Exchange controls squeeze retailers

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ZIMBABWE’S formal retail sector is teetering on the brink as stringent currency controls hamper competitiveness and drive consumers towards the burgeoning informal market.
The crux of the issue lies in the in-store “willing buyer-willing seller” exchange rate, currently set at 10 percent above the central bank’s auction rate.
Retailers argue this “artificially inflated” rate puts them at a significant disadvantage compared to informal players operating outside the regulated system.
“On its own, the use of the official rate is not a bone of contention, but its valuation of the local currency unit lags so much behind the open market that it creates distortions and opportunities for arbitrage by various economic players,” OK Zimbabwe chief executive, Maxen Karombo, said.
“The 10 percent cap or limit on what a formal retailer can use in translating Zimdollar into US dollar prices results in unnecessarily expensive US dollar prices, thereby driving inflation higher.

“It can therefore be argued that the single major contributing factor to the increased informalisation of the retail sector is the policy, which is only applied at the end of a product’s value chain and not the whole chain,” Karombo added.
Meikles, operator of Pick n Pay stores, paints a dire picture.

The retail chain’s foreign currency revenue barely touches 20 percent, falling far short of the broader economy’s 80 percent average, as reported by ZimStat, according to the company’s latest update.
“This creates ongoing supply chain challenges as suppliers are invoicing in US$ and prefer settlement in US dollar,” Meikles said.
President of the Confederation of Zimbabwe Retailers, Denford Mutashu, echoed the urgency for policy change.
“Many formal retailers are on the brink of collapse,” he warned, urging the government to revise or even scrap the policy altogether.
Adding to the chorus of dissent, both the central bank and the industry ministry have criticised the policy’s detrimental effect.
Outgoing Reserve Bank governor John Mangudya advocated for scrapping the 10 percent margin above the interbank rate, while Industry minister Sithembiso Nyoni condemned its inflationary impact on dollar terms.
The consequences are stark. Major basic commodities have seen their informal market share skyrocket from 20 percent pre-pandemic to well above 80 percent now, according to industry estimates.
This seismic shift has wrought havoc on formal retailers as sales volume is estimated to be 45 percent lower than pre-pandemic levels.
Job losses are mounting, with over 1 000 employees already furloughed across the sector since mid-2023.
Store closures and business exits are also common, with major brands Truworths and Metro Peech among the casualties.
The government’s attempt to level the playing field by bringing the informal sector into the country’s tax net through new trade regulations has been widely criticised with experts warning that it could smother economic activity and push the formal economy further underground.
Analysts, however, see hope in highlighting the advantages of formal retail ― guaranteed quality, pleasant shopping environments, traceable transactions, wider product range, and efficient cold chain logistics.
These, they argue, have become crucial differentiators in a market increasingly defined by dollarisation disparities.