Zimbabwe’s traditional shopping chain is undergoing a significant transformation with the implementation of new regulations that restrict wholesale shopping purchases to just US$1,000, except for licensed retailers. Although this move appears to formalize the supply chain, it inadvertently benefits struggling supermarkets while potentially suffocating wholesalers and manufacturers, who are already grappling with the dominance of the informal sector.
The informal market, with its tuck shops readily accepting USD cash, has emerged as an attractive option for manufacturers, drawing them away from formal retailers burdened by Zim dollars and extended credit terms. While major supermarkets like OK claim that only 20% of their sales are made in foreign currency, tuck shops continue to thrive on USD transactions.
The government’s attempts to address this issue by mandating that manufacturers exclusively sell to wholesalers may have unintended consequences. Wholesalers, already facing low business, now bear the administrative burden of verifying customers’ tax compliance, potentially jeopardizing their relationship with significant informal market clients. Manufacturers like Dairibord, highly reliant on informal sales, may witness a decline in sales.
On the surface, these new regulations may benefit major supermarkets such as Pick n Pay, as they could potentially eliminate competition from informal shops. However, the critical question remains: Can these supermarkets keep prices low enough to compete with the readily available USD in tuck shops? The answer is dependent on the government’s exchange rate policy.
The implementation of these new regulations creates a delicate balancing act. It raises the question of whether the intention is to revitalize formal retailers or further squeeze struggling wholesalers and manufacturers. The outcome will largely hinge on whether the government addresses the underlying issue of exchange rate distortion and empowers formal businesses to effectively compete within the informal sector.
What are your thoughts on these new regulations?
