Zimbabwe’s currency woes continue

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By Financial Mail

After a month-long run on Zimbabwe’s petrol stations, there seems to be more fuel available in Harare this week. The queues have tapered off — but not everyone believes the supply is now reliable.

Fuel — 120Ml is imported by the government every month — is a central supply concern, given the foreign currency crisis. As a result, some Mercedes-Benzes seem to be constantly queuing at the pumps. The drivers all say the same thing: their employers don’t trust the stability of the fuel supply, so they will be filling up as often as possible.

Demand has been pushed up by informal traders who sell fuel across the borders. At $1.41 a litre when paid for electronically, fuel in Zimbabwe is at least two-thirds cheaper than in Mozambique, Zambia and Botswana.

“We did well in Mutare [southeastern Zimbabwe] … Our fuel is much cheaper, so we sold via the mountains into Mozambique,” says a small-scale fuel trader.

According to energy minister Joram Gumbo, fuel consumption doubled for a 10-day period after the panic began on October 5. In the nick of time late last month, the government was able to secure a loan from its international supplier for six months’ fuel.

Reforms announced by new finance minister Mthuli Ncube early last month unleashed the buying frenzy for fuel and other items. In addition to a 2% tax on cash transfers above $10, Ncube announced the separation of foreign currency accounts, for those who trade in international money, and local accounts.

Pick n Pay in Zimbabwe usually carries more hard-to-find products than other supermarket chains, but this week several of its stores had neither cooking oil nor sugar on their shelves.

“Don’t despair,” said a shopper pushing a huge trolley, “there is a new consignment of smoked salmon today.” And near the bread counter, black forest cake was available in abundance.

The price of bread is up about 30% since late October, and shoppers are limited to two loaves each. And the cost of everyday groceries has risen about 20%-40%.

Pick n Pay, with its local partner TM Supermarkets, is Zimbabwe’s largest supermarket chain. But it is under strain, insiders say — not only due to stock issues, but pricing concerns as well. No-one is sure what is going to happen to the value of local money against the US dollar. Given that Zimbabwe imports about 70% of its groceries, it’s a large concern.

The health-care sector is also affected. Zimbabwe spends at least $12m a month on imported medications, and is said to owe suppliers $30m. Those in need of medication find that the drugs are either not available or pharmacies — in Harare, at least — will only accept US dollars. Other retailers are trying to work around the issue. A boutique chocolate shop in the upmarket Village Walk centre marks two prices on its products, one in physical dollars and the other in electronic dollars or bond notes. So a 50g bar of chocolate costs $1 if you pay cash, but $3 if you pay by “swipe” (debit card) or EcoCash.

The government says all dollar values — for US currency, mobile money, swipe or bond note — are equivalent, but this is not so in practice. Since the peak of the latest crisis, the rate has settled at three to four electronic dollars or bond-note dollars to every dollar of hard cash. That’s more than double the rate a month ago.

And insiders say it may rise again at the end of the month, when Ncube delivers his national budget.

When Ncube announced his reforms last month, people who remembered the 2008 hyperinflation crash wanted to spend as much as possible before their cash or the goods — or both — disappeared. During the 2008 crash, Zimbabwe dollars were rendered worthless and foreign currency accounts were pillaged by the then central bank governor Gideon Gono.

Clearly Ncube is trying to avoid this, but money traders and bankers say they don’t know if it is possible. They say Zimbabwe simply does not have the foreign currency to meet payments made electronically.

Central bank governor John Mangudya said at an emergency meeting last week that Zimbabwe had $9.5bn in electronic funds but only $200,000 in dollar bills. Some bankers have expressed surprise at those figures; they say the banks have a combined total of $50m in physical money. That’s still a far cry from the $360m that was available ahead of the 2013 elections.

Then there’s the $2bn budget deficit. Ncube is hoping the 2% tax on transfers will bring in about $700m within a year. By next week — a month since he introduced the tax — there should be some indication of whether this will ease the deficit.