LIVINGSTONE MARUFU
A decision by the Reserve Bank of Zimbabwe to maintain foreign currency retention thresholds has left captains of industry frustrated saying the move will threaten the viability of local companies.
Business leaders were pushing for at least 80% retention threshold.
But, presenting his mid-term monetary policy statement, RBZ governor John Mangudya maintained the threshold at 60%, leaving a long trail of anger among business leaders.
The Confederation of Zimbabwe Industries president Kurai Matsheza told Business Times that the maintenance of the 60% threshold continues to affect companies’ sustainability.
“The fact that the central bank did not address the forex retention threshold means the companies’ balance sheets are going to remain thin with viability expected to be a major challenge in the near future,” Matsheza said.
He said the 40% surrender requirement “reduces viability for the manufacturing sector exporters, especially given the exchange rate distortions in the market, hence is also another form of taxation”.
The Chamber of Mines of Zimbabwe said it was of the view that there was a need to review the foreign exchange retention framework, given that the multicurrency system was embedded into law.
“The upward review of the minimum retention to 80% from 60% was not attended to and that means more mining companies’ viability will be affected,” the Chamber of Mines of Zimbabwe said.
The miners, the chamber said, now require at least 80% of their foreign currency earnings to meet the increased demand for forex and fund their operational requirements and expansion projects.
With most mining companies undertaking expansion projects, the available foreign currency is inadequate to fund operational requirements and the implementation of capital projects.
Industrialist, Sifelani Jabangwe, said the industry has become more and more unviable unless increased forex retention threshold is introduced as well as fresh credit lines, given the perennial challenges they have been facing coupled with the new challenges caused by the Russia-Ukraine war.
“We expected the RBZ to increase the forex retention to address viability issues. For now, 80% can be ideal to cover the industry’s requirements as margins on exports are fairly low as they are in the range of between 10% and 20%. If you get retention of less than 80% you will definitely make a loss or you will have to compensate for high prices,” Jabangwe said.
Economist with the University of Zimbabwe, Moses Chundu, said there is need to incentivise the industry to make prices of goods affordable.
“We all know that the auction has not been helping the industry much hence they should allow the players to get more forex in order to improve production levels,” Chundu said.
“Another thing is that if the auction is not effective, why can’t we abandon the system as we continue to hear the same issues every time.”
Experts fear that if the authorities do not increase the forex retention levels to the desired levels, the businesses will increase the prices of goods to remain afloat.
In its submissions to the central bank, the Bankers Association of Zimbabwe called for uniformity on foreign currency surrender requirements to eliminate arbitrage and level the playing field.
Mangudya has in the past said the current forex retention level is key for the sustainability of the auction-based system as it provides for producers who generate limited forex.
