Parallel market soars on deadlock
The parallel market has created a ripple effect of increasing prices as the number of producers seeking foreign currency from dealers to import raw materials has increased the cost of manufacturing goods.
ZIMBABWEAN businesses are worried about the negative effects of the current political deadlock on the country’s troubled economy, as demonstrated by the precipitous rise in black market rates over the past few days.
This comes as major corporates, including Delta Corporation, Dairibord and fertiliser companies, have bitterly complained about Harare’s foreign currency shortages, which have negativley impacted on the sourcing of key raw materials and seen the prices of basic commodities shoot up.
A snap survey by The Financial Gazette this week established that bank transfer parallel market rates to the American dollar — which had stabilised at about 60 percent before the polls — has shot up to premiums of nearly 80 percent, while bond note exchanges have hit the 55 percent mark. And industry captains attribute this to the “delayed shift from politics to the economy”.
“I attribute it to uncertainty … This is being fuelled by the prolonged electoral process,” United Refineries Limited chief executive Busisa Moyo said.
“…government taking office and focusing on rebuilding the economy is a critical step for business and investors,” the ex-Confederation of Zimbabwe Industries (CZI) president added.
He also warned that key sectors such as agriculture and mining — identified by authorities as central economic drivers — needed “early and proper planning, and could now be at risk”, as it was taking too long to put in place new ministers, who in turn would need a settling period.
Sifelani Jabangwe, the current CZI president, also concurred with Moyo, saying “the general increase in prices and foreign currency exchange rates is due to the prolonged election outcome”.
“The market is in panic, with the nation in need of a clear path. In such instances people hold on to their money, while some take it out of the country and investors keep away,” he said, adding “we are praying for a solution to the impasse”.
“Price increases and parallel markets are taking advantage of the low confidence levels that are being caused by the uncertainty,” Jabangwe said, further warning that “as these rates keep going up pressure will increase on the Reserve Bank of Zimbabwe”.
Christopher Mugaga, the Zimbabwe National Chamber of Commerce CE, also said the frenzied parallel market activity was a result of the political uncertainty that had been occasioned by the disputed polls.
“Elections generally raise uncertainty … The resultant speculative behaviour plays a part as people deal with their expectations. Some will go into the market and mop up cash to create artificial shortages, which results in rate fluctuations,” he said, adding that “a lack of confidence is also a major factor”.
“There is need to wind down the whole electoral process as it is only helping to drive inflation,” Mugaga said.
Economist John Robertson said the situation was so dire that the black market rates were likely to go haywire.
“The foreign currency exchange rates will soon go to 100 percent from the current 80 percent,” he cautioned, adding that the looming “hard cash disaster can only be contained if the election impasse is settled quickly”.
“Going forward, government should commit to policy reforms and also reduce its expenditure, which will see investors coming. Unless that is solved, the money supply gap is going to rise, which will translate to further increases in the prices of general commodities,” Robertson said.
The rising foreign currency rates have seen retailers — who desperately turn to the black market to access scarce hard currency — cushioning themselves from the increased input cost by passing this on to consumers.
This comes as latest statistics indicate that Zimbabwe’s year-on-year inflation rate has leapt to 4,29 percent — a record high since 2012.
“The month-on-month inflation rate in July 2018 was 0,98 percent — gaining 1,03 percentage points on the June 2018 rate of -0,05 percent,” it said.
Denford Mutashu, the Confederation of Zimbabwe Retailers president, acknowledged that the prolonged political uncertainty was driving parallel market rates out of control, and consequently pushing the price of basic commodities up.
“There has been a steady, but nominal price increase for most basic and non-basic goods on the market,” he told The Financial Gazette.
“We hope that the rampaging parallel market rates will soon come down after the Con-Court ruling,” Mutashu added, accusing black market dealers of “manipulating the rate”.
“The parallel market traders should be treated as enemies of the state for placing the economy at ransom through rates manipulation.”
All this has seen some listed companies calling out this persistent problem in their latest financials.
Dairibord chairman Josphat Sachikonye said while “sustained economic growth is anticipated in the outlook … foreign currency constraints are expected to continue, presenting significant risks on product supply and cost of inputs”.
Other blue chip companies such as Delta have also been crying for some time now that they are struggling to acquire raw materials due to forex shortages, and hence the intermittent supply of certain products.
Last week, fertiliser producers also decried the shortage of hard cash, saying this may hamper preparations for the 2018/2019 agricultural season.
On their part, authorities say the problem has worsened “on the back of growth in Zimbabwean industrial capacity utilisation and demand for the scarce commodity”.
According to Central Bank governor John Mangudya, weekly allocations for critical imports have been increased to $150 million, but the market is still short as the country is not generating enough through exports.
Apart from disrupting industries, the current foreign currency shortages have also affected dividend payments and repatriations for companies such as BAT, Fastjet and South African Airways. [email protected]