31 January 2013

Zimbabwe: Rand Fall No Joy for Zim

THE fall in the price of the rand against the greenback is unlikely to be of benefit to local companies. This is despite the fact that Zimbabwe buys more than 60 percent of its imports from South Africa, economic analysts have said.

There was a general feeling in some quarters that the 2,25 percent fall in the price of the rand on Monday would bring import benefits as buying from South Africa would become a little less expensive due to a stronger US dollar currency.

The rand over the past several weeks has been beleaguered by political uncertainty, expectations for continued dismal economic data and labour tensions as the sell-off from the bond market, a key economic indicator, spilled on to the currency.

Zimbabwe uses a basket of currencies that include the US dollar, the Botswana pula, South African rand, British pound and the euro, but the greenback is the predominant currency and even reporting currency for public listed companies here.

Mr Willard Zireva, the chief executive of Zimbabwe's biggest retail group OK Zimbabwe, feels there would be little benefits from the depreciating rand to local importers because they buy at prices based on the US dollar currency.

"The bulk of businesses in Zimbabwe, whatever price we agree on with suppliers is based on the US dollar. Very few suppliers use the rand. In terms of the 2,25 percent loss (in the value of the rand against the dollar) in general or appreciation will not make a major impact on prices. Even when that happens at the end of the day, the average rate will still come into play," said Mr Zireva.

The rand hit a trading session low of R9,1220 against the US dollar and was at R9,11 by 17:10 SA time, down 1,8 percent from last Friday's close at R8,95 to hit its weakest rate in about three and half years. It is expected to weaken further to R9,2. Analysts expect the rand to see further weakness, and warn that the dollar rising above R9,2 could open the way for a move towards R10, a level not seen since March 2009.

But Zimbabwe National Chamber of Commerce president Mr Oswell Binha feels the depreciating rand would make imports from South Africa somewhat less expensive and benefit the economy significantly through informal trade.

"By using the US dollar it actually means getting products cheaper in a rand domain unless there are some changes in the pricing system. Most trade is informal if you look at buses going to South Africa (with cross-border traders)," he said.

Mr Binha sad current developments in South Africa regarding the unstable rand were one of the major reasons why the private sector was opposed to the idea of Zimbabwe making a formal request to join the rand Common Monetary Area.

"The private sector said no (to the CMA) because of current developments. The falling currency has implications on your pricing, but using the multi-currency you have the opportunity to hedge using the US dollar in the rand domain," he said.

But another leading economic analyst concurred with Mr Zireva saying the fall in the US dollar/rand exchange rate would not benefit importers unless local companies were able to buy and sell in the rand currency.

"Although we have a multi-currency regime, effectively we dollarised. Since price guides are in US dollar terms it means to trade with South Africa we use the rand, but still have prices in dollars. Since we use the rand to import, imports will become expensive. If we were exporting it means dollar exports would become more expensive," he said.

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