As everyone knows the RTGS to USD rate fell in the month of August. When August began the rate was around the all-important $1 000 ZWL per 1 USD mark. Then the government put a freeze on RTGS payments to contractors and that put a squeeze on the amount of RTGS in circulation. Stree dealers are now paying only around $750 ZWL per 1 USD. Despite all this, a lot of informal traders and shops are still using a rate of $1 000 ZWL (RTGS) per 1 USD when getting paid using swipe or ZIPIT and $800 ZWL per 1 USD when accepting cash payments. You only need to visit a pharmacy or downtown tuckshop to see this alternative reality.
During our most recent survey, we noticed the following:
- We visited about ten pharmacies in various neighbourhoods and in the CBD. We made sure they were owned by different people to make sure this was not an issue of bias. We got the following quotes for various medicines:
- All the pharmacies were asking for $1 000 ZWL for 30 cotrimoxazole, aspirin or paracetamol tablets which were selling for 1 USD
- 100 ml of betadine solution was going for $2 000 ZWL and US$2. The mouthwash version was going for $6 000 ZWL and US$6 respectively.
- 30 Nifedipine tablets were going for US$4 and $4 000 ZWL
- We could go on but you probably get the picture. Pharmacies are using a universal rate of $1 000 ZWL. Even those with government links.
- For downtown shops, kombis, Mbare traders and mushikashika lifts the rate is now $800 ZWL if you are paying using cash. At Mbare Musika things were very clear. If you bought a US$0.50 item using a US$1 note or similar you will get $400 ZWL cash for the 50 cents portion of your change. The traders would also demand $800 ZWL cash per 1 USD or a fraction thereof. Mushikashika and kombi drivers however like to skew the scale and cheat their passengers. They demand $400 ZWL for $0.50 but if you pay them using a US$1 note they return $300 ZWL date which means when they pay you the rate is $700 ZWL but when you pay them the rate is $800 ZWL. They are probably pocketing the change. Traders in the informal sector have also now adopted this rate. of $800 ZWL without the deceit of course.
Things are a little murky with formal traders
Even though the government likes to ignore the informal sector in Zimbabwe it is the largest sector of the economy. These days even the formal sector takes its cues from the informal sector. In our detailed analysis of pricing structures in the formal sector, we noticed that things were a little mixed. There were some shops that seemed to be using rates of around $800 ZWL (RTGS) to set their prices while others have stuck with a rate of $1 000 ZWL while they take a wait-and-see approach. In some shops, we could deduce that various rates were used depending on the item in question. That makes sense as various suppliers have different costs and overheads which react differently to short-term movements in the rate.
In general, we noted the following:
- For items that have a long production cycle and shelf life, the rate is firmly set at $1 000 ZWL. We are talking about items like TVs and other electronic gadgets that stay on the shelves for a long time. They were probably purchased for resale when the rate was higher or shops anticipate that the lull in the rate is artificial and shot term not to warrant an adjustment of this rate. They would rather you pay in USD and get a secret discount than sell at the new lower rate which they figure is temporary.
- Items that have a short production cycle such as perishables are now selling at a rate of $800 ZWL to 1 USD because their cycle has probably been influenced by the fall in rates.
NB The last reason is why bread is selling for $750 ZWL (approximately US$1) and TVs are still using a higher rate. That probably will not change in the short term no matter how the government wishes for it to happen.
Why are shops doing this? It’s all part of the costing cycle. There is always a lag time between when the rate falls and when there is an impact on the selling or production cycles of business. Businesses in a turbulent economy like Zimbabwe are programmed to think in terms of costs and markup. They make sure whatever price they charge will allow them to recoup all costs expended as well as get them the lowest acceptable markup profit to cover other costs. They do not charge high rates out of malice but rather to survive. They are well aware that Zimbabweans have less money to spend but they cannot yet make some adjustments to their rates without incurring massive losses or running a real risk of incurring these losses.
The second reason is that most businesses are taking a wait-and-see approach. They are sceptical that this stability in rates will last. The result is a self-fulfilling process where the government has to keep their feet on the brake longer in order to elicit a response from shops. Shops were more responsive to a fall in rates in the past but thanks to the government taking their foot on the money pedal as soon as this happened the rate would rise sharply soon after resulting in some businesses making losses in the immediate aftermath.
It’s not all doom and gloom
As we will fully explore in the coming article, it is not all doom and gloom. There are some positives brought about by stability in rates. Not least of which is the fact that we can actually plan using ZWL now. You know the price is not going to change in ZWL terms. This allows civil servants the largest employed contingent of people to actually feed their families without having to worry about daily rate movements. Then there is also the fact that more people are now accepting RTGS now than in July. We could actually buy medicine using swipe in August. In July we were turned away by various pharmacies that had not even bothered to power up their swipe machines.
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