Zimbabwe Absurdity

Zimbabwe has two official currencies, the US dollar and the local dollar. The latter is officially called the Zimbabwe Gold or ZWG. It used to be called the ZiG (also Zimbabwe Gold as apparently it’s gold backed) but that’s no longer used by the government, perhaps it sounded too much like the cartoon character that it is. The general public still use the term “ZiG”.

That both currencies are legal means that one cannot refuse payment in either. This of course brings up the sticky issue of exchange rates. A visit to the Reserve Bank of Zimbabwe’s (RBZ) webpage is instructive. A one ounce gold coin is being sold for US$2,744 or ZWG70,723 which makes the exchange rate 25.77 (it’s tightly controlled). Last week I bought ZiG/ZWG at 34 to the US dollar off an informal dealer. Why? Because my business takes in so little ZiG and I wanted a cheaper way to pay off my electricity bill and there was no way I was going to pay US dollars for that appalling service!

Officially the ZiG month-on-month inflation is 11.7% (277% annually as calculated) and the US dollar inflation is 0.09%. Given that a US$ loan will cost 9.5% per annum that is very conservative. Interestingly, the US$ annual inflation is given as 3.28% but the ZiG annual inflation is not given – too embarrassingly high perhaps? Of course Zimbabwe has had problems with currency inflation in the past so it’s hardly surprising that they don’t want to repeat the 2008 debacle. The official ZiG to US$ exchange rate is enforced by punitive fines, in US$, so it was surprising that the RBZ suggested in October that they let the exchange rate run in order to maintain the public interest in the ZiG.

Another way of stimulating interest in the ZiG – and I use the term loosely – is forcing the public to pay a percentage of their taxes in ZiG. The government excels at imposing taxes. There’s a 2% transfer tax on most currency payments and a 3% levy on withdrawing cash. Income tax starts at US$100 per month! Company tax is payable quarterly based on estimates and there are penalties for being inaccurate.

The ZiG, despite much fanfare at it’s introduction in April this year due to the ballooning devaluation of the previous currency, has never been issued in note form. This has insured that people use the banks as little as possible and keep whatever hard currency they have “under the mattress”. It’s not without risk of course – a recent fire at one of the big local markets destroyed a lot of people’s savings.

In an effort to streamline tax collection the local tax authority has implemented a system of tax compliance for retailers and wholesalers. They are now required to register with the authority (ZIMRA) and have a system whereby they are online to the authority and every sale is registered and a QR code is printed on the invoice at the till point/checkout. Yes, it actually does work – try pointing your smartphone camera at the example below. Fortunately everything my company sells is zero VAT rated (plants for cultivation) so it’s not a requirement for us.

The whole tax accounting system has been overhauled and now each registered company has just one account for both company tax and income tax. In the past there were two and managing the system was complicated. Now it’s so simple that I can almost understand it but prefer my bookkeeper to handle the returns. Progress? I guess it is in a way.

We haven’t made any progress in growing the economy. The budget speech by the Minister of Finance at the end of November is best described as entertaining. I quote; “The attainment of the projected 6% economic growth in 2025, will result in Zimbabwe being one of the fastest growing
economies in the region.” This is despite “… the agriculture sector, which was initially projected to contract by -21%, is, now expected to contract by -15% on account of better than anticipated output on wheat and dairy.” It seems the Minister of Finance hadn’t read the RBZ figures because he says “…prices for goods and services have relatively been stable following the introduction of Zimbabwe Gold (ZiG) in April 2024. Month-on-month ZiG inflation declined by -2.4% in May 2024, and averaged 0.0% in the second quarter of the year.” The full speech can be downloaded here.