The Reserve Bank of Zimbabwe (RBZ) will only target abusers of the forex auction system as it made a U-turn on the new foreign currency regulation amid mounting pressure from businesses, it emerged yesterday.
Statutory Instrument (SI) 127 of 2021 gazetted last month gave RBZ powers to impose hefty penalties on businesses accused of abusing foreign currency obtained from the auction system and those that price their goods and services above the ruling official exchange rate.
The RBZ said the new regulation was meant to instil discipline in the market.
Several meetings between business and RBZ and the Ministry of Finance and Economic Development, were held over the matter in the past three weeks.
In a communication to members, SME Association of Zimbabwe chief executive officer Farai Mutambanengwe said RBZ had changed its position on the implementation of SI 127 of 2021.
Mutambanengwe said the central bank’s efforts to foster compliance in terms of SI 127 of 2021 would be limited to outliers that wantonly abuse the foreign exchange auction system, exchange rate manipulation and noncompliance with anti-money laundering rules and regulations.
“We are happy to advise that following representations made by us and our partner BMO [business member organisations], there has been a change in position by RBZ, who will only enforce SI 127 on businesses that are abusing auction system, or exploiting customers through exorbitant pricing while receiving auction proceeds,” Mutambanengwe said.
“This means that the aspects relating to penalisation of those offering discounts on US dollar payments no longer apply and businesses can continue to price as was prevailing before. We do, however, urge prudence and empathy in terms of rates applied, bearing in mind the impoverished state of most customers.”
Confederation of Zimbabwe Retailers (CZR) president Denford Mutashu said retailers got positive outcomes on the implementation of SI 127 of 2021, following progressive meeting with the RBZ governor John Mangudya (pictured).
Mutashu said RBZ now only targets those that abuse forex obtained from the auction system.
“Mangudya told CZR that SI 127 targets those abusing auction funds, manipulators of the exchange rate and those that do not bank funds. He said SI 127 is meant to ensure compliance,” Mutashu said in a statement after the meeting.
Mutashu said the retailers need to reciprocate that gesture by self-monitoring and enforcing self-discipline among sector players to price responsibly and act in a manner that protects citizens and consumers.
“CZR assures the public that there will be zero tolerance on arbitrage, profiteering and artificial shortages. Businesses are reminded that they are in the business of selling products or services, not cash and should not aid or fuel the foreign currency parallel market,” he said.
“It is CZR’s hope there will be increased banking of foreign currency by business. We will work with the government to ensure that the market remains stable. It is our collective responsibility to ensure that stability. We would like to urge our members to continue to offer good services to consumers who deserve our respect and to improve on self – discipline to ensure that our economy continues to grow as evidenced by the significant growth in the sale of locally produced goods of around 65%.”
Business Times yesterday sent an enquiry to Mangudya seeking clarity. Mangudya requested written questions, which were sent to him.
He had not responded by the time of going to print.
However, the central bank chief had earlier told Business Times that those found guilty of abusing foreign currency sourced from the auction system face possible suspension from participating at the auction system.
“There is a high likelihood of suspending some companies from the forex auction market,” Mangudya said. “We will not give umbrella punitive measures but we will penalise each company according to the level of contravention.”
He said the RBZ and the Financial Intelligence Unit would in the near future classify the level of offences and the probable penalty.
This week, Mangudya revealed the identities of 18 companies accused of abusing forex obtained from the auction system.
These are National Foods Limited, Georgia Petroleum, Tettola Investments, Africa Steel, Westville Investments, Flicknick Enterprises, Duo Valley Commodity Brokers, Faircclot Investments, GlenuLas Trading, Natural Stone Export Company, Nuvert Trading, Phirebrook Investments, Classic Energy, Clorex Energy, Explochem, Mutare Mart & Exchange, Souzrce Fuels and Kimya Investments.
Mangudya said these companies would be penalised.
The new legislation was gazetted under Presidential Powers (Temporary Measures) (Financial Laws Amendment) meant to instill discipline in the market. The central bank said some companies access forex from the auction system at a rate of ZWL$85: US$1 but price their goods using a parallel market rate of about ZWL$120: US$1.
However, business said the one size –fit all approach would not work.
In its response to the decree, the Confederation of Zimbabwe Industries called for an urgent meeting involving industry, the ministry of Finance and RBZ to avoid rocking the boat.
“CZI recommends that implementation of the SI be suspended and urgent stakeholder consultations be held between government and business to come up with a way forward that will not jeopardise the rebound witnessed in the economy to date,” it said.
“… we feel strongly that we are very close to achieving overall macroeconomic stability, necessary to power sustained recovery and growth. Both market and policy deficiencies can be addressed without jeopardising that trajectory with a heavy-handed SI which will likely reverse the gains of the past year.”
The industry body noted the government’s frustration with some aberrations by a few corporate entities which access forex at the auction rate and yet price at the alternative market rates.
“This is not representative of the entire industry, and we believe engagement between industry and authorities can resolve such aberrations. The industry body does not support such behaviour in any way, but we also believe it does not warranty the blanket SI which has far reaching adverse implications for the economy,” CZI said.