LIVINGSTONE MARUFU
Zimbabwe’s manufacturing sector is pushing for the removal of the forex retention threshold to wholly retain their foreign currency proceeds arguing that the economy has redollarised and there is no need for taking a portion from companies’ hard-earned cash.
The sector is allowed to retain 60% of its earnings in foreign currency with the balance being paid in the Zimbabwean dollar at the prevailing official exchange rate.
This has left companies battling serious working capital challenges.
The push for the total retention of forex earnings comes as the Reserve Bank of Zimbabwe (RBZ) governor John Mangudya this week announced that he will review the forex retention threshold in the first quarter of 2022.
Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza told Business Times the changing economy has complicated the central bank’s forex retention policy measure.
“The surrender requirement threshold is no longer necessary as the economy has redollarised therefore they no longer serve any purpose as they continue to hurt struggling entities. There is no need to review them but to remove them,” Matsheza said.
He said Mangudya would have done some considerations to relook at those numbers both in terms of the interest rates and surrender requirements.
“The failure to review it now shows that they are worried about the situation and maybe lack of confidence to say the prevailing stability is not going to last for long that’s why they are taking that hard stance.
“Interest rates are affecting business and similarly, the forex retention threshold,” he said.
Industrialist Sifelani Jabangwe said the industry has become more unviable unless an 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”.
“We need a higher forex retention to return the competitiveness of our goods as the rising costs of production are eating into our margins,” Jabangwe said.
They also said the knock-on effects of high fuel prices, supply chain disruptions and forex challenges have further squeezed the already ailing industry.
Industrialists said that retention has always been an issue for many years now and there has to be a long-lasting solution to that.
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.
An economist who commented on the condition of anonymity said there was a need to incentivise the industry.
“We know that the economy has redollarised and there is no need to continue with such punitive measures as rising costs in US$ are affecting the competitiveness of our goods.
“The local industry has suffered years of deindustrialization during the hyperinflation period and it requires some incentives to come back to its feet.
“Moreso, electricity has crippled companies’ operations and there is no need to be hard on them, therefore the review was supposed to be done right now, not during the first quarter of 2023,” he said.
