The Confederation of Zimbabwe Industries (CZI) says continuous adjustment of prices, tariffs, as well as, all service charges in the country in line with the depreciation of the exchange rate makes the investment environment difficult to operate in.
The Zimbabwe dollar has continued to depreciate, losing 49% of its value on the formal market and 30% on the parallel market since January this year.
The fast depreciation on the formal platform has helped reduce the parallel market premium, which decreased from 66% in January to 44% in February.
The decline in the premium is a positive development for formal businesses, who are struggling to attract United States dollar sales due to the 10% trading margin above the interbank market.
The CZI noted that near convergence of the parallel market and the formal exchange rate gives formal business a fighting chance.
“Therefore, measures that address currency depreciation, while ensuring convergence of the official and the parallel market exchange rate remain critical,” CZI said in its latest inflation and currency developments update.
“Despite the convergence, the rate of depreciation of the ZWL (Zimbabwe dollar) is worrisome as this is directly responsible for the inflationary environment.
“The need for a consistent adjustment of prices, tariffs, as well as, all service charges in line with the depreciation of the exchange rate makes the investment environment difficult to operate in.
“The delay in coming up with a solution to the currency crisis makes it difficult to protect the currency from rejection by the market,” it added.
In July 2022, the Reserve Bank of Zimbabwe (RBZ) introduced physical gold coins as an alternative store of value to the United States (US) dollar in the economy.
In trying to complement the physical gold coins, the RBZ introduced the gold-backed digital tokens known as ZiG in May 2023.
The introduction of the gold-backed digital tokens was also at a time when the government was implementing a raft of measures to curtail inflation in the economy in order to rescue the local currency from being rejected by the market.
With effect from October 5, 2023, ZiG was announced as one of the means of payment for domestic transactions. Digital-backed gold tokens had been characterised by very limited uptake as reflected by the value of gold purchased.
However, the report noted that in 2024 there was a sudden renewed interest in the purchase of ZIG.
In terms of milligrams, the amount of ZiG purchased in February increased by 22,8% compared to what was purchased in the previous month.
“This also follows from speculation that ZiG could be the ‘structured currency’ that was hinted at being formally adopted as the official currency,’ CZI said.
“However, the number of applicants for ZiG remains very low and has ranged between one and 45 applicants nationwide since inception.
“This means that while the uptake of ZiG by the general public remains low, there are investors that have developed increased interest in ZiG.”
The update indicated that blended annual inflation continued its upward trend from October 2023. For instance, for the month of February, it increased to 47,6%, gaining 12,8 percentage points.
Inflation is a major determinant of macroeconomic stability, and this implies that inflation remains a major threat to macroeconomic stability in the country.
The World Bank also noted in their Country Private Sector Diagnostic report, which was launched early this month, that inflation is a constraint for private sector development.
“High and sustained inflation affects both input and output markets and makes it difficult to undertake long-term planning or investments,” it said.
“The country is now highly dollarised with more than 80% of transactions in USD, which is also reflected in the methodology used in blending inflation.
“Thus, while ZWL inflation is expected to explain the bulk of the increase, the 2024 budget tax measures also have a direct impact on USD prices, and hence USD inflation is also expected to be high.”
The CZI said the inflationary impact of the 2024 National Budget is now being felt throughout the economy.
Zim Independent
