The Sunday News
Vusumuzi Dube and Robin Muchetu Sunday News Reporters
THE weakening of the South African rand against the United States dollar and the use of bond coins, introduced in December 2014, will see prices of commodities and a number of services in Zimbabwe continue to get cheaper amid projections that the trend is likely to continue next year. According to a snap survey conducted by Sunday News, commodities like cornflakes (500g) dropped from $2,65 to $1,99, cooking oil dropped from $2,87 to $2,75, powdered milk dropped from $3,99 to $3,45 and 2kg chicken mixed portions dropped from $6,50 to $4,99, following a much publicised drop in bread prices from $1 to 90 cents.
When the Reserve Bank of Zimbabwe introduced bond coins onto the market they were met with resistance but they have been given a new lease of life by the weakening of the South African rand.
Bond coins have now become the currency of choice in terms of small denominations, with some businesses actually rejecting the rand. Buy Zimbabwe chief economist Mr Kipson Gundani said people had changed their attitude towards bond coins.
“The bond coin was welcomed with a lot of suspicion by people and it was temporarily rejected but the trend has since changed as people actually want it more than the rand simply because it is at par in terms of exchange rate with the US dollar coin unlike the rand,” Mr Gundani said.
The South African currency has continued its slide against the greenback, weakening by as much as R13,70 to the dollar on Wednesday. The rand has lost over 36 percent in a trade weighted index in 36 months. The rand index further shows that it is not just weakening compared to dollar, but even against other currencies such as the Euro, Pound and the Chinese Yuan.
Consumer Council of Zimbabwe Matabeleland regional manager Mr Comfort Machekeza said while Zimbabweans could not celebrate the decline of another country’s economy it was an advantage to them, noting that consumers relied heavily on South African products.
“Although we are still making calculations for this month’s food basket, we believe that it will decline significantly because of this reliance on South African commodities because of the fact that we are a US dollar reliant country but we go on to purchase commodities from South Africa, which naturally becomes cheaper.
“It is therefore my belief that the cost of living will gradually improve in Zimbabwe owing to this weakening rand. However, retailers are at the same time taking advantage of consumers as when the rand weakens they charge their goods in US dollars and when it gains value they revert back to the rand. There is a need for Government to therefore monitor this trend,” said Mr Machekeza.
South Africa-based economist and chief executive of Economists.co.za Mr Mike Schüssle said for economies that relied for trade heavily on the South African economy, like Zimbabwe, there was going to be a significant drop of prices; hence the cost of living was to become significantly affordable.
“Exports will obviously become cheaper. In the next few weeks I expect that even things like fuel and diesel, and other exports from South Africa will become exceptionally cheaper, but while on the surface this might seem to be a positive move, it is also not good for an economy if prices fall too much.
“Zimbabwe’s manufacturing sector might on the other hand feel the pinch because the country is mainly a US dollar economy and while they will be channeling funds using US dollars when trading with South Africa, their products become hugely expensive and hence not competitive,” said Mr Schüssle.
He said in his view the major cause of the weakening rand was the fact that people were becoming increasingly weary of emerging markets and the fact that the country’s savings were very low.
Confederation of Zimbabwe Industries president Mr Busisa Moyo said it was a two-prone affair with both negatives and positives, where it was now cheaper for industry to buy South African products, plant and machinery but at the same time exports to South Africa had become more expensive in rand terms and this may see the country’s exports decline.
“This could see some products with raw materials denominated in rand coming down in Zimbabwe. On the other hand it means those who receive support from the diaspora can afford less in US dollars. R750 in 2010 from a relative in the diaspora gave you $100, today it gets you $55.
“The pain for the productive sector is that South African products are now cheaper than those made in our US dollar environment in Zimbabwe. The US dollar is now overvalued against most local resources compared to the region so our production factor costs are much higher than our peers not just in South Africa but in Zambia as well,” said Mr Moyo.
He noted that there will, however, be an increase in the negative trading account as exports diminish and imports increase which he noted could also see the rise in smuggling and corruption.
Mr Moyo said there was a need to facilitate cost correction measures which will see the eventual reduction of prices of goods and services commensurately to local and export markets.
“There is now a need for the reduction of all utility, local authority charges and rates, parastatal charges, Government levies and fee costs across board to sub-regional levels or lower immediately, and force mass restructuring of parastatals and utilities through an Act of Parliament treated with the same urgency as the Labour Bill,” said the CZI president.
He said for the manufacturing sector there was a need for them to consider trading with other semi-dollarised economies like Mozambique, Angola and DRC.
“The US dollar has a few advantages; the first, is in terms of stability and the ability to plan over a longer horizon, the second is that it is attractive for Foreign Direct Investment as it dispels currency risk for the most part.
“There are also disadvantages but the main one is that Government cannot devalue to lower the cost of production or the value local resources like land, labour and services, more creative internal devaluation metrics or national cost correction measures have to be crafted,” said Mr Moyo.
