Zimbabwe’s New Dollar Causes Chaos for Suppliers
On June 24, the Zimbabwean government introduced a local currency known as the Zimbabwean dollar, replacing foreign currencies entirely. This week, GPJ’s Zimbabwe team takes a look at the impact of the change on sectors including housing, pharmaceuticals and more.View Team
HARARE, ZIMBABWE — For a decade, multiple currencies were accepted at stores and in daily life here. U.S. dollars were the gold standard, but South African rand, Botswana pula and others were used, too.
On June 24, the Zimbabwean government announced that the multi-currency system that had been used since 2009 would be replaced with a local currency, effective immediately. The sole exception is for people who have foreign currency accounts, which can hold U.S. dollars.
The local currency is the Zimbabwean dollar, or Zimdollar. While it’s now considered Zimbabwe’s official currency, the Zimbabwean dollar is the new name for what the Zimbabwean government calls RTGS, a form of digital currency that has been used in Zimbabwe for years. (Elsewhere in the world, RTGS is an acronym for real time gross settlement, a type of banking transaction.) Bond notes, which the Zimbabwean government has issued as currency since 2016, have been the physical currency issued by ATMs and banks throughout the country.
The change in June meant that transacting in foreign currency within the country would now be illegal. The announcement follows a major change in October, when bank balances were redenominated from U.S. dollars to RTGS currency overnight and without warning. (Read more about that change here.)
The government had long insisted that RTGS was valued at the same rate as the U.S. dollar, but in reality it’s worth far less. People who had U.S. dollars in their bank accounts lost significant portions of their savings and had no recourse to get their money back.
The price of goods in U.S. dollars depends on whether the official government exchange rate is used, or the unofficial market rate. According to the Reserve Bank of Zimbabwe, the rate as of today was about 8.3 Zimbabwean dollars to $1. But ZimBollar Index, which tracks the market rate of currencies in Zimbabwe, recorded today an unofficial exchange rate of 12.15 RTGS for every $1.
Exchange rates on the ground, though, were different.
Many Zimbabweans went to banks this week to exchange their U.S. dollars for Zimbabwean dollars to get what they felt was the best rate. That’s something that would have been unthinkable even the day before the announcement, as exchange rates on the black market were generally far better.
“We realized yesterday that banks had a higher rate than us,” says one money changer, who asked that only her nickname Nomsa be used since she operates on the black market in Bulawayo, Zimbabwe’s second largest city. “This means we have lost most of our customers. But we are not yet panicking though, as we are yet to see how far this will go.”
Nomsa was interviewed on Tuesday, the day after the announcement. She says her rate that day was 5 bond notes to $1. Just before the announcement, a U.S. dollar fetched 9 bond notes.
Banks, on the other hand, paid out about 9 Zimbabwean dollars for every U.S. dollar the day after the announcement.
“The changing of foreign currency from the banks is something which has not happened for over 10 years,” says Felix Chari, an economic analyst in Bulawayo. “If it continues like this, residents will start trusting the banking system once again.”
Meanwhile, inflation is crippling the economy. According to the government’s statistics, inflation increased from September year on year level of 5.4% to 20.9% in October 2018, and closed the year at 42.09%.
To guard against losses, many service providers, including some government agencies, were charging U.S. dollars for their goods and services to enable them to restock. With the June announcement, companies and service providers can no longer do so.
Since the enactment of all these statutes and policies, many Zimbabweans have grappled with a high cost of living, daily price hikes, long fuel queues, high cost of rentals and basic commodities. Daily life has become a challenge for ordinary Zimbabweans across the country as suppliers of basic goods struggle to keep necessities in stock.
Fuel shortages have been the norm of life in Zimbabwe for years, with lines at pumps lasting for hours and a thriving black market offering illicit jerry cans sold from behind vending counters. But the situation reached a tipping point in January, when President Emmerson Mnangagwa announced a major price hike to $3.31 per liter – far above what was then the global average of $1.09. (Read more about the price hike here.)
Now, fuel prices are on the rise again: from $4.97 to between $5.26 and $5.31 in Zimbabwean dollars for blend and from $4.89 to between $5.07 and $5.12 in Zimbabwean dollars for diesel, says Johnson Mugiyo, a fuel attendant at a garage in Bulawayo.
Mnangagwa’s price hike in January was meant to stabilize the country’s fuel supply, but that didn’t happen, Mugiyo says.
“We still have erratic fuel supplies,” he says.
The Zimbabwe Energy Regulatory Authority said in a statement that some fuel stations were hoarding fuel, thereby creating artificial shortages in the market.
“What we have seen is that currently there is a shortage of foreign currency even in the formal system,” says Felix Chari, an economic analyst. “Even if the government has banned the use of forex in the country, which has subdued the rate in the black market, there could be a worse shortage of fuel supplies in the future.”
Fortune Moyo in Bulawayo, Zimbabwe
While the government insists that foreign currency not be used in Zimbabwe’s open market, landlords are pushing for U.S. dollars from tenants.
