AMHVoices:The falling rand: Why Zimbabwe should cry more

AMHVoices:The falling rand: Why Zimbabwe should cry more

ZIMBABWE – The South African Rand tumbled from ZAR/USD of around 10,8 in January 2015 to around 15,8 mid December 2015. This marks a decline of around 47% and the trend is still downwards. This does not compare badly with fellow BRICS counterpart Brazil, whose Real tumbled by over 60% during the same period from 2,41 to 3,87. The Chinese Yuan also lost some value during the last quarter, although at a less magnitude, hence BRICS economies are going through some form of turbulence. 

In the Zimbabwean market, there were mixed reactions. Firstly the bond coin that is pegged at 1 is to 1 with the US dollar has gained a wide acceptance, getting a preferential status against the Rand for the first time in many years, as is, it is seen to be more stable. This was even highlighted by both RBZ governor John Mangudya and Finance minister Patrick Chinamasa in his 2016 budget presentation, with some air of happiness. Mangudya seemed to have been happier, maybe to him it meant Zimbabwean dollar reintroduction has come, but ideally he should have been a bit worried.

Many Zimbabweans work in SA, the history of this group goes back to the days of colonisation. It should be noted that SA has always been greener than Zimbabwe and all other African economies ever since the formalisation of economies in Africa. The discovery of gold in the Witwatersrand and the subsequent struggle between the Afrikaners and the British over the control of the area, the Anglo-Boer war. Rhodes’ British South African Police came looking for the second Rand and after failing to find it ended up venturing into farming. Hence, the SA economy was build on the backbone of the mining industry, while that of Zimbabwe was on farming. It is not to say that Zimbabwe does not have mineral deposits, but they don’t rival those of SA. By virtue of that, Zimbabweans coming from SA have always had a better status, economically and socially compared to those working locally, this has always produced some jealousies and contempt between these two groups. For most locally-based citizens, its payback as Injivas find themselves with less buying power.

The devaluating SA rand has more economic implications for Zimbabwe than petty statuses. The first major implication is that SA is our number one trading partner accounting to above 40% of our trade. The balance of trade which was always skewed in favour of SA will continue with that trend.

The devaluing of the rand means our exports will become more expensive in SA thereby leading to less demand of our products. It should be noted that our products were already less competitive in SA because of other factors like high production costs due to such issues as outdated machinery, etc. The devaluing of the rand, therefore, further compounds our situation. If our companies exporting do not change their prices charged to SA customers, then they will likely report some losses due to change rate translation adjustments.

At the same time it means SA imports will be cheaper for Zimbabwean consumers and thereby leading to a higher demand of SA goods. It is common sense that most Zimbabweans go for shopping in SA during weekends, including the politicians. Thus, banning import of certain items and exorbitant duties has failed to curb the problem. The SA goods remain preferable, also compounded by rampant corruption at our border, we have failed to stem the tide.Therefore, overall our trade deficit with SA will ballon.

The remittances from SA will decline, as already noted that Zimbabweans will now prefer buying from SA.Those working on the other side will now resort to sending groceries more than money, to insulate themselves against the income effect. This will mean that money will be sent for items that cannot be bought in SA like school fees, rentals and such items that can only strictly be done in Zimbabwe. This also means that the local retailers will see their sales going down and thereby cutting down orders to manufacturers and the trend continues, as manufacturers further retrench due to depressed demand.

The devaluation of the rand is going to work against us, SA will lose, but we will lose more.

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