When Zimbabwe’s recently minted local currency – awkwardly named Zimbabwe Gold (ZiG) – was introduced in April last year, it was hyped by authorities and their supporters as a panacea to the country’s protracted currency crisis which sits at the heart of the deeply entrenched economic problems facing the nation.
ZiG was supposed to ensure currency and exchange rate stability, as well as inflation or price stabilisation.
Authorities crowed and bleated noisily practically on a daily basis all over the media, claiming to have finally figured out the solution – meaning a paltry US$575 million and 2.7 tonnes of gold.
Serious analysts saw through the snake oil currency initiative.
In a bid to ensure ZiG survival, Reserve Bank of Zimbabwe (RBZ) governor John Mushayavanhu is running a tight monetary policy regime which has brought structure-induced macroeconomic stability; pseudo-stability not rooted in fundamentals.
Mushayavanhu has tightened liquidity, starved the market and put breaks on everything on money velocity or circulation at a significant and devastating cost to the economy.
In the process, people, families and individuals, and businesses a re now suffering even more as a result.
Companies are closing and job losses mounting.
OK Zimbabwe Limited, one of the country’s largest retail chains, says currency and exchange problems drove it to the brink.
An OK group trading overview to shareholders obtained by The NewsHawks yesterday says:
“The business procured stock in (United States Dollars) USD currency from April-June 2024 and signed contracts with suppliers to that effect. Before this period, the business was severely under-stocked as suppliers were not keen to supply in ZWL (RTGS). This was to achieve the following:
1. (a) To secure the best price in USD and be able to compete with the informal sector;(b) To achieve price stability and be able to advertise and hold the prices;(c) To get extended trading terms from the suppliers. In this case, the suppliers agreed to 90-day trading terms
2. Management made this decision informed by the USD collections of over 75% that they were colleycting during the period before April 2024;
3. Unfortunately, and in an unforeseen move, the RBZ introduced the ZWG (ZiG) currency on the five days into April and the USD collections dropped to levels below30%;
4. Engagements with the suppliers to accept ZWG in exchange for their USD balances were not successful as most of them were prepared to wait out the 90 days hoping to receive USD;
5. From July 2024, the business reverted to ZWG procurement and started operating on very short trading terms, including pre-payments for fast-movingproducts such as cooking oil. However, the ZWG resulted in an increase in USD prices on the shelves which resulted in a decline in customer footfall. This also resulted in trading stocks being held for extended periods, whilst creditors balance continued to age.
6. The devaluation of the ZWG on 27 September 2024 resulted in the business requiring more ZWG to settle suppliers at an exchange rate of 26 after havingsold products at 13.
7. The business tried and was unable to access banking facilities since October 2024 due to the liquidity challenges. Engagements on this frontcontinues as the business is currently not over-borrowed.”
Apart from OK, other retailers are in a similar position, just like more different businesses as well, highlighting accelerating economic decline and a bleak future in the short to medium term.
Currency and exchange rate volatility have been major challenges facing businesses and the economy in Zimbabwe.
The country’s multi-currency system, which was introduced in 2009, has been plagued by exchange rate distortions, currency fluctuations, and a shortage of foreign currency.
