At the beginning of May, the government of Zimbabwe made a change to the way businesses are supposed to make conversations between Zimbabwean dollar prices (ZWL) and USD prices. Piro to the second week of May when president Mnangagwa announced his special economic measures, businesses were required to use the Auction rate when doing conversions between the USD and ZWL rate. A lot of formal businesses either set steep ZWL prices to comply with this order or defied the government and offered special discounts to customers who paid using USD. In our recent survey, however, we noted that a lot of formal businesses are now using the new official willing buyer willing seller rate.

The SI 127 of 2021 chaos

You see, according to various laws, businesses in Zimbabwe are supposed to display and accept both foreign currency and Zimbabwean dollars for their goods. That sounds fair, simple and sensible until you consider one thing. While they like to print money, the Zimbabwean government hates it when the rate rises unexpectedly as a result of their printing. They allegedly rigged the official rate under their famous Dutch Auction. While the market rate from which most people get their foreign currency kept rising, reflecting the rise in money supply, the official rate which businesses were mandated to use barely moved suggesting that the government had a hand in determining it. As the disparities grew wild and wide, with the official rate less than 50% of the informal rates, most businesses had tough choices to make:

  • Whether to keep using the official rate or not. Informal businesses simply ditched the official rate and adopted the informal/unofficial rates. That is a luxury that formal businesses could not afford. The Reserve Bank of Zimbabwe threatened fire and brimstone would rain on anyone who defied them. Some businesses, probably those who are affiliated to powerful political figures, defied this and openly used black market rates.
  • Most formal businesses simply chose to use the ZWL as their base currency. They would set ZWL prices secretly using black market rates. Customers would then pay these ZWL prices which if you used unofficial rates were not very different from those charged by “tuckshops” or informal businesses. Savvy black market traders would mill around the entrances of such supermarkets. They would offer to swipe at the point of sale using a very generous black market rate in exchange for USD cash. The shop gets ZWL officially but in the dead of night the black market trader would sell that USD back to the supermarket in exchange for the ZWL. In the morning the cycle would begin again. We are speaking in past tense but this is what is still happening.

Since the government announced the willing buyer willing seller rate in May we have seen a surge in businesses adopting this rate. This charge is led by supermarkets. The government said they would be allowed to charge around plus or minus 10% of the prevailing willing buyer willing seller rate of the day. This is what most supermarkets are doing. The trend is also the same with government-affiliated entities who are now using the same rate as well. So what have been the effects of these changes in terms of customer payment patterns?

  • Customers who have USD still prefer to pay either discounted USD prices or be offered a black market ZWL price instead of paying prices at the still very low official rate.
  • This means that black market dealers still buzz around supermarkets with their swipe cards offering sweet black market rates for those with USD. This means that supermarkets are still getting paid in ZWL instead of directly in USD
  • When paying government agencies like ZESA most people still convert their USD at black market rates on the black market and pay using ZWL rather than pay directly in USD at the willing buyer willing seller rate.
  • Informal businesses and other formal businesses like pharmacies where USD is critical have simply persisted with their black market rates and simply shrugged off all threats.

In conclusion, we can say that although businesses have stopped resisting the willing buyer willing seller rate, not much has changed with regards to the way people pay. Few people pay directly with USD in supermarkets. Perhaps the benefit at the moment is that through banks, supermarkets are getting slightly more USD at the willing buyer willing seller rate compared to what they were getting through the foreign currency auction. That might explain their willingness to cooperate with the government. Whatever shortfalls they have are naturally filled by buying from the black market as always. If there is an increase in USD obtained at willing buyer willing seller rates to businesses, this has not been reflected in prices with supermarket prices much higher than “tuckshop prices.”