Retailers warn of closures over twisted exchange rate

Zimbabwe’s biggest retailers have told Finance Minister Mthuli Ncube that their businesses face closures if he does not fix an exchange rate policy that is driving customers away from their stores.

Formal retailers are forced to use the overvalued official exchange rate in their shops.

This makes supermarkets more expensive than unregulated tuckshops.

The Retailers Association of Zimbabwe (RAZ), which includes companies such as OK Zimbabwe, Pick n Pay, SPAR and Edgars, have told Ncube of the extent of the crisis, which has driven most retailers to major losses.

“The situation is clearly untenable and will lead to company closures if authorities do not intervene with policy measures to protect the formal retail sector,” they said.

The industry employs nearly 20,000 people.

What’s the problem?
Retailers are required to use the official exchange rate. However, suppliers are using parallel market rates.

To narrow their losses, supermarkets have had to increase their prices so that they can restock. RAZ gives an example of popular brands, and how their pricing is affected by the exchange rate gap.

Schweppes supplies 2L Mazoe at US$3.48 or ZWG74.70. If OK supermarket sells that Mazoe at US$4.60, they must price it at ZWG68.08, making a 10% loss.

Supermarkets that buy Boom washing powder have to pay at an implied exchange rate that is double the official rate.

What must happen?
RAZ recommends that government used a market determined exchange rate.

“Implementing a pricing model that reflects real-time market exchange rate fluctuations can help us remain competitive while managing costs,” the say.

Discounted pricing is also necessary, the retailers add. “This keeps the official exchange rate constant while formal retailers offer differentiated discounted pricing by product to reduce inflationary impacts in USD terms, incentivize purchases and stimulate demand.”

The retailers are competing against informal traders that do not pay tax or the cost of compliance. “To operate a single supermarket in Zimbabwe, one needs more than 25 licenses and permits – a tall order for some of our members who operate over 50 branches each,” the retailers say.

Government is losing revenue, as it is collecting less tax from hard-hit retailers while getting little from informal traders.

NewZwire