Zim economy in limbo as fuel crisis worsens


The growing disparity between the official and parallel market rates
has piled pressure on authorities’ capacity to import fuel barely a month after President Emmerson Mnangagwa partially opened up the economy.
This comes as it emerged that there are no letters of credit (LCs) to pay for fuel imports since those in place expired on April 13.

The local currency continues to weaken against major currencies and this week trading at around ZWL$80 to the United States dollar as demand for the greenback soars.

The development comes at a time when the economy is facing a everending fuel crisis due to scarce and low fuel prices thereby creating arbitrage opportunities for fuel dealers to sell fuel at the parallel market in USD.

The Zimbabwe Energy Regulatory Authority (Zera) has set petrol price
at around ZWL$28 per litre, which translates to about US$0.40 per litre,
and this has created opportunities for service stations to provide fuel
for a few individuals and divert it to the parallel market where it is sold
for US$1 per litre.

In a snap survey carried out by Business Times, various light vehicles had drums and jerry cans at passenger’s seats for trading.

Some of the vehicles were said to be owned by some members of the
uniformed forces and fuel attendees and it is a norm that people in meandering queues do not get fuel before those vehicles.

National Oil Infrastructure Company (NOIC) chairman Daniel Mackenzie told this publication that the fuel crisis is due to the lack of letters of credit that are processed through local banks and guaranteed by the freximbank, to ensure imports of the precious commodity.

“There are no letters of credit and of late things have been tough.

The issuance of letters of credit has been subdued because of the current
challenges affecting the country but the fuel is there bonded at Masasa.
You need to pay to get fuel,” Mackenzie said.

RBZ governor John Mangudya last week told lawmakers that from January to March, the apex bank had secured an US$800m “gap-filling” facility from NOIC to ease the shortages after LCs matured. Mangudya blamed petroleum industry players for the current shortages.

During the second quarter demand dropped in April as the government enforced restrictions to slow down the spread of Covid-19.

The queues resurfaced when the government eased the lockdown restrictions.

“During this lockdown period, one thing happened; the LCs facilities that are in place expired on the 13th of April but, however, the bank also put in some measures.

We had to secure a facility through NOIC in May which has US$800m
to supply the fuel industry in Zimbabwe,” Mangudya said.

Fuel queues resurfaced around May 20 after registered businesses including city hotels were allowed to operate under strict conditions to
combat the spread of coronavirus.

However, Zera acting chief executive Eddington Mazambani said despite the queues, there was a bit of improvement in terms of fuel supplies.
“We can’t deny that the country continues to face challenges as far as
procuring fuel is concerned but the heightened crisis may be due to the
logistical problems of fuel dealers to procure fuel in Msasa,” Mazambani

“Dealers who have that problem are usually Total Zimbabwe who
deals with franchising. As far as we are concerned, the Reserve Bank of Zimbabwe (RBZ) has increased forex allocations for fuel procurement therefore we expect the situation to have improved a bit.”

He said fuel markings tender will be flighted this week to ensure there
is clarity on the actual fuel that has been allocated to a particular service

The fuel black market which suffered during the intensive lockdown has got fresh breath after service stations ran dry by the end of May.

Prior to the lockdown stipulations Zimbabwe consumed a total of
four million litres daily with petrol figures standing at 1.5m litres and
diesel at 2.5m litres.

However, with limited movements in and out of cities the consumption went extremely down with fuel available at almost every service station.
Fuel crisis has stalked Zimbabwe for the past four years, making it
difficult for the economy to be productive.

The country requires around US$100m a month and US$1.2bn to import fuel yearly.

Zimbabwe has no significant lines of credit to get the US$1.2bn.
It mainly depends on gold, tobacco and platinum exports to import fuel
and other critical raw materials.

RBZ said 100% forex retention threshold can never be achieved as long as the country will need forex to import fuel.

Zimbabwe, which has been allocating foreign currency to fuel companies for over a decade, weaned them off by letting petroleum companies seek their forex from the interbank platform.

However, due to ineffectiveness of the platform and critical forex
shortages in the economy, RBZ continues to supply funds to them.

Daily consumption of both diesel and petrol in Zimbabwe rose by 342% and 650% respectively between April and October 2018, putting the government under huge pressure to provide adequate foreign currency to pay for the commodity.

In 2018 petrol daily consumption increased to about 7.6m from one
million litres per day while diesel consumption increased to about
7.6m litres daily from 1.9m litres per day, due to arbitrage opportunities
in the economy.

RBZ said Zimbabwe is consuming more fuel than normal and underhand dealings could be at play given the industry’s low capacity utilisation, underutilised land and small population.

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