The tightening of laws to curb illegal foreign currency trading in the country has reportedly left many companies, particularly those outside the Reserve Bank of Zimbabwe foreign currency allocation priority list, on the brink, according to the Confederation of Zimbabwe Industries.
The dire situation has now jolted Government into action amid indications that it will meet industrialists next week to find a lasting solution to the challenge.
Zimbabwe is facing an acute shortage of foreign currency, which has impacted on the operations of several sectors of the economy, but Government’s resolve to create more jobs for citizens, has seen it going out of the way to locate opportunities for companies to survive.
Some companies that are not on the RBZ foreign currency priority list were resorting to the parallel market but following the Amendment of Money Laundering and Proceeds of Crime Act and Exchange Control Act, Regulations, 2018, which criminalises the illegal trading in foreign currency, many businesses have been left with limited sources of hard currency.
The regulations empower various state agencies to track unexplained movement of money in the financial system, and use Unexplained Wealth Orders to investigate and seize property suspected to have been bought through illegal means.
Government introduced the regulations late last year on the backdrop of spiralling prices of basic goods driven by the parallel market exchange rates.
The surge in parallel market activities prior to the introduction of the regulations to fight currency black market, have led to various ills including undermining the competitiveness of the productive sector, the erosion of household income, and shook the formal exchange rate of 1:1 rate between the Real Time Gross Settlement (RTGS) and nostro account balances.
The Government noted that the activities of illegal foreign currency dealers posed a serious security and economic threat to the country. The statutory instrument stipulates that illegal foreign currency dealers can be jailed for up to 10 years and their cash forfeited to the State.
However, the enactment of the law has resulted in unintended consequences as the curtailed parallel market activities have dried up an alternative source of foreign currency for the local firms.
CZI president Sifelani Jabangwe confirmed to Business Weekly recently that some of their members risked closing down or downsizing due to shortages of foreign currency if nothing drastic was done in the near future.
“What we are likely going to see is companies taking longer before re-opening because of limited alternative source of foreign currency,” said Jabangwe.
Industry and Commerce Minister Nqobizitha Mangaliso Ndlovu said this week that the matter had been brought before his attention.
Minister Ndlovu said a meeting would be held next week to discuss how the companies that are not on the central bank’s priority list could be assisted.
“I agree with them (CZI), to a certain extent; that companies not on the priority list no longer have an alternative way to get foreign currency,” said Minister Ndlovu.
“We are likely to meet next week to see how we can assist these companies.”
Foreign currency woes persist
Zimbabwe is facing acute foreign currency shortages and is struggling to pay for critical imports such as fuel and medical drugs. Companies, including miners, have also been battling to import critical raw materials as they could not receive sufficient allocation from the central bank.
Reports say the foreign payments backlog swelled to $700 million in September last year.
However, it is understood the country’s Nostro position has been gradually improving after the central bank allowed exporting businesses to open Foreign Currency Accounts.
Foreign currency resources are building up, but companies are holding on to their foreign currency because they are reluctant to trade their dollars at a rate at par with the RTGS and bond notes.
Due to existence of premiums that indicate the disparity between the electronic US dollars on the RTGS and the physical cash in nostros, there has been growing pressure on Government to make the RTGS a convertible currency to float rate.
Is economy re-dollarising?
The foreign currency shortages have not only affected companies not on priority list.
Zimbabwe’s largest beverages maker, Delta, indicated that it will start selling its products in foreign currency from today.
Delta said its business had been adversely affected by shortages of foreign currency, resulting in it failing to meet orders.
Soft drinks have been out of stock for long periods.
Last month, Simbisa brands, a fast-moving consumer goods unit of Innscor announced it was discounting prices payable in the U.S dollars to help the company generate forex to import franchise related raw materials, which cannot be substituted locally sue intellectual property agreements such as Nando’s, Ocean Basket, and Steers.