COOKING oil producers are buckling under US$100 million external payments debts, as foreign currency shortages in the country continue taking a toll on their operations.
Similar challenges last year which, however, entailed shortages of other basics, resulted in short supplies in the market, which saw edible oils becoming readily available only on the black market at steep prices.
The manufacturers have since written to the Reserve Bank of Zimbabwe (RBZ) inquiring on its plans to help them clear outstanding debts as well as access foreign currency for key inputs.
Key industry players told Business Weekly this week that the majority of cooking oil producers had run out of raw materials that include crude soya beans and palm fats amid the forex crisis.
It is feared the development could cause fresh shortages of the basic product on the domestic market.
In fact, two major cooking oil producers, Willowton and Olivine Industries, have either significantly scaled down or shutdown completely, which might result in the market being under supplied.
But central bank governor Dr John Mangudya, said cooking oil producers should be getting foreign currency from the interbank market through Letters of Credit (LCs) issued by the apex bank.
However, the oil manufacturing companies claimed that no firm had recently been able to get LCs.
Further, volumes being traded on the interbank forex market are insufficient to meet demand, amid indications exporters continue to hold on to their hard currency because they think the rate remains low.
“These people know what they must do. They may be misrepresenting facts. Isn’t it that they have been drawing down LCs (Letters of Credit) from Afreximbank, including the fuel importers,” the RBZ chief said.
Manufacturers are now facing the twin challenge of outstanding debts and no access to foreign currency to bring in fresh stocks raw materials amid confusion over whether they will get forex at 1 to 1, as was the case until the monetary policy statement presented on February 22, 2019 or interbank market rates equivalent.
“The sector has accumulated circa US$95 million debts built up during the period leading up to the elections and soon thereafter. We wish to understand whether there is a plan in place to assist regularising and if these will be US$1 to RTGS$1 or at the prevailing rates on the interbank market rates.
“It will be critical to have a fairly predictable and regular allocation or Letter of Credit for suppliers of key raw materials in order to continue accessing product,” said a prominent industry source.
Lack of clarity over the forex issue for the industry have reportedly started to cause pricing headache, given that if allocations or LCs are funded at interbank rates, prices would need to creep up.
Zimbabwe currently requires an estimated US$250 million for importation of crude oil and soya bean imports annually, which translates to a monthly budget of US$20 million for the entire industry.
Official estimates show that the country needs about 2 million litres annually, but faces intermittent shortages due to foreign currency challenges, as the country’s import bill continues to outstrip forex inflows.
Local producers were responsible for meeting 95 percent of domestic consumption, although Government last year allowed people with free funds to import basics such as cooking oil following serious shortages.
Zimbabwe needs foreign currency, which it does not have in sufficient quantities, to import key raw materials such as crude soya bean oil, as its productive sectors (including agriculture) are not producing optimally.