…Attacks selfish attitude
Reserve Bank of Zimbabwe (RBZ) governor John Mangudya has thrown himself into a fresh confrontation with local businesses accusing them of frantically “trying” to push the exchange rate higher, Business Times can report.
Mangudya described the business leaders’ attitude as “selfish” saying their reasoning was not influenced by demand and supply rationale.
The business community believes that the rate at the foreign currency auction system, which is hovering around 84.5:1 was not market based, but controlled.
The parallel market rate is hovering 130: 1: 1.
Mangudya said while the central bank was trying to extricate the economy from its woes, the business community was fighting hard to destabilise the economy.
“I have a problem with the business community. On the one hand, the business community wants to benefit from the blocked funds.
But, on the other hand they want to push the exchange rate upwards not because of demand and supply reasons but for selfish reasons because I can mathematically prove to you that the forex in this country is not in short supply,” Mangudya said at the CEO Roundtable meeting.
“It’s business community attitude yet almost all companies that come to the auction have blocked funds.
Instead of normalising the situation so that we pay your blocked funds with ease and with speed as expected, they want to push the forex exchange rate upwards.”
He said everyone should play ball so that blocked funds are paid with ease “instead of us wasting our time chasing the rate”.
Mangudya said business was going to pay at blocked funds at 1:1 but wanted to push for the rate to 100:1 so that the government would pay the difference.
“It becomes exchange losses which are borne by the government. Sometimes I ask myself when normalcy is going to come to Zimbabwe. We want to have a business community that has pride in normalising their economy,” he said.
Business leaders have complained that the surrender requirements, which compel all exporters to surrender 40% of their receipts to the central bank, have been a thorn in the market something which has left a sour after test in the mouth of most players including exporters themselves.
They said there was fragile stability which is dominant on the market with most companies still operating below capacity hamstrung by lack of funds, high labour costs, erratic power supplies, and forex shortages, among other challenges causing them to underperform.
The crisis has led to some companies closing, throwing thousands of workers onto the streets.
Foreign direct investment has not been forthcoming as anticipated with potential investors seeking reassurance over policy inconsistencies.
Company executives also said the auction system remains a buyers’ market with the government a key player on the supply side.
They feel the rate is typically controlled. Sources of funding the auction system are drawdowns of lines of credit, government and the surrender requirements funds from exporters.
Exacerbating the situation for the companies was a public wage demand across the market.
They are also battling a huge, blocked fund.
Mangudya said the businesses push for a higher forex rate would destabilise the economy.
He said a stable exchange rate would also make it easier for the central bank to pay for the companies’ blocked funds at the 1:1 exchange rate.
Mangudya dismissed claims that there was management of foreign currency auction system rate.
“Entities are the one which come to the auction through their banks. This is misinformation,” he said.
CEO Africa Round Table chairman Oswell Binha said there was fragile stability in the economy, which threatens companies.
“Over the last 18 years, Zimbabwe has been in random walk territory making it impossible to guess where the policy would turn next. The case of fragile stability is very dominant on the market. Companies are operating in a high cost environment. As we see a weakening exchange rate on the parallel market, this is a reflection of weakening economic fundamentals,” Binha said.
He added: “The auction remains a biased market with the government a key player in the market. The rate is technically controlled. Hence there is almost a 50% drift between the official and parallel foreign currency rate.”
Mangudya, however, was bullish saying: “We passed the fragility stage in September last year. We want to go beyond stability and to go to growth. We are staying the course.”