Industry’s forex access challenges manageable

Persistence Gwanyanya

Challenges faced by importers to access foreign currency can be mitigated by better managing the flow cycle of forex, monetary policy committee member Mr Persistence Gwanyanya said. 

Mr Gwanyanya said access is affected by seasonality of forex, delays on international forex gateways, due to tight scrutiny, and liquidity issues within banks that execute import payments. 

“It is an issue of managing forex inflows, given the seasonality of inflows. RBZ has also advised banks to be innovative. Instead of waiting until they have the liquidity, they can give letters of credit,” he said.  

Limited industrial output, after nearly two decades of economic meltdown, means Zimbabwe must rely on imports for a significant number of key products, consumptive and non-consumptive. 

The MPC member, who is also an economist, projected the Zimbabwe dollar firm in light of a good farming season, which will reduce imports and prices of agricultural goods being imported.  

The Zimbabwe dollar traded at $84/US$1 on the auction market, continuing to hold steady against the greenback, which has stabilised prices and exerted downward pressure on inflation. 

He said prices for wheat bran, maize bran, soya beans, beef and other basic agricultural commodities will and have started falling, which would support a stronger domestic currency. 

Mr Gwanyanya said Zimbabwe is able to mobilise adequate forex to fund the auction through surrender requirements for exporters and collections from domestic foreign currency retail sales. 

He said if for instance, Zimbabwe exported US$4,5 billion goods, standardised export surrender would imply the country collected US$1,8 billion for the 12 months to December 2021.  

The Reserve Bank of Zimbabwe (RBZ) allots an average of $35 million weekly to importers at its foreign currency auction market, which is funded through the mandatory forex liquidations. 

“Since the auction system currently allots US$35 million on average, if you multiply by 52 weeks in a calendar year, it means US$1,2 billion is required for the auction in a year,” he said. 

Exporters are compelled to liquidate at least 40 percent of their export earnings while the acquittal threshold stands at 20 percent for all domestic sales done using foreign currency. 

Holders of the foreign currency, namely exporters and retailers who sell their products in hard currency, are compelled to sell a portion of their hard receipts at the ruling auction rate. 

The money mobilised under this arrangement is used to fund critical imports that include fuel, electricity, raw materials, plant, equipment and machinery, which are not available locally. 

However, delays within the settlement system and shortage of liquid cash to fund successful bids on the auction results in backlogs that create some form of crisis in accessing forex. 

In addition, the fact that there appears to be obsession in using the US dollar as the preferred medium of exchange also creates further delays in the settlement cycle, clogging the system. 

Such scenarios fuel black market activity, as this becomes the alternative source of the hard currency for businesses, including the ones not eligible to use the RBZ auction system. 

Consequently, a thriving black market undermines efforts to rein in inflation, given that the high cost of black market forex is priced into the final product sold to the vulnerable consumer. 

Mr Gwanyanya said the dynamics access to forex are also affected by seasonality of inflows, which sees a glut during the tobacco selling season and dry season when gold output is higher. 

The significant disparity between demand and supply,  Mr Gwanyanya said, also results in wide margins between the official and black market foreign currency exchange rates in Zimbabwe. 

Given the expected inflows from tobacco and increased gold output and other minerals in the dry season, the country will have little problem meeting demand for forex for key imports.  – Herald