ZIMBABWE - Zimbabwe’s leading supermarket chains have warned the government that the current exchange rate policy could lead to widespread closures in the formal retail sector. 

The Retailers Association of Zimbabwe (RAZ), representing major chains such as OK Zimbabwe, Pick n Pay, and Spar, has urged authorities to allow the exchange rate to be determined by market forces. The official exchange rate, they argue, is making it increasingly difficult for modern trade retailers to remain viable.

At the heart of the issue is the government’s insistence that supermarkets use the official exchange rate, which is significantly lower than the parallel market rate. 

This discrepancy is squeezing profit margins, as retailers are forced to sell goods below cost in Zimbabwean dollars (ZWG). RAZ provided a specific example: Schweppes, a local manufacturer, supplies a 2L bottle of Mazoe fruit cordial at US$3.48 (ZWG74.70). To sell the product at a retail price of US$4.60, supermarkets must list it at ZWG68.08 (US$0.18)—a 10% loss due to the official exchange rate.

Economic pressures mount

Supermarket chains are not only grappling with the unfavorable exchange rate but also face heavy regulatory and tax burdens, which further inflate the cost of goods. 

The informal sector, by contrast, often bypasses these challenges by purchasing directly from manufacturers in USD, selling goods in USD, and frequently evading taxes, reports trendtype.

This growing informal trade has begun to overshadow the formal sector, with manufacturers like Dairibord increasingly selling their products through informal retailers, who are quicker to pay and less constrained by regulatory frameworks.

The widening gap between the official and parallel exchange rates has led many economists to question the viability of the Zimbabwean dollar. 

As the country drifts towards de facto dollarisation, the Zimbabwean currency appears to be on the brink of collapse, notes trendtype. The economy's failure to stabilize the currency in past attempts suggests that the currency's downfall is more a matter of "when" rather than "if."

Impact on retailers

Retailers like OK Zimbabwe, which operates over 70 stores, face growing uncertainty. The longer the current exchange rate policies persist, the greater the risk of financial distress. 

Metro Peech & Browne, one of Zimbabwe’s largest wholesalers, entered administration in September 2023 due to the challenging trading environment and was subsequently acquired in early 2024 by Sub-Sahara Capital Group’s Gain Cash & Carry subsidiary for US$13.5 million. 

Despite sluggish demand in the formal retail sector, Pick n Pay Zimbabwe has opened five new stores in the past year, demonstrating cautious optimism in the face of economic uncertainty.

Informal sector thrives

Ironically, trendtype states that while formal retailers are struggling, the informal sector is thriving. Informal stores are benefiting from strong consumer demand, which is bolstered by remittances from abroad and undeclared income from sources such as illegal gold mining. 

This dual economy, with the formal retail sector hampered by stringent regulations and an unworkable exchange rate, and the informal sector benefiting from its flexibility, continues to widen the gap between the two.

The outlook for Zimbabwe’s formal retail sector remains uncertain as it awaits potential government reforms that could alleviate the exchange rate pressures threatening its survival.