Industry must wean itself from auction

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HARARE – Industry must wean itself from relying on the Reserve Bank of Zimbabwe for foreign currency, but rather device means to generate own forex and leave the Apex Bank to perform its key responsibilities that include ensuring exchange rate stability.

Some industry players say the RBZ auction backlog continues to bloat as manufacturers rely on the platform for foreign currency, an indication the “system was not working.”

The Apex Bank has been struggling to effectively release foreign currency allotted to companies, leading to a backlog hovering around US$100 million as of April 2022.

According to some industrialists the Central Bank still owes bids from last year, a position that has stalled some companies’ operations thus reducing local industry’s potential to reach its full capacity.

A survey by the Confederation of Zimbabwe Industries (CZI), say industry players in the manufacturing sector are getting circa 40 percent of their foreign currency requirements from the RBZ auction, while 60 percent is generated from internal mechanisms and other sources.

As a result, some industrialists are of the view that manufacturers should come up with mechanisms that enhance their ability to generate foreign currency and stop burdening government and the Central Bank.

Earlier this year Central Bank Governor Dr John Mangudya, indicated that while clearance of the backlog was critical, there was a need to create other ways of sourcing foreign currency to reduce traffic to the auction market.

Industry must wean itself from auction

Officiating at the CZI manufacturing sector survey report launch last week, the organisation’s past president, Dr Joseph Kanyekanye, indicated that local firms should start a process of weaning themselves from the Apex Bank allocations.

“As industry, we are getting 40 plus percent of the foreign currency from the Reserve Bank of Zimbabwe.

Literally, we are getting that from the tobacco farmers, small scale gold miners because these are the guys with forceful surrender requirements.

“In a way I am saying its high time industry accepts and have self-introspection, we cannot be perpetual infants, there must be a time we must be weaned off. I think that trajectory needs to be promoted from the policy perspective so that we move to a point were basically we do not require calls to the Reserve Bank every week to make our businesses run,” Dr Kanyekanye said.

Some of the local firms have started to post significant foreign currency inflows from the local market and exports.

Dairiboard Holdings in its first quarter trading update recently indicated that volumes sold in foreign currency grew by 186 percent stemming from enhanced foreign currency generation strategy by the firm.

According to Dairiboard, this led to foreign currency priced volumes to account for 40 percent of the firm’s total volumes, up from 17 percent recorded in 2021.

Of Dairiboard’s 40 percent sales volumes in foreign currency, 32 percent were realised from domestic sales up from 13 percent in 2021 while exports contributed eight percent.

In support of the new thinking, Zimbabwe National Chamber of Commerce (ZNCC) chief executive, Christopher Mugaga, in an interview noted that industry has for long been serving at the mercy of many government protectionist policies and was high time for private players to formally learn how to generate own foreign currency.

He said the industry needed to be supported but did not need to be given perpetual handouts.

“We have benefited from the auction since its launch, we have benefitted from the protectionist policies of the government for years including statutory instruments.

“I am convinced that we certainly do not need to continue relying on auction handouts. From our position as the chamber of commerce, we have always said the auction is not a platform for dolling out money, but for setting the exchange rate. It is the duty of our banks to give money through letters of credit not auction,” said Mugaga.

He lamented the current position where some players are accessing auction funds but not channeling them towards relevant purposes thus ending up on the parallel market.

“So this issue, where the industry continues to knock on Central Bank doors saying we want support, these are the people who are driving the funds to the black market.

“We already had an in-house meeting with some of our members, who are getting money on auction and not using it for the intended purpose,” said Mugaga.

But industrialist, Busisa Moyo, said generation of foreign currency by local companies away from the auction system would be problematic since the majority of the working population still earn local dollars.

“Saying we as industry should look into our own means to generate foreign currency means we will sell products in US dollars, which is a problem because the market is not being paid in US dollar, there is a bit of mismatch, we need to think carefully about it.

“…by saying things like that we run the risk of re-dollarising the economy because people will say if I cannot get forex from the auction and I do not want to be changing money on the parallel market, let me just sell my products in USD,” said Moyo.

According to Crystal Candy managing director, Jimmy Psillos, the country has significant circulation of United States dollars.

He said; “There are enough US dollars to keep the business operating, that’s the truth. It is just that people rather park their US dollars somewhere and borrow Zimbabwe dollars to keep operating than use their US dollars to transact, this is a vicious cycle we would want to break out of.”

According to RBZ US$ 1, 97 billion was allotted in 2021, representing 97 percent of total bids submitted to the auction, the amount represents around 30 percent of total foreign payments processed by banks in 2021. – Business Weekly