Zimbabwe new currency flops, killing dozens of businesses and hundreds of jobs

A man shows new Zimbabwe gold-backed currency after withdrawing from a local bank in Harare on April 30, 2024.

Photo credit: Reuters

Zimbabwe’s desperate measures to keep its new currency stable are proving to be double-edged, squeezing businesses to the point of closure and causing job losses.

The Southern African uses a multicurrency system, which is expected to continue until 2030, as it tries to end nearly two decades of dollarisation.

In April last year, it made a sixth attempt to revive its own currency by abandoning the inflation-ravaged local dollar and introducing the gold-backed Zimbabwe Gold (ZiG). That had followed massive adoption of the US dollar and other currencies, from which it tried to run away.

The introduction of the ZiG only helped to stabilise inflation for a few months before the Reserve Bank of Zimbabwe (RBZ) was forced to devalue the local currency by 43 percent in September 2024 in a bid to narrow the gap between the official and parallel market exchange rates.

Authorities would then follow the devaluation with the introduction of tight monetary policies that limited the supply of the local currency on the market to help protect the ZiG from imminent collapse.

Since that time, the official rate has strengthened marginally against the US dollar while the black market rate has more or less stayed stable.

Regulators and economists warn that the measures to preserve the ZiG, which include starving the market of the local currency while allowing the liberal use of the US dollar, is causing massive job losses and company closures.

In the past few months, foreign companies such as Botswana-based retail chain Choppies Enterprises, British fast-moving consumer goods firm Uniliver and multinational accounting firm PricewaterhouseCoopers were among companies that exited the Zimbabwean market owing to currency problems.

Zimbabwe’s top sugar producer, Tongaat Hulett, this month announced that it would lay off 1,000 employees by August, as it seeks to cut costs and survive the country’s currency turmoil as well as inflationary pressures.

The South African company, which is one of Zimbabwe’s biggest employers -- with a workforce of 16,000 -- has been incurring currency losses due to the unstable exchange rate.

An increasing number of companies are opting for corporate rescue schemes as the business environment gets tougher.

Most of Zimbabwe’s major retailers are also struggling to stay afloat, as they are being squeezed by informal traders, who smuggle goods from neighbouring countries for sale in foreign currency on the streets. 

The Retailers Association of Zimbabwe, which represents most of the country’s biggest retail chains, said the overvalued exchange rate made their products more expensive than those in informal shops. Consumers now prefer buying their provisions from shops and street vendors, who often offer more affordable prices than formal supermarkets that are forced to trade using the local currency.

The Confederation of Zimbabwe Industries (CZI), which represents Zimbabwe’s top manufacturers, said the currency problems worsened in the last quarter of 2024.

“In the months of November and December 2024, there was an acute shortage of the local currency,” CZI said in its latest Inflation and Currency Developments Briefing Note.

“This helped to curb the runaway inflation, which was threatening to prematurely end the life of the new currency. In December 2024, the ZiG inflation rate was 3.7 percent, a 33.6 percentage point decline from the October peak of 37.2 percent.” 

John Legat, CEO of Imara, one of Zimbabwe’s leading asset management firms, said the measures to protect the local currency from collapse were having unintended consequences.

“The tight monetary policy has taken its toll, banks have not been able to lend much if any ZiG or US dollars, borrowing costs have been high for those who have been able to access liquidity whilst banks have also been heavily penalised by the RBZ should they have needed liquidity to honour their depositors’ requirements,” Mr Legat said in his January 2025 Zimbabwe Investment Notes.

“Government has also suffered as we suspect the RBZ have been cautious about lending to the Treasury via the overdraft facility. This might explain late salary payments to the civil servants and payments to government service providers.”

He said tight liquidity also negatively impacted the Zimbabwe Stock Exchange (ZSE) as investors attempted to sell equity assets to raise funds but, with little ZiG liquidity, there were few buyers. The ZSE declined by 18 percent in December 2024 alone in ZiG terms, but by 20 percent in US dollar terms at the black market rate. 

“While the tight monetary measures have significantly reduced ZiG liquidity and with it, its availability, it has, on the other hand, encouraged the use of US dollar cash which appears still to be freely available, especially in the informal sector,” Mr Lagat said.

“The rise of the informal economy relative to that of the formal economy is proving a big headache for the Treasury. By its nature, the informal economy is tough to tax; the formal economy is a simpler target but the more the burden put on this part of the economy to fund government, the less viable it becomes. At worst, businesses may be forced to close or leave the country – as we saw with Unilever last year.”

He noted that the tightening of liquidity by the RBZ after the devaluation of the ZiG put local banks under a lot of pressure.

“Any surplus liquidity held by the banks has been swept up by the RBZ into Treasury bills or illiquid non-negotiable certificates of deposits,” the Imara boss added.

“Should the banks require that liquidity they have had to pay exorbitant interest to borrow back their depositors’ funds.

As it is we expect to see an increasing number of businesses – mainly privately owned – seeking business rescue protection, retrenching labour and restructuring their labour where possible.”

Finance minister Mthuli Ncube said the government was limiting the circulation of the domestic currency to protect it from the vagaries of inflation.

“The reason we have maintained a very tough stance on the liquidity front was just to maintain the stability of the ZiG, making sure that we don’t have excess money supply or excess liquidity, which undermines the stability of the ZiG,” Prof Ncube told journalists via Zoom from Davos, where he was attending the World Economic Forum.

“The stability of the ZiG is critical for planning by companies, by the government, in terms of budgets. It is also critical for just preserving the purchasing power of the currency.”

Gift Mugano, a professor of economics at South Africa’s Durban University of Technology, said the only solution to Zimbabwe’s economic problems lies in a domestic currency.

“Until and unless Zimbabwe has its own currency we will remain in the economic doldrums forever,” Prof Mugano said.

“The challenge we have is that we don’t have the right fundamentals required to support the establishment of a mono currency on a sustainable basis. The tragedy we have is that the current technocrats and policy makers in government are clueless and incompetent.”

Vince Musewe, a Harare-based economist, said businesses in Zimbabwe were closing down due to high operating costs, currency uncertainties, and competition from the informal sector.

According to the World Bank, Zimbabwe is home to one of the world’s largest informal economies. 

Zimbabwe’s currency problems date back to 2009 when an inflation rate of 500,000,000,000 percent, according to the International Monetary Fund estimates, forced the government of the late Robert Mugabe to abandon the local currency and legalise the use of multiple currencies dominated by the US dollar.

President Emmerson Mnangagwa’s government, which came into office seven years ago, reintroduced the Zimbabwe dollar in 2019 and outlawed the multicurrency regime, but later permitted the use of foreign currencies again.

Five more attempts, including last year’s introduction of the ZiG, have been made to revive the local currency.