Mnangagwa Faces Mounting Pressure as Black Market Undermines ZiG

Much of the progress that President Emmerson Mnangagwa’s administration hoped to accomplish with the introduction of the Zimbabwe Gold (ZiG) currency earlier this year is in jeopardy due to the destabilizing effects of the resurgent parallel market. Mnangagwa has indicated the necessity for quick remedial measures to save Zimbabwe’s frail economy from more unrest as market dynamics spin out of control. His worries highlight the intricate relationship between the robust black market that still controls exchange rates covertly and official monetary policy.

Mnangagwa stated in his State of the Nation Address that Zimbabwe’s financial goals were facing a significant obstacle due to the resurgence of parallel market activity. TZiG’s value has rapidly declined since it was first fixed at 14 US dollars per unit. The Reserve Bank of Zimbabwe (RBZ) was compelled to lower the value of the currency to 24.3 US dollars per unit, even though values above 35 are currently available on the black market. The discrepancy between official rates and illicit market pricing suggests more serious problems with the nation’s currency credibility.

The resurgence of the illicit market serves as a sobering reminder of the factors opposing Zimbabwe’s attempts to recover economically. In his statement to Parliament, Mnangagwa reaffirmed the government’s commitment to maintaining the value of the local currency, which is backed by gold and other precious metals, but he also conveyed a feeling of urgency in his voice. Macroeconomic stability is largely dependent on reining in inflation and reining in speculative activity, two challenges that have proven formidable in a nation where economic shocks have fostered a strong informal market structure.

In his speech to the country, Mnangagwa emphasized how important it is for Zimbabweans to support economic stability. He framed the problem as one of shared responsibility, calling on businesses and the general public to abide by economic policies that aim to maintain price stability and the foreign exchange market. Though government policy has made the willing-buyer willing-seller arrangement more flexible in order to facilitate price discovery, the parallel market nevertheless takes advantage of flaws in the system to increase volatility and prolong uncertainty.

The core of Mnangagwa’s economic philosophy is a conundrum. On the one hand, the government applauds the expansion of the export industry, noting that foreign exchange inflows increased from US$7 billion in 2023 to US$8 billion in 2024, indicating some success. However, this inflow hasn’t stopped the black market’s operations entirely. Despite being promoted as a currency with substantial reserves, the ZiG is losing the trust of the populace, as many of them still depend on the black market to obtain foreign exchange. This dichotomy highlights the difficulties faced by policymakers in maintaining confidence in official channels in the face of persistent market distortions.

Even though Mnangagwa’s administration is working hard to safeguard the economy, it is obvious what happens when the black market is allowed to grow. Apart from the direct danger of weakening the ZiG, speculative actions driven by the black market may result in increased inflation, reduce the purchasing power of common Zimbabweans, and widen socioeconomic gaps. The president’s awareness of these dangers underlines the fragile balance the government must find between supporting economic growth and resolving longstanding structural problems.

A major topic of discussion in Mnangagwa’s speech was agriculture, namely the expected record-breaking wheat production for the winter crop of 2024. With a harvest of 600,000 metric tonnes, Zimbabwe’s economy is seeing a positive trend thanks to cooperation and well-executed programs. Zimbabwe’s economy is largely based on agriculture, which is thriving despite challenges in the banking sector. The president is hopeful about future yields because of expected beneficial rains in the upcoming seasons. However, the long-term viability of these agricultural triumphs depends on the stability of the wider economy, which is jeopardized as long as the black market persists in undermining monetary policy.

In order to preserve investor confidence, Mnangagwa underlined his administration’s commitment to fairly resolving issues under bilateral investment promotion and protection agreements on a global scale. The fact that 94 claims were approved by the Compensation Committee shows how committed Zimbabwe is to righting historical wrongs and fostering an atmosphere that will attract more investment. But such efforts might be obscured by the current volatility in the currency market, where foreign investors sometimes wait to enter long-term partnerships for indications of stable and consistent economic administration.

In his analysis of Mnangagwa’s speech, economic researcher Stevenson Dhlamini pointed out that the president’s promise of a market-determined exchange rate was a crucial signal to investors. Dhlamini emphasized that conditions where economic policies seem erratic or inconsistent are favorable to the speculative tendencies of the black market. There is hope for eventual stabilization because the government has promised more flexibility and clarity in its foreign exchange policy, coupled with increased export receipts, but it is obvious that these benefits may remain elusive without serious action against parallel market activities.

Therefore, Mnangagwa’s task is not just to devise sensible economic policies but also to implement them in a way that reduces illicit market activity and boosts public trust in the formal sector. The president’s emphasis on coherence and consistency in policy is indicative of his administration’s understanding of the value of predictability for stakeholders in both the domestic and foreign arenas. But the issue still stands: will the ZiG become another victim of Zimbabwe’s ongoing currency conflicts, or will the country’s economy withstand the ongoing strains of the black market?

More: The Zim Bulletin