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ZIMBABWE – A typical story on why govts should not be involved in forex administration and why the market is the answer

Caroline Du Plessis

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On Thursday evening, I visited my favorite shop TM Pick ‘n’ Pay along Orr Street in Harare. I wanted to buy a few supplies, chief among them was Nestle Cerevita and Mazoe Orange.

You see family, there are two products which I defend with my whole life and if I fail to get these products ndotoita stress. Nestle Cerevita and Mazoe Orange Crush they are a must have.

What I saw in TM Pick ‘n’Pay shocked me, I got there during peak hour, just after 6pm. Normally the shop will be packed with shoppers but on that particular day, we were 4. Yes 4 shoppers only, as I chatted with one of the till operators, she said business was very low, they had barely made money that day.

It’s not TM alone which is suffered due to low business but most of conventional big retailers are experiencing a lull in business. Business is very low that they are now struggling to survive.

What’s causing this;
✓ Government has tightened RTGS supply on the market. They have done so by ceasing payments towards contractors who are doing infrastructure development.
✓ I think you have noticed that, RTGS is short supply. Hakuna maBond and RTGS. The shortage of RTGS has forced the exchange rate to be “stable” and some instances it has gone down 👇.
✓ While this move of tightening RTGS money supply has a positive impact on the exchange rate, it has caused a lot negatives to business.
✓ Govt has reduced RTGS money supply at the same time they are forcing businesses to charge customers using “Official exchange rate”.

® Basically what it means is that, shops and companies which are using the “official exchange rate” their products are “cheap” in RTGS but very expensive in USD.
✓For example a packet of my favorite Cerevita Corn and Banana is being sold maTM and OK for Zwl3000.
✓ These shops use the official exchange rate of 1:580 meaning if someone doesn’t have RTGS but wants Cerevita in TM he has to pay US$5.
✓ The same Cerevita is being sold in tuckshops and car boots for $3 a packet.
✓ Ultimately these shops are losing customers to tuckshops and car boots shops.

® Shortages of RTGS is so severe, companies which pay RTGS salaries are struggling to pay workers.
✓ Some companies have resorted to paying workers USD salaries.
✓ Again these large corporates suffer because there is no RTGS disposable income. People will choose to buy in tuckshops where prices are low in USD terms.

® On the positive side, the struggle being experienced by large retailers is a plus for those in grocery business.
✓Those who have been asking me kuti, which business can one do in Zimbabwe. There it is…. Open a tuckshop or a shop.
✓ Import groceries from SA, Mozambique or wherever then sell in USD.

® Retail business is paying well.
✓ Advantage of retail business is that it requires low start up capital.
✓ With US$1000 you can open a small shop kuGhetto. Ghetto hakude license or permit, build, stock and operate.

® Manufacturers in Zimbabwe prefer supplying their products to tuckshops and small retail stores because they pay CASH USD.
✓ Big retailers because of regulatory frameworks take 30 day accounts which is later paid in RTGS.
✓ Most of manufacturing companies don’t get forex from RBZ auction so being paid in RTGS is bad business for them.
✓ Supply of products is now being prioritized to tuckshops and small shops. They pay cash in USD which manufacturing companies much need.
✓ Manufacturers are also offering discounts to tuckshop owners and small shops. These cash discounts further reduces prices being charged by tuckshops.

©My advice to the ordinary person is this;
✓ If you are earning RTGS, purchase your groceries using RTGS. Never make a mistake of changing it into USD.
✓ If you are earning USD, tuckshops are your plug. Never change your USD into RTGS unless circumstances force you.

® Large retailers and tuckshops price difference.
✓ That pack of madora in the picture below is being sold maOK for ZWL3380. If we use “official exchange rate” of 1:580 this is US$5.80. Even if we use Pharmacy rate ( pharmacies charge highest rates in the land) of 1:800, this is US$4.22.
✓ The same packet of madora/amacimbi is being sold in for less than US$2 in tuckshops and other smaller shops.
✓ It’s the same with Cerevita, in supermarkets they cost close to US$4 meanwhile outside supermarkets/tuckshops its being sold for US$3.
✓ In a country with low disposable incomes, these price differences make a huge impact.
✓ A tablet of Sona bath soap is being sold for US$1.80 in large supermarkets but in tuckshops, it’s going for US$1 for 2.

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