Dozens of local firms have dumped the Reserve Bank of Zimbabwe (RBZ) managed foreign exchange auction trading system citing frustrations emanating from the growing allotment backlog that has significantly affected operations.
The central bank has failed to clear the widening backlog even despite a directive by President Emmerson Mnangagwa to do so by May last year.
RBZ introduced the auction system in 2020 where companies would buy foreign currency for their operations.
As at December 31, the platform had cumulatively allotted over US$3 bn since inception.
Experts say the weekly auction system was an attempt to address the country’s foreign currency woes but two years down the line, forex shortages remain visible.
Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza said this week that the issue of backlogs at the foreign currency auction continued to characterise the platform with frustrated companies resorting to the black market that has its own severe consequences for the economy.
“This saw demand for the auction services falling, with frustrated firms moving away from the auction as a source of foreign currency.
“This also meant that the parallel market remained a viable option, with the only challenge being the high costs associated with participating in such a market,” Matsheza said.
Industry has been affected by delays in allotting the foreign currency particularly due to the position that the companies that participate in the forex auction system are required to surrender the Zimbabwe dollar equivalent in advance.
There is more demand than supply as the forex auction system does not have adequate funding to meet the demand, forcing frustrated companies to pay the price for the RBZ settlement delays as they are now sourcing the greenback from the alternative market, where premiums are punitive
Last year, the RBZ also introduced the Willing Buyer Willing Seller (WBWS) foreign currency market trading system, administered by banks, as part of efforts to liberalise the exchange rate.
But volumes in this market remain negligibly thin.
Matsheza said the WBWS market was yet to function as a true market-determined exchange rate as there are a number of restrictions.
He said the RBZ should transform the WBWS market as it only caters to a limited segment of the population that seeks external transactions.
Given that most companies are finding it difficult to access forex from both the auction and the WBWS trading systems, they now depend on domestic sales.
“However, domestic sales remain the main source of foreign currency, with about 45% of the firms indicating that it is their main source of foreign currency.
“This also explains why a gloomy picture did not arise despite the depreciation of the local currency,” part of CZI latest report reads.
The CZI said the WBWS market has the potential to stem the parallel market distortions through a market determined exchange rate if it is fine tuned to ensure an enabling environment for business.