Delta Corporation on Thursday rescinded a decision to sell its products in foreign currency after the Reserve Bank of Zimbabwe (RBZ) assured the beverage manufacturer it will provide the forex required to fund its import requirements.
The firm had announced intensions to price its products in hard currency effective Friday on the back of failing to receive its US$2 million monthly requirement from the Apex Bank.
The decision to reverse the notice was made after Vice President Constantino Chiwenga on Thursday evening met Delta officials together with RBZ Governor Dr John Mangudya and Finance and Economic Development Minister Professor Mthuli Ncube.
Dr Mangudya and Delta chief executive Mr Pearson Gowero issued a joint statement after the crunch meeting.
“The parties agreed that Delta withdraws the notice to sell its products exclusively in hard currency, in the spirit of the multi – currency framework,” reads the statement.
“The Reserve Bank of Zimbabwe will endeavour to provide the foreign currency required to ensure that Delta continues to trade on the current basis.”
Government Appeal to Industry
Minister Ncube earlier in the day had appealed to private firms to be patient while Government worked on fiscal consolidation.
“We are saying the private sector should wait for us to give policy. They should be patient and see how our fiscal policy is making progress. We are making good progress in fiscal consolidation and once we are ready, we will institute the requisite monetary reforms,” said Minister Ncube.
“They should not rush ahead to choose the currency they think the whole country should adopt. They should just be patient, let us work together. That is really our message,” he said.
Delta wanted to sell its products in “multiple foreign currencies” such as the rand, pula, Euro, British pound and US dollars.
It argued this would enable it to access key raw materials and to pay suppliers.
The company said its business had been “adversely affected” by shortages of foreign currency, which had resulted in it failing to meet orders, and “in the case of soft drinks, being out of stock for prolonged periods”.
It said the fiscal and monetary policy frameworks announced by the Government in October last year did not provide for “easy access to foreign currency by non-exporters”.
The company said it stopped making some of its products, particularly soft drinks, in November and a few soft drinks were released on December 24 for the Christmas holidays.
The new prices would have seen a 300ml bottle selling at 50c; a 330ml can (60c) while 500ml PET was pegged at US$1.
Lager beer prices were pegged at 80c for 375ml returnable bottles; 750ml returnable (US$1,50); and 340ml returnable (US$1).
Delta said it had invested over US$600 million in plant and equipment, vehicles and ancillary services since 2009, and that there was need to “protect this investment and ensure sustenance of all value chain partners”.
Government is set for crunch talks with Delta Corporation’s head honchos today to find ways that will stop the company from pressing ahead with selling its products in foreign currency.
Delta announced on Wednesday that it would start selling its products, particularly the much-loved soft drinks and beer in foreign currency, to ensure continued availability of the products whose supply has been dogged by foreign currency shortages.
Industry and Commerce Minister said the move by Delta to charge in foreign currency “cannot be allowed”, hence the decision to engage the company.
“. . . I think we should be meeting them on Friday (today). That (US dollar prices) cannot be allowed,” said Minister Ndlovu.
There is frenzied expectation of how the impasse would be resolved considering Delta’s stance that it needs foreign currency so as to protect its $600 million investment made between 2009 and this year. At the same time, Government is intervening from the side of the consumers, the bulk of them who do not earn foreign currency but get RTGS and bond notes.
Minister Ndlovu said charging in US dollars “is not only against the spirit of fairness, but it is also an illegal practice” as foreign component in most products is less than 25 percent.
“Government is very clear that this practice is unacceptable and has to stop forthwith and if not, the law will take its course. The Government has supported business to operate liberally within the economy without interference but giving an intervening hand whenever it has been called upon to assist.
“In return, Government has expectations that business will operate in good faith and responsibly,” said Minister Ndlovu.
Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe said yesterday it was important that Government wades into the issue and find common ground with Delta so that it abandons the decision to sell in foreign currency.
