The retail sector has appealed to government to decisively deal with the informal sector which they cited as responsible for prevalent currency and exchange rate distortions facing the economy.
The Zimbabwe dollar (ZWL), since its reintroduction in 2019 has been subject to wide-ranging valuations through market speculations from the parallel market which is mainly sustained by the informal market.
In an interview with 263Chat Business, the Confederation of Zimbabwe Retailers (CZR) president, Denford Mutashu said authorities should act on the informal economy which is also posing unfair competition to formal businesses.
“The moment that you have an economy that is 70 percent informal there are distortions everywhere. The currency distortions in the economy are so varied, we need to sort that one out because already it’s actually creating further distortions by creating unfair competition with formal businesses,” said Mutashu.
The introduction of the foreign currency auction market last year brought stability to the local currency with formal businesses adhering to the auction system exchange rate.
Despite these gains, the informal economy has used a parallel rate that has devalued the ZWL and created a huge mismatch between the two markets.
The official rate stands at ZWL$ 85 against the dollar with the parallel rates ranging between ZWL$120-130.
“The distortions are already there. What we need as a nation is to move forward by ensuring that we correct all those areas that require attention including the issue of high informalisation of the economy and also the issue of the exchange rate needs to be addressed,” said Mutashu.
Zimbabwe’s informal sector has witnessed exponential growth in the past two decades following the demise of formal economy owing to closure of companies and high unemployment rate.
But the currency distortions are creating a toxic business operating environment, observers say.
Recently, government issued Statutory Instrument 127 of 2021 compelling businesses to comply with the official rate in quoting prices in USD.
However, after intense criticism of the instrument by business, the RBZ made a U-turn and announced that the measures would apply to businesses that obtained foreign currency from the forex auction system only.
The development has however been welcomed as it then allows businesses not active on the auction system to be able to self-generate foreign currency.
