tawandamusarurwa
Golden Sibanda
RETAILERS who took long to reduce prices in line with the appreciating Zimbabwe dollar could suffer significant losses on stocks they bought at black market-indexed exchange rates, as the authorities expect the local currency to continue firming in value.
The Zimbabwe dollar has been strengthening on both the official and black markets for weeks following Government measures in early May to tame resurgent inflationary pressures and market volatility.
After peaking at US$1:$6 926 on the official market, the Zimbabwe dollar was changing hands at US$1:$4 572 by Thursday last week.
Similarly, the parallel market exchange rate, which shot above US$1:$9 000 in April, has since declined to between US$1:$6 000 and US$1:$7 500.
The introduction of the Reserve Bank of Zimbabwe wholesale foreign currency market for banks means most businesses no longer need to get their forex from the parallel market.
In a recent interview with The Sunday Mail, Permanent Secretary in the Ministry of Finance and Economic Development Mr George Guvamatanga said traders who have been sitting on the fence, anticipating the situation to unravel, were likely to suffer huge losses.
Prices of goods and services have since started to decline, but the reductions have been slow and measured.
Had they proactively slashed their prices in line with market developments, it is believed, retailers would have avoided the magnitude of losses they are now likely to incur if the Zimdollar continues to gain in value, particularly for stock that was purchased at black market-indexed prices.
“One of the problems we have in Zimbabwe is that we have chief executive officers and finance directors who are running companies and have never experienced a strengthening currency,” said Mr Guvamatanga.
“They do not have the necessary experience; they do not know what to do. They are used to one-way pricing . . .
“When they were supposed to look for the US dollars, their pricing was so wrong . . . the US dollar price was exorbitant such that no one bought from them.
“When they were supposed to look
for Zimbabwe dollars, they set their prices in US dollars and the prices were so high that
no one would give them their Zimbabwe dollars.
“So, they are going opposite the market; they do not know (how it is done); they have no experience or expertise. They do not know there is a thing called stop loss. Stop loss is there in treasuries because it’s known losses occur if you go to the wrong side of the market.”
This strategy — “stop loss” — is used mostly by investors or traders to limit their potential losses, especially in the stock market.
It works by automatically selling a security when its price reaches a certain level, known as the stop loss price.
This helps traders avoid larger losses if the price of the security continues to drop.
Zimbabwe National Chamber of Commerce chief executive officer Mr Takunda Mugaga said businesses that procured goods using forex bought from the black market were likely to suffer heavy losses for as long as inflation continues to decline.
The cocktail of measures introduced by the monetary and fiscal authorities to halt the loss in value of the Zimbabwe dollar included transferring external payment obligations from the central bank to Treasury and increasing the bank policy rate from 140 percent to 150 percent to prevent speculative borrowing.
Further, the Government directed all its agencies to collect fees and charges, including import duties (except for luxury goods), in the local currency.
In an interview with ZTN Prime, Confederation of Zimbabwe Retailers (CZR) president Denford Mutashu said the rate at which prices of goods and services was declining was not consistent with the pace at which the local currency was gaining value.
“What we are doing is to engage with the value chain players along the retail sector and back to suppliers so that the stability that the country enjoys today cannot go to waste,” he said.
“In any case, what we have seen, it’s a matter of weeks, we will see a lot of competition among the big players trying to lure customers because volumes, where prices have not rapidly come down, have been shrinking quite rapidly.
“Most consumers are now aware of where to shop and this is quite key; this is the beauty of competition. The competition will teach you lessons.”
CZR, he said, expected to see a sustained downward movement of prices, in line with the appreciation of the Zimbabwe dollar.
“Yes, the stability in the exchange rate is quite key . . . all economic indicators have shown that there is stability in the economy, and it is the stability that we all sought.
“So, now that stability is there, no one should be left behind; if you sleep on the job and not move with the tide, certainly, you may punish your organisation or your business.”
Tinaye Agere
Online Reporter