The Reserve Bank of Zimbabwe (RBZ) managed foreign currency auction system has served industry well as local companies are now accessing adequate forex to import critical raw materials, a Cabinet minister has said.
Zimbabwe adopted a forex auction system in June to replace the fixed exchange rate which had created rent seeking behaviour as it trailed the parallel market rates by a wide margin.
Industry and Commerce minister Sekai Nzenza told Business Times that Zimbabwe’s industry requires at least US$100m a month, which translates to US$1.2bn annually to import critical raw materials and procure equipment.
Nzenza said companies have been accessing the required amount to fund imports from the forex auction system since its launch in June last year.
She described the forex auction system as the driving force behind the stabilisation of the exchange rate and prices of goods and service.
“The foreign currency auction system introduced by the RBZ has played a critical role in the stabilisation of exchange rate and prices. On average, industry requires US$100m per month to import raw materials and the auction system has been sufficient to allow access to foreign currency to fund imports,” Nzenza said.
“The amount traded on the system targeting SMEs has also assisted small traders. Industry has reported increased capacity utilisation because of the auction system and business confidence has gone up.”
Over the past few years, Zimbabwe has been battling acute shortage of foreign currency in the formal market, a situation which resulted in local companies procuring the much-needed foreign currency from the parallel market where premiums were higher. In turn, the companies would pass on the costs to consumers.
Nzenza said industry has responded to the Ministry’s Local Content Strategy as witnessed by increased local sourcing of raw materials.
This has also resulted in more than 60% of goods on the shelves of most retailers being locally manufactured.
She said the government will continue implementing the import substitution strategy as it is critical for increased local production, employment creation and stabilisation of prices on the domestic market.
Government has imposed new month-long Covid-19 lockdown measures following exponential rise in infections.
This has hit hard local companies.
Consequently, the local industry players are now calling for a financial bailout package from government.
As many companies continue to experience sharp revenue declines, some have been forced to shut down, as they struggled to pay wages and salaries.
Those that are still operating are teetering on the brink of collapse.