LIVINGSTONE MARUFU
Industry is pushing for an improved foreign currency retention threshold to 80% as the Dutch forex auction system has proved to be inadequate and has left companies battling serious working capital challenges.
The manufacturing sector is allowed to retain 60% of their earnings in foreign currency. The balance is paid in Zimbabwean dollar at the prevailing official exchange rate.
Captains of industry said a forex retention threshold of at least 80% should be in place for them to produce profitably as the current offer was too little compared to rising costs in United States dollar.
They also said the knock- on effects of high fuel prices, supply chain disruptions and forex challenges have further squeezed the already ailing industry.
“It’s high time that the monetary authorities review the manufacturing sector’s foreign currency retention levels to 80% to allow the industry to fund its operations rather than to depend on auction allotments which take time to settle,” Confederation of Zimbabwe Industries president Kurai Matsheza told Business Times.
“[The retention] has always been the issue for many years now hence there is a need to review manufacturing sector forex retention levels to improve on competitiveness.”
Matsheza said allotments are taking more than two weeks to settle hence many companies are living on margins as they have very limited or no working capital to continue with the business.
Industrialist Sifelani Jabangwe said industry has become more and more unviable unless increased forex retention threshold is introduced as well as fresh credit lines given the “perennial challenges we have been facing coupled with the new challenges caused by the Russia -Ukraine conflict”.
“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 a retention of less than 80% you will definitely make a loss or you have to compensate with high prices,” Jabangwe said.
University of Zimbabwe economics lecturer, Moses Chundu said there was a need to incentivise the industry.
“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.
“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,” Chundu told Business Times