Yolanda Nyati, who owns a house in Madokero, a suburb of the capital city of Harare, says she started asking for payment in U.S. dollars for a three-bedroom house at the beginning of 2019.
“I was charging $200 for rentals but the actual price should have been $350,” says Nyati. The house went for $500 when she first started renting it in 2017. But that price soon became unaffordable for renters, she says.
Now, she says, she can’t force renters to pay in anything other than the Zimbabwean currency, but she asks them to use the current exchange rate and convert that amount to U.S. dollars, which will retain their value.
Nyati says she can’t afford to take the Zimbabwean currency because her children are studying outside the country, where prices are fixed.
“We need to be obedient to the laws of this country, but at the same time does it make sense for me?” she says. “If I go to the bank and request for pocket money, rentals and fees for my children, are they going to fund me for that?”
Gamuchirai Masiyiwa in Harare, Zimbabwe
The Black Market
The money changers in the mining town of Zvishavane are still in their usual spots, but they no longer wave cash in the air like they used to. They eye potential customers and look for signs that they might be state agents on the prowl, looking for people flouting the new government guideline that forbids the use of foreign currencies.
“[The government is] just trying to instill fear,” says P., a well-known foreign currency dealer who asked that his full name not be used. “We all know this will fuel the black market and bring more forex to the black market eventually.” (Forex is an abbreviation of foreign exchange.)
He says he has fewer clients now than he did before dealing in foreign currency became illegal, but he’s optimistic that the market will stabilize.
Stephen Senzere, a foreign currency dealer who operates in Harare, the capital city, says the announcement of a Zimbabwean dollar has meant more business, not less.
“There was a large inflow of money with people coming to change money because they are panicking,” he says. “For now there is surplus foreign currency on the black market.”
Police have intensified a crackdown on foreign currency dealers, Senzere says, but it’s not a huge change. Black market exchanges have always been illegal, he says.
“This has always been happening and I do not think there will be anything more than they used to do,” he says. “It is business as usual.”
The announcement of the Zimbabwean dollar was a cause for distress for people in the pharmaceutical industry, who say serious drug shortages have already hindered medical care for people across the country.
There’s been no trading in pharmaceuticals since the announcement, says Portifa Mwendera, president of the Pharmaceutical Society of Zimbabwe.
“The effects of this lack of trade will probably be seen in the coming weeks, resulting in the further shortages of drugs on the market,” he says. “There was no notice and this was met with a lot of confusion.”
The Zimbabwean pharmaceutical industry was already indebted to suppliers in South Africa, India and China for medicines and raw materials, Mwendera says.
“Had this debt been cleared, we would have more confidence,” he says. “But now since it is not, we wonder whether this will work out.”
The Reserve Bank of Zimbabwe hasn’t communicated with Mwendera’s organization about whether there’s a government plan to assume that debt.
“We need to make sure we are at least able to restock,” he says.
Kudzai Mazvarirwofa in Harare, Zimbabwe
Brian James says he closed his poultry business early this year because his packaging supplier required him to pay in foreign currency. He wasn’t able to.
Now that it’s illegal to use foreign currency in Zimbabwe, it will be even more difficult to get it to work with suppliers outside of the country, he says.
Regulations around foreign currency are causing problems for business owners across Zimbabwe. John Chinonzwa, the owner of Penhalonga Valley Mining and Milling, located along Zimbabwe’s eastern border, says he needs mercury and cyanide for his business, but he can’t get it without foreign currency.
“Sustaining business will be a challenge,” he says.
Farmers who grow agricultural products that are exported will likely experience a delayed impact of the new regulations. James Maisiri, who owns Green Page Farm in Chipinge, a macadamia farm, says he’s still receiving U.S. dollars for deliveries for this season, but the next season will pose a problem.
“Zimdollar payment will cripple our operations,” he says.
Evidence Chenjerai in Mutare, Zimbabwe
Groceries and Basic Necessities
People who sell groceries and other necessities say their businesses are collapsing. Blessing Ndlovu sells cooking oil, flour, sugar and other cooking items, but she says she hasn’t earned a fraction of what she needs each month.
“I generally make 5,000 bonds per day,” she says, referring to bond notes that, as of Monday, were valued on the open market at 11 to $1. “I am down to about 1,000 bond within a week.”
Ndlovu says she’s decreased prices from 115 bond notes ($10) for a 20 kilogram case of sugar to 90 bond notes ($8). Cooking oil, too, has gone down, from 25 bond notes ($2) to 18 bond notes ($1.60).
She says she used the last of her foreign currency – South African rand – to stock up on rice.
Zimbabwe offers very little by way of a wholesale market, which means that nearly every basic good is imported. That requires foreign currency.
Sylvia Choruwa owns a chain of stores that sell hardware, clothing and furniture. She says the switch to a Zimbabwean dollar has caused chaos for her chain. There’s no way to stock her stores if she doesn’t have foreign currency, she says.
“How do you go to sleep and wake up to find a new law that affects your business?” she asks.
Vimbai Chinembiri in Zvishavane, Zimbabwe