- The Zimbabwean government has criticized suppliers for charging its prices based on the street value of the Zimdollar.
- These suppliers are blamed for a free fall in the local currency, which fueled inflation.
- The government has stopped paying suppliers.
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The Zimbabwean government has criticized suppliers who charged it $30 (~R530) for 2kg packages of prized chicken, as well as laptops for as much as $9,000 (~R160,000) each and 50kg bags of cement containing a price of $18 (~R320).
It has halted payments to these suppliers, now blaming finance minister Mthuli Ncube for a spike in the exchange rate.
The Zimdollar was in free fall, plunging on the streets of Harare last month to ZWL850 to the US dollar, where it traded in multiples above the official exchange rate.
The street exchange rate that companies used to set prices – as opposed to the government’s directive that they should only use the official exchange rate.
READ | Suppliers lash out at Zimbabwe government over stopped payments
Government contractors are usually paid in local currency, but used “speculative” street exchange rates for pricing.
“It had become common over the years that you charge the government multiple times the real value because the government pays after long delays,” a Zimbabwean treasury official told TBEN Business. “It had become acceptable and condoned across the spectrum because that was a way to finalize contracts.”
The official says that tenders were often awarded without regard to price controls.
Meanwhile, some government contractors told Fin24 that the tender process had “become a domain of well-connected runners for government officials” or their relatives whose tenders were “guaranteed”.
Government suppliers, who, according to sources, were “falling over each other to win contracts” used contracts with prices that were compared to speculative parallel market exchange rates “sometimes as high” as $1:ZWL2000.
Ncube pointed to a tender for laptops reportedly costing nearly $10,000, as well as cement that costs $18 a bag on some construction projects.
In response, Zimbabwe’s treasury stopped paying government and parastatal suppliers in recent weeks, noting that government procurement management units “have not exercised due diligence, especially considering the value for money” in terms of pricing.
Zimbabwe’s Ministry of Finance said rampant overprices have risen from June this year.
Treasury said President Emerson Mnangagwa’s administration was fueling inflation by paying for goods priced at speculative forward rates. Ncube also blamed overpriced government procurement for the declining Zimbabwe dollar and rampant inflation.
Inflation skyrocketed to 285% as prices chased street exchange rate movements. In response, the Reserve Bank of Zimbabwe raised interest rates to 200%.
Treasury says it has started blacklisting companies involved in overpriced tenders, while others are “not allowed to participate in government tenders” and contracts.