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The decision by Delta Corporation to charge its products in RTGS dollars lends credence to Finance and Economic Development Minister Mthuli Ncube’s argument that an efficient interbank market can resolve the country’s challenges around pricing instability.
Minister Mthuli is on record saying the inflationary pressures ravaging the economy are a result of pass through effects of currency premiums of foreign currency various economic agents purchase on the parallel market due to limitations in formal markets.
He said normalcy should return to the pricing models across the economy once the interbank foreign currency market, introduced by the Reserve Bank in March this year, becomes the main source of forex for businesses that need to import or support production.
This also comes after Government said it had secured a US$500 million external line of credit, on which drawdowns have started to be used to support efficient functioning of the interbank market in providing foreign currency to key productive sectors of the economy.
It therefore goes without saying that an efficiently functioning interbank market should become the go-to place for procurement of foreign currency by formal businesses, especially those that import key products to support production or for consumption.
The Finance Minister also correctly pointed out that pricing models in the country were now linked, and unjustifiably so, to the dynamics on the parallel market for foreign exchange, which at times see slight rate fluctuations prompting double increases in prices of products, especially basic goods and putting them beyond the reach of many.
Delta issued a statement on Tuesday, indicating that it will now charge for all its products in local currency, RTGS dollars, following significant improvement in accessibility of foreign currency on the interbank market, which is the right thing to do. Prior to that, Delta would ask its customers to make part payment or deposit in foreign currency and the other balance in RTGS dollars, as it sought to mobilise the requisite foreign currency it requires to finance importation of key production raw materials.
This promoted market discipline, as retailers would use that requirement as justification to charge outrageous prices for virtually all Delta manufactured products.
Some of Delta Corporation’s products had been in limited supply while in other instances the country’s largest beverages manufacturer had actually stopped production citing challenges accessing foreign currency it needs to import key raw materials.
In fact, Delta stopped production of sparkling beverages for three months to March 2019, due unavailability of foreign currency, negatively impacting on volumes, but said on Tuesday it had resumed sales in local currency with immediate effect.
It is expected that the rest of the manufacturing industry and other economic agents will emulate the decision taken by Delta to price their products in RTGS dollars while using the interbank market to procure the foreign currency they need.
Participants on parallel markets are shadowy figures who selfishly thrive on speculation and profiteering even if this is at the expense of the generality of the country’s corporate sector, citizens and economy at large.
Many economic players who could not obtain foreign currency from the Reserve Bank of Zimbabwe, which allocated at least 30 percent of foreign currency resources in the economy, alternatively used the parallel market, where the funds are bought at huge premiums.
Whereas one can buy a unit of the greenback at 5 RTGS dollars the same unit costs a buyer on the parallel market for foreign currency between 6,5 and 9 RTGS dollars, depending whether one is using physical cash of the local currency or electronic dollars.
It is also important to note that some economists argue that current shortages of foreign currency are not necessarily because the country does not earn enough hard currency, but a reflection of inefficient allocation.
Zimbabwe demonstrated its relatively good export capacity after exporting goods worth US$4,1 billion in 2018 from US$3,5 billion in 2017, which put Zimbabwe at position 21 in Africa, where ironically country’s below it do not have similar forex issues as we have.
The disequilibrium in US dollar distribution causes significant mismatches between demand and supply, which starves certain key sub-sectors and shortages that affect the importation of critical imports such as fuel, medicines, raw materials and electricity, among others.
As such, functional interbank market will result in efficient allocation of scarce foreign currency resources to among key economic agents and the funds will be traded at market determined rates, a development that will bring predictability and stability in pricing.
It is for these reasons and others not mentioned, that all economic players in Zimbabwe should do the honourable thing of using the interbank market to get forex and price products in RTGS, which would also increase confidence in and stability of the currency.
Online Reporter