Ncube scrambles to rescue Zimdollar

FINANCE minister Mthuli Ncube

FINANCE minister Mthuli Ncube has removed duty on all basic commodities to combat the rampant price increases in a slew of desperate measures to save the collapsing Zimbabwe dollar.

Over the past two months, the Zimbabwe dollar has plummeted to $2 700, against the United States dollar from about $1 200.

Officially, over the same period, the Zimbabwe dollar fell to $1 222,27, against the greenback as of yesterday, which is a depreciation of just over 25%.

Local businesses have responded by raising the prices of  goods and services to maintain the value of their products and offerings, which has seen a massive spike in prices.

This has also led to the erosion of wages as families are now facing galloping school fees, rising prices of basic commodities, healthcare costs, and rentals. In response to the crisis, Ncube announced a cocktail of measures yesterday to save the local currency and curb price increases.

“In order to enhance the supply of basic goods to the public, all basic goods will no longer be subject to import licences, and will also come into the country free of import duties and taxes,” he said in a statement.

According to insiders, the move is supposed to force local players to reduce their prices owing to the threat of cheaper imported goods mostly from South Africa followed by Zambia and Mozambique.

Further, with the fall of the South African rand to a three-year low of ZAR19,14, against the dollar, basic commodities in that country are even more affordable than on the domestic market.

Reports from South Africa suggest that its currency is expected to fall even further if allegations that the neighbouring country sent a shipment of arms and ammunition to Russia to support its war on Ukraine are corroborated.

Confederation of Zimbabwe Industries chief executive officer Sekai Kuvarika said the measure would be catastrophic to the local industry.

“The other measures they have put are good but this measure on imports, where it is problematic is that they are saying these goods should come duty free, when the (local) manufacturers of those goods are paying duties and other taxes and other regulations in the business environment to produce the same goods,” Kuvarika said.

“So, it unevens the playing field. The import bill is also likely to balloon and maybe demand for forex will increase.

“There are no shortages of basic commodities. Giving stabilisation a chance is the best approach, if shortages then occur then maybe this could be necessary. Right now it is not, in fact it is counterproductive.”

Ncube scrapped the 15% surrender requirement on domestic foreign currency sales for businesses, allowing them access to 100% of their locally generated forex revenue.

“In order to promote the banking of domestic sales in foreign currency in the banking system, the Reserve Bank of Zimbabwe will with effect from 15 May 2023, exempt all proceeds from domestic sales in foreign currency from the 15% surrender requirement,” he said.

Africa Economic Development Strategies executive director Gift Mugano said the 100% forex retention was a good move.

However, on the removal of import duties, he said government made an emotional move.

“The move by government to open up the borders to basic commodities — I don’t think it is a good move that one because what that does is expose our local industry,” Mugano said.

“It becomes a significant drainer of foreign currency because we will be allowing unrestricted draining of foreign currency to import goods,” he said.

“My view on this is that government is being emotional to the current price spikes.

“Now, the tragedy is that the price spikes will continue because local manufacturers will be forced to charge in Zimbabwe dollars as required by law in the shops but those who are going to be importing commodities, particularly cross borders, will not charge in Zimbabwe dollars further deepening dollarisation.”

Ncube also announced that the foreign exchange auction system will be further fine-tuned and will now auction a pre-announced envelope, on a pure Dutch auction basis. 

However, the pre-announced envelope still implies controls on the exchange rate. In order to address the rampant speculation of the parallel exchange rate, Treasury said it would “immediately” cause short-term interest rates of tenors of up to six months to rise sharply, with longer-term rates remaining low.

Government expects to curb speculative borrowing as such funds have often found their way into the parallel forex market causing a spike in the money supply, adding to the fall of the Zimbabwe dollar and eventually inflation.

“Government will endeavour to promote the growing and committed use of the local currency for domestic transactions by ensuring that levies and fees charged by its affiliated agencies and service providers, are to be paid for in local currency,” Ncube said.

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