During the last few days, there has been a surge in USD prices in most shops especially big retail chains, formal hardware stores, LP gas retailers and many others. RTGS prices have however remained the same causing confusion among most people. The changes can easily be explained by the new law, Statutory Instrument 127 of 2021 which compels businesses to use the official rate when setting prices in ZWL and USD.
Prior to the release of the law, most businesses would simply offer a USD discount. The truth is most prices you see in large shops such as OK and others are based on USD base prices. Shops have secretly adopted the USD as their operating currency mainly because of its stability and the fact that it’s the currency they use when importing goods for resale.. However, according to the law including Statutory Instrument 85 of 2020, the operating currency for Zimbabwe is the Zimbabwe dollar.
So this is how the prices of items are derived in ZWL:
Price (in USD) * Black Market Rate (e.g. 130) = ZWL price you see in shops.
An example using cooking oil
Let us take an example of cooking oil. Whether it is imported from South Africa or manufactured here in Zimbabwe using imported raw materials it’s base cost is in USD. The accountants who do the costing calculations within the organisations do so using USD prices. The price is then converted to ZWL using the prevailing black market rate which the organisation has chosen.
For a 2 litre bottle, the landing price of an imported bottle is around US$3.00. The cost of manufacturing a local bottle of cooking oil is just about the same. Most organisations have a mark up of about 10%-15%. This means that they add a profit of 10%-15% on top of the total cost. This results in an average selling price of about US$3.45 for a 2 litre of cooking oil. That price is then converted to ZWL:
3.45*120=$415 ZWL. If you go into supermarkets this is the ZWL price you see.
Prior to the new law, businesses would simply charge you US$3.45 for the bottle. To make it seem like they were using the official rate they would first convert the price back to USD using the official rate which is currently about 85 ZWL as to 1 USD:
415/85
$4.883
This would yield a USD price of US$4.88. Now that is very expensive for a bottle of cooking oil. USD customers will simply buy from outside sellers who have no qualms about breaking the law and use black market rates when charging prices. To prevent this and offer a competitive price formal shops often come up with a discount that will allow them to offer prices that match those of informal retailers and closely match their actual secret USD price. This discount is calculated using the formula:
(4.88-3.45)/4.15
=0.2930
That roughly translates to a discount rate of 30%. The business in question will start selling their cooking oil in ZWL at $415 ZWL and in USD at US$4.88 but they will offer a discout of 30% on all USD sales which will see you paying US$3.45 which is close to the internal USD price. Now that the government has outlawed discounts businesses have no choice but to display that price of US$4.88 giving the impression that prices have gone up when this is not the case.
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