Industry in fresh crisis as lenders shun LCs
LIVINGSTONE MARUFU
Local industry has lurched into a crisis as lenders are increasingly becoming reluctant to guarantee letters of credit (LCs) that enable companies to import critical raw materials due to Zimbabwe’s high country risk profile.
Captains of industry told Business Times this week that the few LCs, which are issued in place of cash payments, are being confirmed after four months.
The failure to utilise the LCs means local companies are facing serious problems importing raw materials since they are also failing to access foreign currency from the foreign currency auction system.
The industry leaders say the auction system only provides about 30% of their forex needs. To cover for the shortfall, local companies have been obtaining LCs to finance international trade.
The Confederation of Zimbabwe Industries president Kurai Matsheza told Business Times: “Various LCs are not going through as a bank somewhere has to deposit some money with the foreign banker to ensure that when the time comes that money goes through. The problem is that foreign banks no longer want to tie their money to us for a period of 90 days or 60 days or even 30 days , due to high country risk.”
Matsheza added: “It’s a country risk issue. People don’t trust us and we are not worth trusting because of our inability to service loans with international financial institutions. With the problems of Zimbabwe foreign banks are hesitant to do that, so that is where the delays are coming from.”
The delay by the RBZ to settle foreign currency auction bids has seriously affected the manufacturing industry as the companies incur interest and bank charges.
Companies have been forced to source forex from the parallel market as the auction system is said to be taking more than 10 weeks to settle bids.
But the industry players are saying they are now paying the price for the settlement delays which come with high premiums.
This has affected production.
Annual inflation continues to soar. In the month of March, the inflation rate stood at 72% from 66,11% in February resulting in the cost of business to go up.
Recently, the Reserve Bank of Zimbabwe (RBZ) hiked lending rates to 80% from 60% to curb speculative borrowings as part of measures to tame inflation
Matsheza said RBZ governor John Mangudya was carrying a burden that he is not supposed to carry “because he does not have money to support the economy”.
However, the industrialist believes Mangudya, who could not be reached for comment, should also take the flak saying: “We just need proper policies that can unlock funding. Given our problems, we should ask for forgiveness from the multi-lending institutions and powerful countries to get fresh lines of credit. Without loans, we will not go anywhere.”
