Zimbabwe’s business landscape has seen another twist with the introduction of Statutory Instrument (SI) 81A of 2024. The new law aims to enforce the use of the daily interbank rate set by the Reserve Bank of Zimbabwe (RBZ) for all business transactions. This has caused a stir, particularly concerning its potential impact.

What the Law Does

SI 81A amends the Exchange Control Act, essentially prohibiting businesses from using any rate other than the interbank rate. This effectively throws out the previous 10% rule that allowed businesses to set prices slightly above the official rate.

The law amends the Exchange Control Act [Chapter 9:23] by inserting a rule that prohibits businesses in Zimbabwe from using any rate other than the interbank rate when setting their prices:

(12) A Natural or legal person shall be guilty of a civil infringement if he or she, being a seller of goods or services, offers such goods or services at an exchange rate above the prevailing average interbank foreign currency selling rate published by the Reserve Bank of Zimbabwe

The government’s intention is clear: to stop businesses from exploiting the old 10% rule. Shops like TM Pick N Pay and OK Supermarket were using a rate of US$1:14.50 when the official rate was about 10% lower. So, what are the likely effects of these new provisions?

Probable Consequences of the New Law

This law is not unprecedented; the government has implemented similar measures numerous times over the past two decades, allowing us to anticipate the likely outcomes:

Formal Businesses in a Bind: We can expect formal businesses to comply, adopting the interbank rate relatively quickly. However, this might lead to price hikes in US dollars to offset losses incurred when selling using ZiG. This could push customers towards informal traders (tuckshops) offering lower USD prices.
Informal Sector Unfazed: Tuckshops, a mainstay of the informal economy, are unlikely to be swayed by the new law. They often operate outside the formal banking system and have a history of disregarding regulations. They’ll likely continue demanding premiums for accepting ZiG, potentially as high as 50% above the official rate.
Footfall Decline in Shops: The price hikes in formal stores could lead to a significant drop in customer traffic, with many opting for the lower USD prices offered by tuckshops.
Shifting Loyalties: Formal shops might struggle to stock coveted essentials like cooking oil and mealie-meal. Manufacturers may prioritise supplying tuckshops due to faster and more flexible payment terms, often in USD, unlike the fluctuating ZiG rates offered by supermarkets.
Black Market Boom: With supermarkets receiving less USD cash, black market traders near these shops could see a surge in business as they offer more competitive rates.

The Underlying Issue

The core problem lies in the very foundation of the interbank rate. It’s determined by foreign currency trade between banks and authorised dealers, which doesn’t reflect the reality of Zimbabwe’s economy. The informal market, estimated to be 80% of the economy, dictates the actual exchange rate for most people. Limited access to formal banking, a lack of foreign currency on the official market, and strict RBZ regulations all push people towards informal channels.

The unfairness of SI 81A of 2024 is that even banks do not sell foreign currency at the interbank rate. Worldwide, central banks do not dictate the rates businesses should use, as the forces of supply and demand determine the actual rate each business utilises. For example, Stripe, PayPal, and other fintechs all use slightly different rates due to factors like varying cost structures and the cost of acquiring foreign currency.

Eventually, the Zimbabwean government will likely learn and relent, as economic principles are stubborn; not even bombastic speeches or threats of force can defeat them. History shows that sooner or later, the government will do the right thing and give businesses the leeway they need. We can only hope that whatever damage has been done will still be fixable.