Foreign exchange receipts slid 9%

TAURAI MANGUDHLA

ZIMBABWE’S forex retention and compulsory liquidation rules are chasing foreign currency receipts out of formal channels as individuals and corporates use the back door to export and maximise receipts, analysts have said.

The Reserve Bank of Zimbabwe (RBZ) last week said the country’s much needed foreign exchange receipts slid 9 percent in the first nine months of the year to US$5.5bn compared to the same period last year. The RBZ said the mining sector was down 23 percent to US$1.93bn as gold and platinum underperformed while tobacco earnings also fell by 15 percent. Diaspora remittances went down 9 percent to US$861m.

Coupled with a shortage of foreign currency, stemming from tight liquidity and mismanagement of resources as well as power shortages, the economy is sinking by the day with a lasting solution needed now more than ever to save industry from collapse, the experts said.

Zimbabwe’s key economic drivers, mining and tobacco, are also underperforming with gold and platinum receipts below the same period in the prior year. Under the foreign currency retention, miners get 55 percent and the central bank 45 percent.

If not used within 30 days, the foreign currency will be converted to local currency at prevailing interbank rates. Power shortages and a volatile exchange rate are cited as among the reasons business is struggling to produce and grow exports. This has left the economy in turmoil. Poor foreign currency receipts spell doom for Zimbabwe which depends on electricity imports, fuel imports, food and medical supplies.

Markets analyst Itai Chirume of MMC Capital said the reduction in foreign currency receipts could point to increased use of informal channels.

“This may not mean that our economy is receiving less forex this year around compared to last year – it may very well mean that more forex is now flowing in through informal channels relative to prior year,” Chirume said, adding key economic drivers are also underperforming.

“Take for instance gold deliveries to Fidelity, these have fallen big time but it is not to say that there were less sales. Sales are most likely happening outside Fidelity and thus not being accounted for by the RBZ yet the forex from these illicit sales would still flow into and benefit the economy,” Chirume said.

If more forex is to flow in the formal channels, Chirume said, the authorities ought to address the issues of forex retention and the time frames for compulsory liquidation as these seem to be the major reason why deliveries to Fidelity have dwindled.

Economist John Robertson said foreign currency receipts are down as a result of deindustrialisation. “Foreign currency depend on exports and exports depend on how many businesses are able to compete on the international market – producing quality goods but we have closed down industry and most of our furniture manufactures and consumers’ goods producers well as textiles are down,” Roberson said.

He said Zimbabwe needs new investment to extricate the economy out of this turmoil. Attracting new capital from outside the country has been a mammoth task for Zimbabwe largely due to policy inconsistencies, corruption and questions around property rights violations largely committed under the land reform and indigenisation programme.

Despite deliberate efforts by President Emmerson Mnangagwa to reengage the Western countries, the progress has been sluggish. Robertson said, Zimbabwe needs economic stability and certainty.

“There is also no electricity so investors are not coming under these conditions. We can’t restart industry when there is no electricity,” he said, adding skills are among part of the reason business is in trouble.

Industry has improvised with some adopting night shifts in times when there is no electricity as massive load shedding cripples the economy. Some players resorted to generators which are expensive given the rising cost of fuel.

“We are definitely not going to see change until and unless the electricity supply situation improves. Other companies even have water problems and as a result investment will not come,” Robertson said.

“We have even had problems with skilled labour for example the best furniture makers have left the country or formal business into the informal sector where taxes are difficult to collect and exports hard to record.”

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