LIVINGSTONE MARUFU
The cooking oil industry owes foreign suppliers US$20m amid revelations that the players are yet to pay for 10 000 metric tonnes of edible oil due to the delays in settling the allotment from the foreign currency auction system and letters of credit (LCs).
This has created a shortage in the market as the cooking oil industry players depend on foreign supplies for their operations.
Oil expressers are currently utilising the soyabeans harvest of around 80 000 metric tonnes but farmers are reluctant to release the crop as they are demanding US$ for their crop.
The Oil Expressers Association of Zimbabwe president Busisa Moyo told Business Times that the central bank’s efforts towards the clearance of LCs have not shown due to a huge backlog that has accumulated over the past three months.
“The Reserve Bank of Zimbabwe [RBZ] has moved to clear LCs outstanding with Afreximbank in the last two weeks and this has helped the situation, but may not show up because we have a backlog of almost 10,000mt in crude oil supplies accumulated from February to current,” Moyo said.
He said RBZ is seized with the matter and is seeking various ways to ameliorate the situation including letters of credit.
“Admittedly as industry we have a lot of competing currency needs hence a great deal of foreign currency is needed to capacitate the sector,” he said.
This comes as the sector is facing serious problems in utilising the LCs to procure raw materials amid revelations that the foreign banks no longer want to act as guarantors for local companies due to the country’s high risk.
The LCs are complimenting the foreign currency auction system but the two have failed to help the local industry to procure enough raw materials for their operations due to limited foreign currency.
A business or a company that successfully obtains a letter of credit has confirmation that the financial institution especially the foreign one is agreeing to guarantee the amount of the transaction and this establishes trust in the transaction since the buyer is guaranteed they will collect the full amount of the deal.
Letters of credit which are usually transferable, depending on the bank or financial institution, from which the letter of credit is procured, are commonly used for international trade — particularly importing and exporting — a lot of trust is needed to access a loan.
The companies are only accessing 30% of their money from the auction and LCs with the rest of the money coming from the parallel market.
Moyo said a letter of credit guarantees that a buyer’s payment to a seller will be received on time and for the correct amount but the foreign banks are not quickly covering the companies due to lack of trust to a high risk country like Zimbabwe.
“We have letter of credits which are a huge problem as they are erratic and the confirmations come very late which make the industry unviable.
“The LCs are worse than the auction as one puts the ZWL$ cash cover which takes about the three to four months before confirmation.
“The LCs do not have the charges but you will lose the raw materials to the other customer who has cash,” Moyo said.
The delay by the RBZ to settle foreign currency auction bids has seriously affected the manufacturing industry as the companies incur interest and bank charges.
Companies were forced to look for money on the parallel market after the forex system took up to 10 weeks to settle bids.
But the industry players are saying they are now paying the price for the settlement delays which came with high premiums and this has affected production.
The Russia-Ukraine war has some serious knock on effects to the already fragile Zimbabwe economy thereby pushing the prices of basic commodities due to fuel price hikes on the international market.
