eBusiness Weekly
Kudzai M. Mubaiwa
The wait was long, but finally the Monetary Policy Statement came through and indeed it gave the direction that everyone needed. Small businesses can now move forward in earnest, following the disturbances experienced in mid-January that caused most to restart the year.
Now, there is full information from the fiscal and monetary authorities, and from this business models for the year can be shaped. Whilst the statement will impact economic sectors differently, the major highlight — the floating of the rate of local money against the United States dollar, will affect everyone.
Pricing
The market had already given submissions of the problems of the 1:1 peg of the bond against the dollar. The reality in pricing was that the rate was anything from 1,7 derived from comparing the price of a Castle Lite in a supermarket to that in US dollar by the alcohol wholesaler, to double that at 3,5 from comparing bond and USD pricing of leading fast food products.
Businesses were picking up any rate that suited them with some exceeding that range deliberately as a way of discouraging bond payments and receiving the US dollar that would be deemed fairer pricing.
As such, this left the market with very huge differences in the pricing of the exact same products, quite confusing. If you were in a space where you purchase from another business as part of your value chain, pricing of your end product became quite difficult due to the distortions.
The move, therefore, to end the 1:1 regime, is welcomed and will bring the required objectivity that should stabilise pricing. This is all subject to the rate that will emerge as the interbank market starts in the coming week — if the market gives value under what the parallel market has been offering then prices should go lower than they were in local money.
It is my view that the rate cannot go under 2,5 to start, seeing as that was the implied rate when fuel prices were announced in January.
This floating move is intended to kill of multi-currency and indeed the statement indicated that all local transactions would be denominated in the “new currency” now called the RTGS dollars.
The idea was to avoid dollarisation, but it will be practically impossible to stop business owners that had begun to enjoy the certainty that came with working with dollars from continuing to receive them. As a business owner, you will need to actively track the interbank rates to ensure your pricing remains fair but keeps you viable.
Purchasing power
It is customers that put money in your pocket and so it is important to check how the statement spoke to ordinary folks. The renaming of all balances that were formerly bond — bank account balances, notes and coins, mobile money to RTGS dollars would not have any numerical impact at face value, what was $100 bond would remain $100 RTGS dollars.
However, in reality, what was informally occurring has now become official, the new rate will mean that real value has been lost — if the rate starts at 2,5 then buyers and users of goods would have their balances standing at 40 percent less in reality.
The biggest group of employees, civil servants, have not been given an increment and many other employers will not immediately raise salaries.
Already the working class had been struggling to pay for things they would ordinarily afford, thanks to the October fiscal statement first and now the monetary one. Consumption patterns will change and you will lose customers. You may have to shift target market, or produce products that match levels of income now.
Some enterprises may close outright as they will no longer have sufficient customers who require their value proposition.
The agile ones will begin to seek new customers in the form of those who earn in foreign currency or receive consistent remittances.
Now that local nostro transfers are feasible, it will make sense to target such customers as well.
Productivity
Another highlight of the statement was on foreign currency retention, varying figures for the different sectors. Large and small scale gold producers were both given a 55 percent retention threshold, an improvement for the small producers from 30 percent.
This is still short of what would have been preferred, the range of 80 percent. All other minerals were worse off at 50 percent, whilst tobacco and cotton growers were pegged at a worse 30 percent retention. It is likely that these groups will make representations to have these improved.
Business owners in the manufacturing, horticulture, transport and tourism spaces however, will be pleased to receive their 80 percent retention and as such production will likely improve in these sectors, they have been incentivised. It will be worth it to consolidate your investments if you are an enterprise in this sector, and if you offer related goods and services, these are the ones to target.
The Reserve Bank, however, indicated that retention proceeds would have to be utilised within 30 days from receipt, failing which they will be liquidated into RTGS dollars at the prevailing rate.
Companies will thus need to get expertise in matching transactions to optimise these proceeds, including prepaying instead of saving up for machinery and equipment to avoid loss of value on foreign currency they receive, and wisely investing the RTGS dollar proceeds from the foreign currency that will be kept from them for national essential imports.
The downside will be that short-term access to their proceeds will discourage savings. Informal enterprises however, in places like Siyaso will continue life us usual as they can retain 100 percent of what they earn in foreign currency which they will charge as a preference over the RTGS dollar.
Path
The numbers are clear that the fiscal and monetary actions so far are bearing some positive economic fruit. Separation of balances of local money and USD worked well.
In the past year most foreign currency came from exports, remittances came off. What the nation needs is production and we are headed in the right way though not perfect.
There seems to be a clearer way for potential investors, local or foreign — more certainty on value, but what will need clarity is how they can retrieve and repatriate it. What government will need to do is to continue to listen to and engage business so that the rebuilding of the economy becomes a shared experience and responsibility. Their main role is to enable, and enterprise will do the needful to promote local development.
Your task as a business owner is to put in the work at the micro-level and our combined efforts will build the country from the bottom up. Now that you have direction, work!
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