Zimbabwe is currently grappling with a severe currency crisis, primarily driven by the rapid depreciation of the Zimbabwe Gold (ZiG), which was introduced in April 2024. Since its launch, the ZiG has lost over 40% of its value against the U.S. dollar, reflecting deeper structural issues within the economy. Economist Tendai Moyo highlights that the collapse of the ZiG has led to a significant erosion of public confidence, with many citizens reverting to the U.S. dollar for transactions. This shift has resulted in a thriving black market for currency trading, where illegal traders offer rates often double the official exchange rates. [28bb686a]
In a recent development, Zimbabwe's gold reserves have surged to US$533 million as of January 9, 2025. This growth is attributed to a directive from President Emmerson Mnangagwa to allocate 50% of mineral royalties in kind, which has bolstered the Reserve Bank of Zimbabwe's (RBZ) holdings. Currently, the RBZ holds 2.67 tonnes of gold valued at US$228 million, with gold production reaching a record 36.48 tonnes in 2024—a 21% increase from 30.10 tonnes in 2023. [bfd7784b]
The retail sector is facing immense pressure due to government policies that mandate the use of an overvalued official exchange rate, complicating pricing strategies for businesses. For example, a box of juice sells for $3 in supermarkets but only $1.50 in informal night bazaars, illustrating the stark price discrepancies consumers encounter. Retail giants like Pick n Pay have been severely impacted, with the company impairing its investment to zero due to these adverse economic conditions. [6b808935]
Additionally, the mining industry, including companies like Bikita Minerals, is experiencing operational challenges stemming from foreign currency shortages. The RBZ devalued the ZiG by 42% in September 2024, adjusting the rate from 14.1 to 24.4 ZiG per U.S. dollar. Financial analyst Dr. Nyasha Mlambo has criticized these measures as insufficient, arguing that they fail to address the root causes of the crisis. [28bb686a]
As the economy contracts, with the GDP plummeting to US$35 billion as of November 2024—a 25% decline from US$47 billion reported in April 2024—many consumers are increasingly turning to informal markets for more affordable options. Approximately 80% of the employable population now works in the informal sector, which has thrived amidst the economic turmoil. Gift Mugano, an economics professor, emphasizes that the currency crisis has pushed many to seek cheaper goods in these informal settings. [6b808935]
Despite the grim economic outlook, the RBZ aims to increase cash to total deposits to 5% and has announced plans for higher denomination ZiG notes to facilitate cash transactions. There are projections for a potential recovery of GDP to US$38.2 billion in 2025, driven by a 6.6% increase in household spending. However, skepticism remains among economists regarding these targets, as the country grapples with severe currency instability and a high inflation rate, which currently stands at 880% annually. The RBZ's recent monetary policy adjustments, including raising the bank policy rate from 20% to 35%, aim to maintain price and currency stability amidst these challenges. [08e8a7b9]