LIVINGSTONE MARUFU
Industry is negotiating with the Reserve Bank of Zimbabwe (RBZ) to wholly retain its export proceeds amid revelations the 40% liquidation of foreign receipts has severely hit business operations.
The sector is currently retaining 60% of export earnings and sells the remainder to the RBZ at the prevailing formal exchange rate.
“We are engaging the Reserve Bank of Zimbabwe (RBZ) on the forex retention threshold. Most of our members are now pushing for a 100% forex retention threshold to enable companies to get working capital in the absence of the properly functioning forex auction system,” Confederation of Zimbabwe Industries president Kurai Matsheza told Business Times.
“If a company wants local currency it can apply to a bank with all forex going towards working capital. As it stands with a ballooning backlog, the companies don’t have even enough Zimbabwe dollar as the money would have gone to the auction for forex procurement and the money does not come on time.”
Industrialist Sifelani Jabangwe said the authorities should review the forex retention threshold to help the industry to get the much needed working capital which has become very limited.
“Given the perennial challenges we have been facing coupled with the new challenges caused by the Russia-Ukraine conflict, the industry has become unviable unless the authorities review the forex retention threshold and extend fresh credit lines,” Jabangwe said.
He said a number of companies are “struggling to break even” under the current forex retention levels, hence a push to increase the retention threshold to “extricate companies from loss making positions”.
Business leaders said one of the major reasons for industry troubles was the auction system, which is not a price discovery platform but rather an allocation platform.
The forex backlog swelled to about US$350m from US$75m two months ago.
Under the set rules, the highest bidder is supposed to access the forex first but the rule was no longer observed.
Instead, the RBZ is allowing the lowest bidder to access forex ahead of the highest bidder.
Industry players said this ’kills’ the appetite to bid higher and reduces competition.
The increase in the backlog comes as RBZ has missed its end of March and April deadlines to clear the backlog.
“The reason why players want 100% is that the local currency is no longer attractive to them and the rate at which the amount is liquidated at, at a time when the auction backlog is at 11 weeks ,” Matsheza said.
This week, RBZ maintained the bank policy rate at 80% on the back of the existence of strong fundamentals and the government’s plans to come up with measures to stabilise the economy.
In an update on Tuesday after last week’s Monetary Policy Committee, the RBZ governor John Mangudya said the committee noted with satisfaction that the economic fundamentals have remained strong to support a stable exchange rate as evidenced by a “favourable current account balance, positive growth of the real sector, public works undertaken by government, fiscal sustainability and a tight monetary policy stance”.
“The positive trend in foreign currency generation has seen the country realising US$2.4bn in foreign currency receipts during the first quarter of 2022, an increase of 15.9% compared to foreign currency received during the same period in 2021,” Mangudya said.
“The foreign currency receipts were against foreign payments of US$1.8bn, leaving a surplus of US$1.9bn.
“Money supply has also remained largely under control, with reserve money remaining stable at levels of around ZWL$28bn for the past six months, while annual growth in broad money fell from 384% in March 2021 to 151% in March 2022.”
Mangudya said the existence of strong economic fundamentals suggests that the recent exchange rate shocks are a manifestation of “negative sentiments or perceptions”
Matsheza said the fundamentals may be right in the authorities’ perceptions but on the ground there was a different story altogether.
“The time they put in place these measures, the fuel hikes were not as frequent as now. Inflation was not as quick as it is now and the devastating effects of Russia were not as destructive as they are now hence there was a need for an adjustment to policy measures to meet the escalating challenges,” he said.
Industry players are pushing for the immediate slashing of the fuel taxes amid rising cost of production triggered by fuel price increases on the back of the Russia-Ukraine war.
The diesel price increase was reviewed upwards to US$1.71 a litre from ZWL$1.60 while petrol is now selling at US$1.63 a litre from US$1.59 a litre.
“You tend to wonder if they scrapped the taxes as our fuel remains one of the most expensive in the world. With the scrapping of taxes being the only way to cushion the economy and the public, the development should have an effect on our fuel prices,” Matsheza said.
The price increase in fuel has further pushed up the prices of basic commodities beyond the reach of many thereby increasing the poverty levels to more than 50% of the population.
Prices of basic goods are now increasing on a three day basis, eroding consumer spending power.
