Zimbabwe: Mnangagwa blames business for currency chaos

President Mnangagwa has blamed recent local currency devaluation on businesses taking advantage of cheap foreign currency and sabotaging the government’s reputation in the run up to the elections.

In his weekly column in The Sunday Mail, published on 21 May, Mnangagwa alleged that businesses were accessing US dollars from the central bank at concessionary prices, while disconnecting point-of-sale units to discourage sales in local currency.

“We even wonder if at all we are dealing with business anymore, or with politicians disguised as company executives, seeking a political upset,” Mnangagwa said.

It is a narrative that the president has perpetuated for some time. At the Zimbabwe International Trade Fair in April last year, Mnangagwa said: “Business cannot purport to support government by day and sabotage it by night and thereafter play victim.”

We are aware that there are people working with detractors to bring about regime change through the manipulation of our exchange rate and unjustified price hikes

In May that year, Mnangagwa addressed Zanu PF party youths in Harare: “We are aware that there are people working with detractors to bring about regime change through the manipulation of our exchange rate and unjustified price hikes.

“My government is seized with this matter and perpetrators will soon be brought to book.”

Stemming losses

“But it is no longer viable to sell goods in Zimbabwean dollars, which continuously loses value every day,” says Gregory Shumba, a shop owner based in Harare. Indeed, the rapid devaluation of the local currency has forced business to snub local currency in favour of the US dollar to limit losses.

“The government has failed to solve the currency crisis since it introduced the multi-currency system in 2019. Local currency is now useless,” he says.

For Anglistone Sibanda, CEO at Green Afrique Technologies, while Mnangagwa’s government has failed to tame inflation, businesses are also taking advantage of government’s lackadaisical approach to policy implementation to profiteer.

“The crisis was created by government and now the fiscal authorities need to now come up with a working formula,” says Sibanda.

“The solution to Zimbabwe’s currency crisis is political. It needs all stakeholders to sit down, de-escalate political tensions ahead of elections and find ways to stabilise the economy,” he says.

As economist Prosper Chitambara says: “We cannot discount other unscrupulous businesspeople that are taking advantage of the situation to profiteer, but there is unsustainable liquidity and broad money supply.

“There is need to address the root cause of money supply. The issue of dialogue and social contract becomes even more important in this kind of situation where there is this conflict between the government and business.”

Disconnect

The disconnect between earnings in local currency and commerce in hard currency has had a huge impact on the buying power of the electorate in the country, says National Consumer Rights Association coordinator Effie Ncube.

He tells The Africa Report that the value of the Zimbabwean dollar has been affected by lack of confidence in the market.

The problem is there is no political will to address the deep economic problems in the country.

“Businesses are failing to access adequate foreign currency in the banks to retool, and so they resort to buying foreign currency at the parallel market. This cost is then recouped through inflating prices of basic commodities, which then affects consumers. The problem is there is no political will to address the deep economic problems in the country,” he says.

The president says in the past months sales of goods were 80% in Zimbabwean dollars and 20% in US dollars, but this has reversed to 80% sales in US dollars and 20% in local currency.

In a report published in May, The Competition and Tariff Commission and the National Competitiveness Commission found that the Zimbabwean dollar depreciated by 4%, 12% and 34% in March, April and May respectively.

So fast has been the decline of the local currency that prices of basic goods and commodities are astronomical in local currency: the price of bread, has risen to Z$4000 in May from Z$1800 in April this year.

Macroeconomic instability

When Mnangagwa took over from the late former President Robert Mugabe in 2017, he promised to stabilise the Zimbabwean dollar and the economy. Since then, Mnangagwa’s leadership has been characterised by high inflation, currency problems and price hikes.

On May 29, his finance minister, Mthuli Ncube, announced policies to stem inflation and price hikes. The policies included increasing consumers’ access to basic commodities by lifting restrictions on importation of basic goods to prompt competition, and thereby result in price reduction and promotion of use of domestic currency by government agencies who should charge fees for services in the Zimbabwean dollar.

In June last year, Mnangagwa and the Political Actors Dialogue (POLAD) – a group of presidential candidates who lost in the 2018 elections – held a pricing indaba, which did not yield any tangible solutions to the currency crisis.

On May 11, the finance minister admitted in a statement that the country was experiencing a resurgence of macroeconomic instability, with domestic inflation being driven primarily by the skewed preference for the US dollar as a savings currency.

“This has put enormous pressure on the exchange rate as the skewed preferences have continued to increase the velocity of the Zimbabwe dollar,” the statement said.

The rise in prices is because everyone is profit chasing with a currency that is getting weaker by the day

“The phenomenon has seen a growing US dollar cash economy and it is estimated that a large portion of domestic transactions are now being conducted in foreign currency.”

There are fears of a repeat of 2008 when the rate of inflation skyrocketed to 250,000,000% in July from 100,000% in January. Hyperinflation was linked to the Reserve Bank of Zimbabwe increasing money supply.

Zimbabwe’s inflation rate is now at 711% per year, according to economist Steve Hanke.

“The rise in prices is because everyone is profit chasing with a currency that is getting weaker by the day,” says economist Vince Musewe.

“The government needs to protect the future value by pricing in US dollar. There is no sabotage, but there is the mere wish for business survival by the formal and informal sector,” he says.

If Mnangagwa’s government continues to fail to solve the currency crisis in the country, confidence in his government and local currency will continue to wane, says Musewe.

“Until the country has one official currency, the practice will continue as people will always seek to migrate to a stronger currency.”