Zimbabwe’s industry and commerce players remain cautious about the long-term sustainability of the current modicum of stability, the Confederation of Zimbabwe Industries (CZI) has said.

The prices of goods and services in the country have somewhat stabilized in response to the foreign currency auction system that was introduced by the Reserve Bank of Zimbabwe (RBZ) in June.

But the annual inflation rate of inflation spiked last month, although this appeared largely residual than anything else.

Latest statistics from the Zimbabwe National Statistical Agency (ZimStat) put the country’s year on year inflation rate for the month of July as measured by all items Consumer Price Index (CPI) at 837.53%.

CZI chief economist Tafadzwa Bandama said the high levels of uncertainty are largely attributable to policy inconsistencies.

“The business community is still a little skeptical about the sustainability of the foreign exchange auction market, given the currency ambiguity obtaining in the economy.

“Uncertainty is heightened by persistent policy reversals. High inflation levels and policy inconsistencies are fueling uncertainty in the economy,” he said.

The forex auction system was introduced on 23 June 2020 and a weighted average rate of ZWL57.35 was recorded.

The eighth auction was held on August, 13 and a weighted average rate of ZWL82.56 was recorded, highlighting a depreciation of the local currency by 44% against the US dollar, since the introduction of the auction market.

The auction market rate is steadily increasing, closing the gap on the parallel market rate which is ranging between ZWL90 and ZWL110.

“The introduction of the SME auction market is a welcome development, since it serves an integral part of our economy and reduces parallel market activities,” he added.

In the last auction, the Zimbabwe dollar weakened by just 0.48 percent in the latest foreign currency auction to a weighted average of $82.91: US$1 from $82.56.

The foreign currency auction system appears to be working increasingly efficiently due to the narrowing of the bid band between the highest and lowest successful bid.

The highest bid for the main auction was 88.38, and the lowest bid was 80, representing the tightest range since the forex auction system began in June, while the highest bid on the SMEs board was 85, while the lowest bid stood at 78.

The CZI chief economist has suggested ideas to make the auction system more efficient.

“Both the Central and Local Governments should give the foreign currency auction system the opportunity to operate efficiently by levying taxes, fees and rates in local currency in order to create demand for the RTGS dollar,” he said.

“Tax revenue constitutes 97% of total revenue and levying VAT, PAYE and Income taxes in local currency should go a long way in creating demand for the local currency as taxes contribute significantly to revenue.

“Levying taxes in local currency should increase demand for the local currency and this should have positive effects on exchange rate and inflation.”

Meanwhile, the COVID-19 pandemic has even put the going concern status of a number of businesses at risk.

“As a result of COVID-19, some businesses are not sure if they will be able to resume operations after the lockdown due to cash flow difficulties and subdued demand.

“Also some business are being forced to close due to outbreaks of COVID-19 at work places. Those that have resumed operations are functioning in a high cost environment.

“COVID-19 which is novel, has increased uncertainty levels in an
economy which was already existing in low confidence levels as a result of policy inconsistencies,” said Bandama.