daniel chigunwe
Economy Uncensored with Tapiwanashe Mangwiro
In the intricate dance between manufacturers, retailers and financial institutions, the local retail sector has recently found itself an unwilling mouthpiece for the deeper struggles faced by manufacturers.
At the heart of this issue lies a policy, long a point of contention, which mandates that companies with foreign currency balances in their nostro accounts must first exhaust these funds before they can access foreign currency through banks.
This law, aimed at bolstering the country’s savings culture in local currency, has created a financial deadlock that is now being felt throughout the supply chain, with retailers becoming the visible face of a broader economic struggle.
Nostro Accounts: A Barrier to Long-Term Planning
For manufacturers, the policy governing nostro balances has proven to be more than a mere hurdle; it has become an existential threat to their ability to plan for the future. Nostro accounts, which are essentially foreign currency accounts held at a domestic bank but denominated in a foreign currency, are pivotal for any company involved in international trade.
Zimbabwean manufacturers, reliant on importing raw materials and machinery, need consistent and reliable access to foreign currency. Yet, the law requires that they first deplete their nostro accounts before they can apply for additional forex, creating uncertainty and limiting their capacity for long-term planning.
Manufacturers argue that this policy, while perhaps rooted in a desire to promote prudence and a national savings culture, prevents them from making strategic financial decisions that could safeguard their businesses in a volatile economy.
The Confederation of Zimbabwe Industries (CZI) has consistently pushed for reforms, seeking better access to foreign currency at formal rates through the banking system.
However, despite numerous discussions, the authorities have been resistant to change, citing the need to increase Zimbabwe’s international reserves and encourage firms to manage their foreign currency inflows more effectively.
Squeezing Retailers: Manufacturers’ Response to the Forex Challenge
Faced with the deadlock, manufacturers have increasingly turned to retailers as a pressure point.
Unable to secure foreign currency at official rates and unwilling to see their margins eroded by sourcing forex on the parallel market, manufacturers have shifted their pricing strategies in ways that have caused significant strain on retailers.
Two key strategies have emerged: pricing goods exclusively in US dollars or charging prices indexed to the parallel market rate with a premium.
This pricing dynamic places retailers in an untenable position. On one hand, they must sell goods at prices accessible to consumers, many of whom are paid in the local Zimbabwean dollar (ZiG).
On the other hand, they face the daunting task of replacing stock at higher prices due to the need to purchase foreign currency on the black market. The disparity between the official exchange rate and the parallel market rate, which can differ by up to 30 percent, means that retailers are increasingly selling at a loss.
Retailers Call for Help: A Symptom of a Larger Issue
In recent days, the Confederation of Zimbabwe Retailers (CZR) and the Retailers Association of Zimbabwe (RAZ) have issued statements decrying the losses they are incurring as a result of these distorted pricing structures.
Both organisations highlighted that their members are being forced to buy from manufacturers who are pricing goods in US dollars or at parallel market rates, while retailers are expected to sell at official rates. The financial strain is so acute that many small retailers are reportedly on the brink of collapse.
The CZR and RAZ have been clear in their message: retailers are not the cause of the forex crisis, but they are becoming the casualties.
The retailers’ pleas for intervention reveal the extent to which manufacturers are using them as leverage in their negotiations with the Government.
Retailers have become the public face of a problem that originated further up the supply chain, with manufacturers essentially using them as intermediaries in their struggle to secure fairer access to foreign currency.
Manufacturers’ Endgame: A Forced Sit-Down with Authorities?
The actions taken by manufacturers can be seen as a calculated move to force a broader conversation on the nostro account issue.
By squeezing retailers, manufacturers are indirectly applying pressure on the authorities, who must now contend with a retail sector in crisis. This, in turn, may bring the Government to the negotiating table, as the economic stability of the country’s retail sector is critical to maintaining public confidence in the broader economy.
Manufacturers argue that their pricing strategies are not only a response to the forex shortage but also a necessary safeguard against economic uncertainty.
With Zimbabwe’s inflation rate remaining volatile and the value of the local currency under constant pressure, manufacturers face real risks in pricing their goods in Zimbabwean dollars.
The parallel market offers them a more reliable mechanism to ensure they can afford future imports, but at the cost of placing the financial burden on retailers and ultimately, consumers.
A Delicate Balance: Currency Stability vs. Business Viability
At the heart of the matter is a broader economic conundrum: how to balance the need for currency stability and savings with the realities of running a business in an economy that relies heavily on imports.
The Zimbabwean Government, through the Reserve Bank of Zimbabwe (RBZ), has been steadfast in its insistence that the nostro account policy is essential to building a sustainable foreign currency reserves base.
Officials argue that allowing firms to bypass their nostro balances in favour of immediate access to bank-sourced forex would erode Zimbabwe’s limited forex reserves and encourage speculative currency practices.
However, the fear among manufacturers is that this policy echoes past mistakes, when firms were left unable to access foreign currency at critical moments, leading to the collapse of businesses and severe economic contraction.
The lack of flexibility in the current forex regime has led many businesses to worry that they are being set up for failure, particularly in an economy where currency values fluctuate unpredictably.
Conclusion: Retailers as Collateral Damage
In the tug of war between manufacturers and the Government, retailers have become the collateral damage. As they struggle to navigate pricing structures that reflect the uncertainties of Zimbabwe’s parallel market, their pleas for intervention highlight the broader economic dysfunction at play.
The current forex policy, while designed to promote long-term savings and stability, is creating short-term pain across the supply chain.
Ultimately, the question remains: how long can this situation persist before the Government is forced to intervene? With manufacturers digging in their heels and retailers crying out for relief, it seems inevitable that a reckoning will come.
Whether that reckoning leads to a revision of the nostro account policy or a further entrenchment of parallel market practices will shape the future of Zimbabwe’s retail and manufacturing sectors for years to come.
Tapiwanashe Mangwiro is a resident economist with the Business Weekly and writes this in his own capacity. @willoe_tee on twitter and Tapiwanashe Willoe Mangwiro on LinkedIn
Bongani Ndlovu