns and job losses in the industrial sector, some economists have said.
“Shrinking customer pockets mean fewer orders. Unless something changes, production lines might stop, taking jobs with them,” Tadya said.
Denford Mutashu, president of the Retailers Confederation of Zimbabwe, said average US dollar sales in the formal wholesale and retail business hover around 40 percent.
While the majority of transactions in Zimbabwe occur in US dollars, many individuals earning local currency still rely on informal currency exchange to access greenback.
Social unrest
The current “precarious situation,” analysts say, fuels social unrest and hinders economic stability, further perpetuating the very inflation that cripples their purchasing power.
“To escape the grip of currency instability and inflation, we require swift and decisive action from the authorities to escape from this cycle that threatens social unrest,” Gerald Mugwagwa, a South Africa-based political analyst said in an interview.
