Zimbabwean business fears its government will interfere with the exchange rate

Reserve Bank of Zimbabwe governor John Mangudya said yesterday that the central bank was seeking to limit money supply of the Zimbabwe dollar in the economy. File

Reserve Bank of Zimbabwe governor John Mangudya said yesterday that the central bank was seeking to limit money supply of the Zimbabwe dollar in the economy. File

Published Jun 23, 2023

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Zimbabwean businesses fear that President Emerson Mnangagwa’s administration, which is blaming foreign companies of inflating prices ahead of a key election in August, could resort to interfering with the exchange rate to manage inflation, which has been on a resurgence amid price increases.

Zimbabwe closed the nomination process for candidates for the upcoming August 23, 2023 poll yesterday, with Mnangagwa set to go head to head with Nelson Chamisa of opposition CCC and more than six others. Some businesses such as Delta Corporation have warned that the upcoming elections could disrupt the flow of business.

Mnangagwa, who took over from the late former leader of Zimbabwe, Robert Mugabe after a coup in 2017, is angling for a second term. His main rival, Chamisa is bidding to get into office after taking over from the former opposition leader, Morgan Tsvangirai.

The apprehension and uncertainty around Zimbabwe’s upcoming election has fuelled concerns and fears among the business community that the government could resort to exchange rate control to manage inflation and price increases. Prices have been on a rampage after the Zimbabwean central bank eased some of its exchange rate controls this month.

The Confederation of Zimbabwe Industries (CZI) grouping of Zimbabwean manufacturers said this week that Mnangagwa’s administration may end up “interfering with the exchange rate, especially given that it was suppressed for a long time and stakeholders are already beginning to feel the pain” associated with the liberalisation process.

“If interference emerges, this will result in continuing distortions as reflected in the widening parallel market premium, which will then undermine confidence and lead to an intensifying ‘blame game’ between the government and the business community,” the CZI said this week.

The Zimbabwe dollar exchange against the US dollar has devalued in the past few weeks on the official exchange markets to around US$1:ZWL7000. This has driven up prices, with a 50GB of data bundle on Econet, the biggest telco, now costing half a million Zimbabwe dollars, about 300% over the previous tariff.

Against the backdrop of surging prices, government measures to force businesses to accept the fast plunging Zimbabwe dollar are occasioning challenges for businesses, the Confederation of Zimbabwe Industries says. In the past few months, Zimbabwean businesses have started to sell some commodities exclusively in foreign currency.

They argue that input costs are now more in foreign currency, highlighting the need for cost recovery was necessitating the demand for US dollar (USD) sales. In any case, more than 75% of sales of the majority of Zimbabwean manufactured products are now in foreign currency, industrialists and retailers say.

“Replacement pricing is becoming extremely difficult in local currency, and it is not astounding that some products in formal retail shops are now being sold exclusively in USD. A wide exchange rate premium, therefore, always drives USD purchases to the informal sector,” said the CZI.

Reserve Bank of Zimbabwe governor John Mangudya said yesterday that the central bank was seeking to limit money supply of the Zimbabwe dollar in the economy. Mnangagwa has gazetted a statutory instrument restricting the central bank from borrowing and also stepping up presidential responsibility for monetary policy.

“Zimbabwe has money side and supply side challenges. We are ensuring that the local currency in the economy does not flood the market,” Mangudya said.

Mnangagwa, who is already in campaign mode after announcing August 23 as the date for Zimbabwe’s 2023 election, has been sending campaign messages to supporters of his ruling Zanu-PF party blaming foreign businesses in Zimbabwe of inflating prices to stock up a revolt.

“The continued depreciation of the local currency is causing rejection of local currency in some quarters and unrelenting price hikes in formal shops which are required by law to accept ZWL$ and are under close surveillance,” said the CZI.

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