After sleeping for two weeks it seems black market rates have been roused from their deep slumber. They passed the $19 ZWL mark for the first time in more than two weeks after the government successfully pummelled and cudgelled the market into submission.

Over two weeks ago the rate fell when accounts of suspected big players were frozen. Unlike the first time, this happened the rate didn’t fall so hard prompting the Reserve Bank to take the drastic measures of freezing mobile money platforms such as Ecocash effectively stopping the nation dead in its financial tracks.

However even after the bank on cashin and cashout were lifted, the rate continued to fall. On the other hand, prices continued to soar in shops. In one week prices of items rose by 300% despite the rate falling.

The government fails to make prices fall

For some strange reason despite some muted saying #pricesmustfall the government never made a concerted effort to induce or encourage businesses to reduce prices. In fact, despite passing laws preventing others from doing so, the government continues to use the USD prices as a base for some critical items such as fuel and now electricity.

These items have constantly been adjusted to make sure they are on par with regional prices. This has prompted businesses to make their own adjustments to make sure they keep up with these changes in operational costs.

The result is that prices have been on a constant upward trend. Given the fact that a lot of the foreign currency coming into Zimbabwe is from remittances we think the following happened:

  • The majority of remittances come from South Africa, the region’s powerhouse and home to over 3 million Zimbabweans
  • These people are used to their foreign currency having a certain purchasing power parity (value of money). A 2kg of Surf costs R34 in South Africa, roughly $34 RTGS, here a mere KG is going for $104 more than six times the price! Faced with this, people probably started sending groceries instead of money
  • Also with the rate going low, Zimbabweans started vacuuming it all up and importing instead of paying the local shops.

The end result is even less foreign currency on the local market. Remember the rate was artificially low due to government intervention. Current shortages of fuel show that supply still outstrips demand even now.

As we have been saying again and again. The government need to seriously look into boosting local production and make sure that it is efficient. Right now a lot of locally made products such as cooking oil still cost more than imported products even after these companies have received government support when sourcing foreign currency.

That points to inefficiency in the production process. As the government has been saying, some busineses are still hung over from the USD era when they made large profit margins.

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