Harare - After facing immense criticism for ending a decade-long multicurrency system and bringing back the Zimbabwe dollar last year, businesses are now singing from a different hymn sheet, saying the move has ushered in currency predictability.
A five-month-old foreign currency auction system has given the local currency added stability, and has injected over US$400 million into industries.
“The positives include the stability of the exchange rate on both the formal and informal markets as well as the slowdown in inflation,” the Confederation of Zimbabwe Industries said in a recent note to members.“There has also been increased access to foreign currency by businesses.”
Reserve Bank of Zimbabwe Governor Dr John Mangudya’s bold monetary reforms have tamed an inflationary spiral and exchange rate volatility.
Inflation topped 800 percent in the second quarter but fell fallen to 471 percent in October. In addition, the Zimbabwe dollar was trading at 165:1 to the US dollar on the black market in March but is now trading at around 81:1 on the official market, and black market rates are not much higher.
“The trading environment in the last quarter ended 30 September 2020 was largely stable supported by the foreign currency exchange auction system and a contractionary fiscal policy,” said major firm Masimba Construction.
“Foreign exchange shortages were alleviated to a large extent, by the introduction of the foreign exchange auction system where the official exchange rate between the US dollar and the Zimbabwe dollar has stabilised at about ZWL$81 to USD1,” said Nampak Zimbabwe, another Zimbabwe Stock Exchange-listed counter.
“Despite this, the allocated foreign exchange is insufficient to meet all the imported raw material requirements needed to facilitate efficient production schedules. Inflation, temporarily at a reduced rate of increase, is likely to remain under pressure to move upward,” said Nampak, a unit of South Africa-headquartered packaging materials giant, Nampak SA.
Offshoots of a decelerating exchange crisis have also been reported by the multinational firm, British American Tobacco’s Zimbabwe operations.
“The foreign currency auction platform has opened access to foreign currency required for raw materials imports and has brought about stabilisation of the exchange rate which will alleviate some of these challenging trading conditions,” said BAT chairman Mr Lovemore Manatsa.
“The trading environment continued to be challenging during the nine months ended 30
September 2020 driven by the impact of the COVID-19 pandemic, currency depreciation and rising inflation. The company has not been spared by these challenging factors which have resulted in the slowdown of economic activity across the country and depressed consumer spending.”
Several ZSE-listed firms - including Delta Corporation and Axia Corporation - have also hailed Dr Mangudya reforms.
The availability of foreign currency and exchange rate stability will be vital factors in helping Zimbabwe’s economy register projected 7,4 percent GDP growth next year, after a -4,5 percent drop in 2020.