ZIMBABWE’S oil expressers are operating at 20 percent capacity weighed down foreign currency challenges, serious power outages and high cost of doing business, the sector has said, as it pleaded for government’s intervention to rescue the situation.
The development comes at a time when most companies are struggling to sustain on the market as they are facing the devaluation of the Zimbabwean dollar as well as failure to access foreign currency on the interbank market.
Industry players say oil expressers need US$20 million monthly but are getting US$4 million. Depressed capacity has triggered shortages resulting in cooking oil prices increasing to ZWL$48 from ZWL$28 per 2 litre bottle.
Oil Expressers Association of Zimbabwe (OEAZ) president Busisa Moyo told Business Times that members continue to suffer from forex shortages due to high interbank rates and premiums placed on the Afreximbank’s letters of credit.
“Averagely, our members are operating at 20 percent since the beginning of the year due to viability challenges. Some have shut down; others are considering cutting working hours and outright retrenchments due to the indications of deterioration,” Moyo said.
“If there is no improvement or urgent intervention by monetary authorities or Treasury in the next 30 days the sector and value chains developed thus far like the cottonclothing, soya bean to white meats and basic commodities will be significantly damaged or destroyed. “
He said that local demand has fallen significantly due to wage compression and exports are the only way out to raise capacity utilisation but foreign currency access through the interbank market has been extremely thin and dwindling.
“Letters of credit are unviable because of the cash cover premiums above the interbank rates required by the banks and other structural flaws which make them unworkable so the raw material supply is an impediment to exports on the bank of a weak currency,” Moyo said.
Due to harsh economic environment where Zimbabwean dollar is inflated, the market prices continue to escalate, thereby giving the OEAZ a burden of how to run the business, characterised by low trading of below 50 percent.
“The Zimbabwean dollar is significantly devalued and carries a massive “confidence discount” its trading at 25 to 30 percent of its value due to the absence of a fully functional markets for foreign currency, the incessant practice of crowding out productive sector in the foreign currency market,” Moyo said.
“Lack of access to up-to-date information by market actors so they can make correct computations and hold realistic views about exchange rate, avoid unnecessary panic, speculation and finally limiting dailyweekly-monthly single party foreign currency transactions to allow for broad based access to foreign currency.” — Business Times