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Brace For More Exchange-Rate Swings, Zimbabwean Firms Told

1 week agoTue, 07 Jan 2025 06:33:03 GMT
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Brace For More Exchange-Rate Swings, Zimbabwean Firms Told

Zimbabwean companies have been advised to brace for further exchange-rate volatility this year following the shock devaluation of the country’s gold-backed currency, ZiG, in September 2024, reported Bloomberg.

ZiG, short for Zimbabwe Gold, is the nation’s sixth attempt at a stable currency since 2009. On September 27, it fell 43% against the US dollar to narrow the gap between the official and parallel-market rates.

This devaluation has impacted consumers’ disposable incomes, driven inflation, and squeezed business profits.

OK Zimbabwe Ltd, the country’s largest retailer, said in December that the devaluation “necessitated a reevaluation” of working capital and risk-management strategies.

The Zimbabwe National Chamber of Commerce’s Chief Executive Officer, Christopher Mugaga, said that exchange-rate volatility remains a concern despite the devaluation. He added:

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After the devaluation, balance sheets have been eroded and most executives are worried. To plan using the local currency is to plan to fail.

Shelton Sibanda, Chief Investment Officer at Imara Asset Management, which oversees US$100 million in assets, anticipates that companies will reduce their ZiG holdings as a protective measure.

In an interview with Bloomberg by phone from Harare, Sibanda said “The velocity, that is the speed of using ZiG will increase”, adding. “No one will want to keep any ZiG.”

Mugaga said challenges that are likely to affect companies’ profits this year include power shortages lasting up to 18 hours a day.

Moreover, businesses are contending with informal traders for US dollar revenues, exacerbated by stringent local-currency pricing controls imposed by the authorities. Said Mugaga:

The power issue will remain for the first half of the year as it’s linked closely to the hydropower situation in Kariba.

An El Niño-induced drought has significantly reduced water levels at the dam, one of Zimbabwe’s primary power sources, exacerbating the country’s energy crisis.

This situation has further strained businesses, which are not optimistic about an improvement in trading conditions soon. Maxen Karombo, CEO of OK Zimbabwe, said:

The operating environment is expected to remain bearish driven by exchange-rate and inflation dynamics.

The ZiG traded little changed on Monday at 25.83 per dollar on the official market, according to data on the Reserve Bank of Zimbabwe’s (RBZ) website.

More: Pindula News

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