ZiG Currency a Major Obstacle to Zimbabwe’s Retail Sector Growth – Report

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A recent report from research and stockbroking firm IH Securities has highlighted Zimbabwe’s new ZWG currency as the primary factor hindering the smooth functioning of the country’s retail sector. According to the report, titled Zimbabwe Equity Strategy November 2024, the currency’s instability has created a challenging environment for consumer-focused businesses.

The ZWG currency, introduced on April 5, 2024, was marketed by the Reserve Bank of Zimbabwe (RBZ) as a sustainable solution to Zimbabwe’s currency issues. The central bank claimed the new unit was backed by the country’s reserves of gold and other precious minerals, with the expectation that this would stabilize its value.

However, the currency’s value has plummeted, with the RBZ recently approving a 43% devaluation amid ongoing measures to restore stability. The bank’s governor, Dr. John Mushayavanhu, initially projected that the ZWG currency would strengthen, yet it has struggled against inflation and market pressure.

IH Securities’ report identified several factors that have strained Zimbabwe’s retail sector in 2024. These included the ZWG currency’s volatility, the implementation of stricter market regulations, and the elimination of the 10% trading margin on the exchange rate. The report pointed out that policy inconsistency had heightened risks, particularly for businesses reliant on consumer spending.

“Key factors affecting retail in 2024 included the introduction of the ZiG currency, stricter market regulations, and the removal of the 10% trading margin on the exchange rate. Policy volatility has created risks for businesses, especially in consumer-facing sectors. Fiscal changes in 2024, such as limiting VAT exemptions to certain categories, have increased costs,” IH Securities said.

The report also highlighted specific impacts on companies in the sector. National Foods reported a 3% cost increase on staple products like maize and flour due to changes in VAT exemptions. Delta Corporation, meanwhile, incurred an additional US$46.3 million in costs from the new sugar tax imposed on beverages.

Despite challenges, the consumer sector has shown signs of resilience. IH Securities noted that recent financial reports from key players in the industry reflected growth in sales volumes. This trend persisted even as Zimbabwe faced a tightening consumer market due to the El Niño-induced drought, which has strained agricultural production.

Looking ahead, the report suggested that ongoing investments in capacity upgrades within Zimbabwe’s retail and consumer goods sectors could support future volume performance. However, IH Securities warned that sustained policy stability would be essential to maintaining this growth trajectory amidst economic uncertainties.