LIVINGSTONE MARUFU
Most local companies are battling constrained working capital holdings with some in the negative and lower leverage ratios, creating uncertainty over their ability to meet short-term obligations, it has been learnt.
Captains of industry told Business Times this week that financially constrained companies were struggling to keep afloat.
They said companies were fighting a war of survival as they are now paying the price for the RBZ settlement delays which come with high premiums.
The Confederation of Zimbabwe Industries president Kurai Matsheza said this affected production.
Matsheza said the RBZ should settle auction bids within a week to avoid unnecessary costs.
“The forex auction system should help us procure hard currency at a reasonable rate but the failure to settle bids within a week means various companies will be left with no working capital as much money would have gone to procure forex at the auction system,” Matsheza told Business Times, adding that companies are left with no money for even administrative costs.
He added: “This has bled the industry and this is the same thing we continue discussing in vernor [John Mangudya] but surprisingly he did not address it in his Monetary Policy Statement (presented this week).”
Experts say the failure to come up with an effective auction system was causing a huge gap between parallel rate and official rate.
The Zimbabwe National Chamber of Commerce CEO, Christopher Mugaga said the monetary authorities should move with pace to fine tune the auction system.
“As long as we have an unrefined auction system which continues to have many flaws, the gap between official rate and parallel market rate will not be closed and equilibrium won’t be reached,” Mugaga said.
“The same challenges we were facing as an industry will not disappear overnight as they remain unaddressed.”
An industrialist, who preferred anonymity, said the delays at the auction system will make it more expensive than the parallel market in the sense that costs involved in the delays to settle bids and interest rates at banks become unsustainable.
“The interest charges incurred on delayed auction backlogs and other bank charges add 10% to the official rate and a month of no working capital will make the system worse,” said the industrialist.
Other industrialists said the auction delays have brought more harm to the industry as the players are getting less money they have applied due to higher interest rates and bank charges.
Analysts posited that Zimbabwean banks have survived this far due to bank charges, interest rates and fees and the delay by the RBZ has further compounded the costs for manufacturers.
Industrialist Sifelani Jabangwe said the settlement delays have hampered production as it has brought more costs to the manufacturer.
“The official rate stands at ZWL$118 but in actual fact we are buying the dollar at over ZWL$190 as the bank charges and interest rates incurred from the bids settlement are destroying us,” he said.
“The delays have also cost us a great deal of money as we have suffered supply glitches and a rise in US$ costs in the past months. Various goods and commodities have increased prices in US dollars as manufacturers go for quick loans to continue producing,” Jabangwe told Business Times.
Working capital is an important element of any organisation, which measures the overall health and liquidity of a company.
The crux of the matter is companies that participate in the foreign currency auction surrender the Zimbabwe dollar equivalent in advance.
But, the central bank is taking more than four weeks to settle successful bids.
This has forced companies to source foreign currency from the black market, where premiums are high.
It also emerged that the companies incur high interest rates and bank charges for the time the money would be lying idle because of the central bank delays in settling successful bids.
In his Monetary Policy Statement, Mangudya said RBZ will continue to fine tune the exchange rate policy which is premised on the foreign exchange auction system to focus on exchange rate flexibility and promotion of external competitiveness as well as tackling rent-seeking behaviour.
He said the refinement of the foreign exchange auction system shall be buttressed by strict adherence to and enforcement of the Know Your Customer and Customer Due Diligence principles and requirements by banks when processing forex bids and intra-bank transfers on behalf of their customers. It will also be buttressed by timeous settlement of auction bid allotments within a period of two weeks and allotment of foreign currency on the basis of available foreign exchange to avoid incidences of settlement backlogs.
