Zimbabwe’s ZiG Set for More Pain After 43% Plunge
Zimbabwean companies should brace for further exchange-rate volatility this year following a shock devaluation of the nation’s bullion-backed currency in September, a local commerce group said.
The ZiG, short for Zimbabwe Gold and the nation’s sixth attempt at a stable currency since 2009, fell 43% against the dollar on Sept. 27 to narrow the gap between the official and parallel-market rates.
The move hit consumers’ disposable incomes, fanned inflation and crimped businesses’ profits.
OK Zimbabwe Ltd., the nation’s largest retailer, told an analyst briefing in late December, that the devaluation had “necessitated a reevaluation” of working capital and risk-management strategies.
Delta Corp Ltd.’s Chairman Todd Moyo said in a letter to shareholders accompanying the beverages maker’s latest results that it had led to significant exchange losses.
ZiG Volatility
The exchange-rate volatility hasn’t completely gone away, said the Zimbabwe National Chamber of Commerce’s Chief Executive Officer Christopher Mugaga said Monday by phone. “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 $100 million, expects companies to reduce their ZiG holdings to protect themselves.
“The velocity, that is speed of using ZiG will increase,” he said in an interview by phone from the capital, Harare. “No one will want to keep any ZiG.”
Other factors that are expected to impact on companies’ profits this year include power shortages that last as long as 18-hours a day, and their fight with informal traders for US dollar revenues amid strict local-currency pricing controls imposed by authorities, Mugaga said.
“The power issue will remain for the first half of the year as it’s linked closely to the hydropower situation in Kariba,” said Mugaga.
Water levels at the Kariba dam, one of the nation’s main power sources, have only recently started to recover from an El Niño-induced drought with the onset of sustained rainfall. The dam currently has 2.6% of usable water for power generation, compared with 2% last week, the Zambezi River Authority, which manages the reservoir said Monday.
Businesses also don’t expect the trading conditions to improve any time soon.
“The operating environment is expected to remain bearish driven by exchange-rate and inflation dynamics,” said Maxen Karombo, OK Zimbabwe’s CEO.
The ZiG traded 0.1% weaker on Tuesday at 25.86 per dollar on the official market, according to data on the central bank’s website.
