HARARE – October temperatures start to climb early in Harare, but by noon beverages vendor Davis Kugara is already counting his losses for the day.
One after the other, many of his potential customers are walking away from his mobile stall on a busy side street just outside the central business district of Zimbabwe’s capital. He sells carbonated soft drinks for Barun Beverages, the licensed manufacturer of Pepsi in Zimbabwe.
Across the street is another vendor, whose cooler boxes are emblazoned with brands for Coca-Cola soft drinks.
Under normal circumstances, bottled water and soft drinks are fast sellers this time of year. But for Kugara and other vendors in Harare, there is a new headache – there aren’t enough Zimdollar bills to give out as change to those buying using US$1 bills, the common unit of exchange in Zimbabwe.
“Business is not good these days despite the heat which usually means brisk business for bottled water and cold drinks. We do not have Zimdollars to give customers who are buying using US dollars and need change in local currency,” Kugara said, frustration written all over his face.
It’s not just the Harare vendors who have run out of Zimdollar notes to give out as change. Even the currency traders on the streets of Harare say they may go out of business as they are unable to secure the notes.
At the public taxis, Zimdollar notes are also proving hard to come by. And at the shops, supermarkets and fast-food restaurants, sales are increasingly in US dollars.
These are the unintended consequences of Finance Minister Mthuli Ncube’s measures to fight inflation and currency weakness. There’s a shortage of Zimdollars as the central bank reined in the printing of money and hiked interest rates to 200%, while government has stopped paying suppliers. This after the suppliers were accused of “forward-pricing” and using inflated local exchange rates.
This has shrunk the amount of Zimdollar notes in the economy and staved off speculative borrowing for currency trade purposes.
Economist Brains Muchemwa said lending rates at 200% “in the face of stable exchange rate and scarce [local currency] will kill many businesses” in Zimbabwe.
But the Reserve Bank of Zimbabwe (RBZ) this week vowed to maintain a “tight monetary policy stance” that it is hoping will be “buttressed by continuous fiscal prudence” to fight inflation.
Zimbabwe’s yearly inflation remains elevated at 280% for September despite marginally falling from 285% a month earlier.
In addition, the introduction of Zimbabwean gold coins has taken some of the local currency out of the market. Some 90% of the gold coins have been bought with local currencies, analysts at Africa Risk Consulting said last week. The central bank has been using the gold coins to mop up currency in the market, analysts say.
The Zimbabwean central bank said a total of 9 516 gold coins valued at ZW$9 billion had been sold as at 23 September 2022, with 35% having been sold to individuals and 65% to corporates, including asset management and insurance entities.
Together with the stopping of payments to government suppliers, this has starved the local market of liquidity, resulting in the parallel market exchange rate also stagnating at $1:ZWL700. The official exchange rate has almost converged with the street rate as it is currently pegged at $1:ZWL620.
Although President Emerson Mnangagwa’s government is touting the tight money supply situation as evidence of stability, businesses and consumers are feeling the pinch.
For Zimbabwe Stock Exchange listed consumer goods, and distribution company Bridgefort Capital, the monetary measures have resulted in the business “experiencing delays in payments” of up to a month from retailers.
“The policy interventions, apparently to protect the Zimbabwe Dollar, have resulted in such tight liquidity that the use of ZWL has decreased while more transactions are taking place in USD making the ZWL less relevant for many businesses, which is leading to further dollarisation of the economy,” Sithulisiwe Ncube, secretary for Bridgefort Capital, said on Friday.