ZiG Devaluation Sparks Uncertainty for Zimbabwean Businesses

AFRICAN BUSINESS AND ECONOMYJanuary 8, 2025 at 12:00 AM UTC

TLDR

Zimbabwe’s gold-backed currency, the ZiG, continues to create challenges for businesses following a 43% devaluation in late September
The move, aimed at narrowing the gap between official and parallel market rates, has eroded consumer purchasing power
The ZiG traded at 25.86 per dollar Tuesday, reflecting ongoing exchange-rate volatility

Zimbabwe’s gold-backed currency, the ZiG, continues to create challenges for businesses following a 43% devaluation in late September. The move, aimed at narrowing the gap between official and parallel market rates, has eroded consumer purchasing power, driven inflation, and dented corporate profits. The ZiG traded at 25.86 per dollar Tuesday, reflecting ongoing exchange-rate volatility.

Retail giant OK Zimbabwe noted the impact on working capital and risk strategies during a December briefing, while Delta Corp. reported significant exchange losses. The Zimbabwe National Chamber of Commerce warned Monday that planning with ZiG remains unreliable as balance sheets shrink.

Shelton Sibanda, Imara Asset Management’s Chief Investment Officer, expects businesses to accelerate ZiG transactions to minimize exposure. Meanwhile, firms face additional hurdles from prolonged power outages and competition with informal traders for US dollar revenues under strict local pricing controls. Water levels at Kariba Dam, a key power source, remain critically low, exacerbating energy shortages.

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Key Takeaways

Zimbabwean businesses must contend with compounding economic challenges. The September devaluation underscores persistent currency instability, but structural issues like power shortages and inflation add further strain. Hydropower output remains limited due to low water levels at Kariba Dam, forcing firms to rely on costly alternatives. Strict government controls over local currency pricing complicate revenue generation, with businesses competing for scarce U.S. dollars amid surging demand. Informal traders, often outside regulatory reach, create additional pricing pressure. Financial experts highlight that reducing reliance on ZiG and leveraging alternative strategies are critical to mitigating risks. However, limited foreign exchange access constrains options for many companies.

Zimbabwe

ZiG

Delta Corp

Currency

Exchange Rate

Foreign Currency

Inflation

Purchasing Power

Kariba Dam

Imara Asset Management