Panicky RBZ ups tobacco forex retention to 50%

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LIVINGSTONE MARUFU

THE Reserve Bank of Zimbabwe (RBZ) has increased foreign exchange retention levels for tobacco growers to 50% from the initially announced 30% to pacify restive farmers who had threatened to hold onto the golden leaf when the marketing season opens next month.

In his Monetary Policy Statement delivered last week, RBZ governor John Mangudya increased the retention threshold to 30% from 20%. Tobacco farmers had said that a 60 percent threshold was ideal for the sector.

At a meeting with tobacco associations on Tuesday, Mangudya buckled under pressure and reviewed the retention threshold after hours of negotiations.

Mangudya told Business Times last night (Wednesday) that the increase would encourage the farmers to bring the golden leaf to auction floors knowing that they would increase production on the back of good profit margins.

“We had a very productive meeting with the tobacco industry where we agreed on a number of issues that include the 50% retention on  net tobacco sales for the tobacco growers,” he said.

“We also discussed about orderly payment to tobacco farmers, opening of Nostro FCAs for growers, format sales sheets among other good housekeeping issues.”

The threat by farmers to hold onto the crop had raised fears of side marketing thereby the foreign currency earnings for the economy. Tobacco, which was the single largest forex earner in the past five years only to be overtaken by gold last year, contributed 21% of the
country’s export earnings.

According to the agreed position, forex retention will be 50% NETT of USD loans with contractors, paid into new nostro FCAs to be opened. The RBZ says access will be on invoice and settlement will be done weekly.

The RBZ said balance will be at interbank rate on previous day, paid in RTGS dollars, less RTGS loans and other registered stop orders based on 100% of sales value into RTGS account. The retention period will now be 90 days though the farmers will lobby for a longer period.

The golden leaf earned around US$900 million from the total country export earnings of US$4,2 billion.

The opening of the tobacco marketing season which is scheduled mid-March is expected to improve forex and liquidity challenges.

Wonder Chabikwa, the Zimbabwe Commercial Farmers Union president, said the increase is a huge boost for farmers to raise productivity levels in the tobacco industry.

“As farmers we are happy with the move by the RBZ governor as it capacitates the farmer to improve his or her personal being at thesame time earning forex for the country. This will certainly increase tobacco output levels of around 252 million kilogrammes to more than 260 million kg in the years to come,” Chabikwa said.

He said while farmers need foreign currency to sustain operations, other economic sectors required the foreign currency to sustain their operations.

Alious Nyarambi, a tobacco farmer in Goromonzi, said the 50% forex retention level will encourage more farmers to grow the golden leaf.

“I’m so happy that the RBZ has finally answered our calls after a long time of negotiations. We hope more people will join the party to grow the crop,” said Nyarambi.

Over the past decade, tobacco has been the single largest forex earner used to address the country’s liquidity challenges due to a lump sum paid by international buyers who mobilise an average of US$900m per season.

TIMB chief executive officer Andrew Matibiri said the central bank has moved to empower the farmer that toil for the country to get forex.

“We welcome the development by the RBZ governor to increase the forex retention levels for farmers as they will be encouraged to bring their tobacco to the floors without any hesitation. Finally the tobacco farmers will get their value for their hardwork,” Matibiri said.

Buoyed by last year’s tobacco output of 252 million kilos, 168 847 farmers registered to grow the crop this season, which is a 49 percent jump from the 113 619 farmers last season.

TIMB is projecting a tobacco output of over 260 million kg from 252 million kg obtained last year.

The RBZ is expected to issue a new Exchange Control Directive and TIMB is expected to release sales procedures.