Devaluation or not?

The Zimbabwe dollar, which has so far managed to stand its ground against major currencies since the 1991 devaluation despite the tumbling of, first , the US dollar, and then, the pound sterling in the past few months, is not likely to weather the storm when it hits South Africa.

There are reports that South Africa- Zimbabwe’s biggest trading partner but officially its biggest foe – may be forced to devalue the rand by as much as 20 percent by the middle of next year because of the increasing unemployment in the country and the slump in the clothing and textile industries.

Zimbabwean exporters of clothing and textiles were enjoying a preferential tariff until the end of April when South Africa introduced a punitive import duty on Zimbabwean clothing and textiles.

South Africa has since rescinded its decision and Zimbabwean exporters can claim a refund of the additional duty they paid from May but the suspension of the punitive import duty is only valid until the end of this year.

If South Africa therefore devalues the rand, Zimbabwe will have no alternative but to devalue the dollar if it wants to continue to survive. Most clothing and textile firms closed when they lost the South African market because domestic demand had also plummeted.

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