RBZ governor backs street sales

STUNG by poor cash circulation on the market, Reserve Bank of Zimbabwe (RBZ) is encouraging local manufacturers to sell their produce directly to the market as a way of tapping into the money that is circulating outside the mainstream market.

This comes after Standardbusiness reported three weeks ago that Zimbabwe's retailers were facing a new threat as companies in the fast-moving consumer goods (FMCG) sector were now pushing their products directly to consumers on the streets, bypassing supermarkets and wholesalers in search of the elusive hard cash.

RBZ governor John Mangudya last week justified the move by manufacturers to sell their produce directly to the market, saying this would help bring back money to the formal banking system.

"If you go to the informal sector you will find there is about 10-15% plastic money while the rest is all cash," he said.

"What we need to do under these circumstances is to formalise by ensuring that the bigger companies [manufacturers] sell their produce to the informal sector and get cash.

"Then they bank the cash. When formal businesses take money from the formal sector they will be formalising the formal sector.

"As long as the informal sector is bigger than the formal sector, we have a big problem. Those are the challenges we are facing."

Mangudya added: "So we need to find ways and means to get money from them and put the money into the formal sector.

"Those guys who are in the informal sector don't put their money in the bank. If Bakers Inn sells their bread to the informal market, they get cash and money comes to the formal sector because they bank their cash."

Zimbabwe is experiencing serious cash shortages, with most people spending nights in bank queues to withdraw as little as $40 cash.

The cash shortages continue to prevail despite the RBZ boss disclosing that there were $25 million worth of bond coins, $175 million in bond notes and approximately $800 million in various currencies under the multicurrency regime in circulation, to give a total of around $1 billion.

Food processor Cairns' CEO Nancy Guzha told standardbusiness that the company's strategy was to service consumers wherever they were, and wherever they choose to shop from.

"With regards to our products being more available on the streets, this phenomenon is more reflective of the current macro and socio-economic environment wherein informal trade has increased," she said.

"As a business, we continue to sell into retail and wholesale chains, and most of the products being sold on the streets will have reached the sellers via these channels.

"In an informal economy, the likes of which you see in most of Africa, Asia and Latin America, informal selling on the streets is a viable business option, and it only reduces to the extent that the economy becomes formal."

Dairibord CEO Anthony Mandiwanza also confirmed recently that his company was selling some of its products directly to the consumer at a discounted rate to get cash.

Confederation of Zimbabwe Retailer president Denford Mutashu, said the informal sector was an integral part of the value chain and it was high time government focused on aligning the informal and formal sectors.

"It is critical that the government focuses on strengthening the whole value chain for accelerated economic development as collective efforts to promote production in the country cannot be expedited without a vibrant retail and wholesale sector," he said.

"The informal sector is indeed an integral part of the value chain and it is high time government focuses on aligning the informal and formal sectors.

"This will improve the overall contribution to economic revival as a number of informal and unregistered businesses will decline. It has the effect of causing price distortions as the formal and informal cost structures differ."

Financial expert Persistence Gwanyanya said although a lot of money was circulating in the informal sector, such an intervention was not the best method to deal with the situation.

"There should be a mechanism of getting that money," he said.

"Is such a business model sustainable? Will it provide the permanent solution?

"Zimbabwe is a consumptive economy, which is highly informalised. So all the consumption is happening in the informal sector."

The Zimbabwe Revenue Authority said it could be losing potential revenue through this new phenomenon.