How the official/parallel forex system works

ocal currency in the past two weeks.
But the official rate for US dollars is still 250 to 1 and anyone going into the bank to change foreign exchange will get that rate. Exporters who sell their goods in USD will get that rate on a third of their total earnings – the balance can be used by the exporters or traded. So-called free funds – those foreign exchange resources that are not the proceeds of economic activity inside Zimbabwe (such as funds from the Diaspora) can also be traded – but not in the Banks – only on the street.
So if the State buys fuel using the US$500 million a year they take from exporters at 250 to 1 exchange rates, they can buy fuel – at a cost of about 60 US cents a litre landed and sell it on local markets at Z$325 a litre and make a very nice profit.  Their problems arise when they have to take into account all the demands on the official pool of foreign exchange created in this way.
 The State allocates these funds secretly so no breakdown of what they do with them is available – what we do know is that they do not have enough to buy food (US$350 million a year), fuel (US$600 million a year) and electricity (about US$60 million a year) and meet demands for patronage and self seeking payments for luxury cars and other Zanu (PF) perks.
So the supply of fuel at these low prices is limited to people who are connected to the State in some way and perhaps the security forces and the Police. The rest of us have to rely on the private sector. The private sector does not get any funding in terms of foreign exchange from the official system – they have to buy the so-called free funds on the open market for this purpose and that is where the parallel market for foreign exchange comes in – at 28 times the official price.
So we who rely on the open market for supplies – 98 per cent of the people who live here, must pay Z$6 500 a litre for fuel or go without. If the State was to try and control the open market price, fuel would vanish overnight and the country would literally come to a halt.
Take maize as another example – the State buys maize from our neighbours at about R1750 per tonne. This is only Z$62 500 a tonne at the official rate of exchange for the local currency. However, if it is purchased at the parallel market rate then the cost rises to Z$1 750 000 or 28 times the “official” cost. The selling price was Z$600 a tonne (yes – six hundred dollars a tonne). So the GMB was virtually giving away the product to local buyers.
But if you went into a store to buy maize meal – just milled maize in a bag, then you would have had to pay about Z$150 000 a tonne – a gross margin over raw materials costs of 250 times the sale price from the GMB. Who made the profit?
The profits made on such a system are enormous – on the 1,2 million tonnes of maize sold annually in this market for human consumption, the profit would be at present prices Z$350 billion a year. That is a massive 500 per cent gross margin – at the very least. Some traders are demanding Z$550 000 a tonne for maize meal – this is the wholesale price set by the indigenous millers association, an organisation linked to Zanu (PF).