/ 7 June 2013

Cross-border traders coin it as rand plummets

Cross Border Traders Coin It As Rand Plummets

The South African rand's downward slide in recent weeks has brought cheer to thousands of Zimbabwean cross-border traders in an economy that has come to depend heavily on imported products from its neighbour.

Zimbabwe, which adopted a multi-currency system in January 2009 to tame its galloping inflation, makes use of the United States dollar, the South African rand and the Botswanan pula.

Due to the low capacity of local industry, now at 33% according to manufacturing body the Confederation of Zimbabwe Industries, and unemployment estimated at more than 80% by independent economists, most businesses now look to South Africa as a major trading partner.

The local industry remains constrained by election uncertainty, a liquidity crunch and lack of service provision by utilities.

In interviews this week cross-border businesses and traders said they had realised an increase in profit margins as they were spending less in US dollar terms when buying goods for resale.

"Ordinarily $100 will give you R700 or R800, but in recent days it has been close to R1 000," said a trader, Sibongile Ndlovu, at Harare's Fourth Street bus terminus.

"This is good for us as we do not need as much money to make our orders." Last week, the rand fell to R10.28 against the dollar.

Another businessperson, Lovemore Shumba, said he has recorded good returns in the past few weeks as his costs of doing business have remained steady and even decreased.

"I hope the exchange rate will remain favourable to my line of business. It also gives us an opportunity to sell our wares on credit," he said.

An economic commentator and lecturer at Harare Polytechnic, Alexander Rusero, said if the rand continued to weaken it should result in the reduction of prices but it would have a negative effect on the competitiveness of local products. However, he said lower prices are unlikely to trickle down to consumers as business tries to maximise profits.

On the topic of whether the weaker rand could improve the country's balance of payment position, Rusero said: "This will only be felt if the country is importing machinery to boost production for goods for the export market, but in the short term it will not assist."

According to Finance Minister Tendai Biti, Zimbabwe imported goods worth $704-million in April alone, mostly from South Africa.