Amid currency crisis, Zimbabwe’s government intervenes to stop local brewer Delta Corporation’s plan to only accept payments in US dollars. The U turn is symptomatic of a dead end currency policy with no resolution in sight.
Zimbabwe’s largest brewery, Delta Corporation, has abandoned plans to only accept US dollars for payments. The company, which is 40% owned by Anheuser-Busch Inbev came under pressure from the government to adopt the existing national plans. The move means that in Zimbabwe Delta Corporation will continue to suffer shortages in products as it cannot pay for some raw materials. The government has intervened to stop other companies following suit, but there is no end in sight for a problem that has been ongoing since September.
Inflation in Zimbabwe reached 31% in November as the country struggled to get to grips with its currency crisis. The surge in prices has been exacerbated by panic buying, shortages and what is seen by many analysts as an ill thought out fiscal policy. Since coming to power in a coup in 2017 (and subsequently re-election at the the general election in July 2018, President Emmerson Mnangagwa has declared that Zimbabwe is “open for business.” But in October Zimbabwe’s reserve bank ordered banks to separate dollars and the digital Zollars in customer accounts, leading to panic among investors and consumers alike.
Zimbabwe has officially been a multicurrency economy since 2008 althoguh the US dollar was introduced as the anchor currency during the inception of the unity government in 2009. But there are now effectively five currencies in use, each of which has a different value. Most Zimbabweans earn salaries through what is called the Real Time Gross Settlement (RTGS) system. The Zimbabwean government policy is that bond notes and RTGS system trade at a par with the United States dollar. In reality, however, the US dollar is worth three times as much. To further increase access, consumers can use RTGS through mobile money service EcoCash.
The problem for major manufacturers and retailers is that when they import product or materials they have to spend US dollars (i.e. hard currency). But they are typically paid in digital Zollars or ‘bond notes’. The government began issuing these bond notes in 2016 to ease a shortage of cash. They were intended to trade 1:1 with the dollar, but devalued sharply on the unofficial market (and have since devalued further as the government has indicated it may abandon them).
For consumers, the issues are equally bleak. Fundamentally, they do not trust the government to safeguard their savings or allow them access to their hard currency held in Zimbabwean bank accounts – all of which means that physical US dollars attract a premium (and that consumers stockpile dollars). On top of that they face a bewildering situation in which depending on how what currency they use to pay for goods and services, the price will be different. Even transactions using RTGS and EcoCash, for example, attract different tax rates from one another.
For now, the Zimbabwean government is sticking to its current policy. But calls are growing to revert back to using the US dollar as the anchor currency. Left unchanged, the situation will get worse as companies will struggle for forex and foreign investment will dry up because no investor wants to put hard currency in and see it devalue instantly.