“I think Government should intervenes in this matter. Unfortunately, for me the intervention should be to find a way of providing foreign currency to Delta so that it continues producing.
“We cannot have situation whereby Delta closes because of lack of foreign currency, the consequences are dire on the employment side and also looking at its contribution in the form of tax,” said Jabangwe.
Delta pays $67 million per annum in excise duty, which translates to about $5,5 million per month. Similarly, the company pays $27 million per year in income tax, implying a $2,2 million monthly contribution, among other taxes, making it a critical company in the country.
More firms might demand forex
Industrialists and economists fear that the announcement by Delta that it would sell products in foreign currency would spark massive interest by other companies to also charge in foreign currency.
Minister Ndlovu has already expressed concern over retailers’ preference of foreign currency to bond notes, swipe and mobile money.
“We have noted with concern a proliferation in the number of companies and businesses engaging in preferential currency practices. This is not only against the spirit of fairness, but it is also an illegal practice . . . at the centre of the relationship between Government and business is the spirit of engagement and a two-way communication between all parties.
“That spirit is defeated when one of the parties decides to unilaterally pronounce decisions against both the text and spirit of agreed principles,” said Minister Ndlovu.
Jabangwe conceded that given Delta’s size in the economy, there is real danger that many companies would also want to charge in foreign currency.
“Having such a large company like Delta selling in foreign currency will lead other companies to do the same,” said Jabangwe.
ZNCC chief executive officer Takunda Mugaga says Delta’s stance “means all players including very small ones in the beverage sector will follow suit”.
University of Zimbabwe economics lecturer Tamuka Mukura concurred.
“It could be possible that some companies may want to sell in foreign currency too. But look, we have two situations; companies that export and generate foreign currency and they have somewhere to start from when they want to replace machinery and buy spares.
“We also have companies that don’t export like Delta but have popular products. These ones have challenges in acquiring raw materials and spares, and have every reason to sell in foreign currency.
“But it depends on the company’s products that it intends to sell in foreign currency. Delta sells alcohol and because it is on the addictive side, people may continue buying it, meaning that beer is highly inelastic in terms of price,” said Mukura.
Mukura said companies making products that are highly elastic in terms of prices will have challenges selling in foreign currency, and might find it difficult to attract customers, which could lead to the closure of such firms.
“So I think it’s going to be 50 /50 in terms of companies wanting to sell in foreign currency,” said Mukura.
But UZ economics department chairperson Prof Albert Makochekanwa does not see re-dollarisation taking route given that Simbisa Brands, which owns Chicken Inn, Pizza Inn, Fish Inn and Bakers Inn, is already charging in US dollars and also accepting electronic payments and bond notes. Some fuel retailers are also demanding forex.
CZI dislikes re-dollarisation
The route towards re-dollarisation was kick-started by pharmacies and sellers of medical drugs. Straight after the announcement by Government in October last year that exporters were now free to open foreign currency accounts, pharmacies went full throttle into selling in US dollars.
When Government directed them to sell in bond notes and electronic money, they adopted the strategy of pegging prices in USD based on the existing parallel market foreign exchange rate.
“We see more companies wanting to sell in US dollars but the issue is that we don’t want dollarisation as an economy.
“The economy will shrink by as much as 50 percent so it’s not the right way to go.
“We have seen it with US dollars in the past that we won’t be competitive when using the USD,” said Jabangwe.
Using the US dollar as a transaction currency has been frowned upon by industrialists and economists who say it makes products uncompetitive on the export market. Industrialists contend that US dollars only helped the economy to arrest hyperinflation when they were introduced in 2009 but could not help the economy to grow. Economist Joseph Mverecha says re-dollarising is “decidedly the wrong turn for Zimbabwe”.
“The ramifications for the (local) economy are all too evident. There is less than minimum likelihood that Zimbabwe can sustain recovery and growth under a strong and strengthening US dollar currency. No amount of internal incentives are sufficient to compensate for an overvalued real exchange rate,” said Mverecha.