Let’s do right by our exporters

15 Feb, 2019 - 00:02 0 Views
Let’s do right by our exporters

eBusiness Weekly

Taking Stock Kudzanai Sharara
The statement by one of the country’s biggest gold miner and listed entity RioZim does not only make sad reading, but is also confidence sapping considering we have been here before.

What makes sad reading is that this is the second time in four months that the miner has been forced to voluntarily suspend production across all three of its gold mines pending full payment of its foreign exchange proceeds which it requires in order to procure the necessary consumables needed to keep gold production running.

What makes it confidence sapping is that after the first incident, promises were made that the authorities, the Reserve Bank of Zimbabwe in particular, would not kill the goose that lays the golden egg, but would instead allow gold and platinum mining companies to retain up to 55 percent of their earnings in US dollars up from 30 percent. Central bank governor Dr John Mangudya went even further to make another promise, that the central bank would create a special fund to help mining companies with extra US dollar requirements. But as they say, never make a promise you can’t keep.

Most communication problems, be they at personal or institutional level, stem from people making promises they can’t keep. By giving these false promises, it gives others false hope, instead of freeing them to look for alternative solutions.

Authorities simply have to follow through on promises as the opposite erodes trust. For most people, if you’re going to do something and you don’t, they will not have any confidence in you going forward, worse still if not keeping your word becomes a perpetual issue. Your words won’t mean anything but empty promises and lip service.

While some would find it easy to dismiss RioZim’s plight and label them cry-babies, or an institution out to arm twist the Reserve Bank of Zimbabwe, its recent past performance would provide a better picture of the situation.

This is a company that had to be rescued from the brink of collapse by Zimbabwe Asset Management Company (ZAMCO), which took over the bulk of its debts.

In 2015, the company recorded a loss of $8,8 million and only after ZAMCO had taken over the bulk of its debts where it would pay interest rates of more than $9 million in a single financial year.

In the three years to June 2015, it had paid $36,6 million in finance costs, but remained with a $58 million debt, only to have that burden reduced by ZAMCO.

The Group embarked on a turnaround strategy, which saw it open and buying new mines and by end of June 2018, it was now producing 1 050kg of gold up from 468kg in June 2015.

Though RioZim’s export earnings of approximately $88,9 million seem like a drop in the ocean, given the country’s foreign currency needs, what is of concern is that it’s not the only miner facing production challenges as a result of failure to access adequate foreign currency.

According to statistics from the Reserve Bank of Zimbabwe, the country’s mineral exports for November recorded a sharp drop.

Most minerals recorded revenue declines as follows: semi manufactured gold (-33,8 percent); industrial diamonds (-27,6 percent); chromium ores & concentrates (-27,4 percent); ferro-chromium (-13,7 percent); and nickel mattes (-4,4 percent).

It will not be far-fetched to assume that the challenges causing such declines are similar to those of RioZim, which is the problem at hand.

It gives an impression that Government does not keep its word, and suggests the idea that anyone can be denied access to what rightly belongs to them. RioZim should not struggle to access foreign currency that rightly belongs to it. It is important to point out that the environment that is being created will result in foreign investors committing negligible amounts of capital while domestic investors will remain financially weakened, as well as reluctant, to add further to investments that appear to be at risk.

Denying exporters access to their stipulated retention ratios is akin to imposing handicaps on exporters and investors and this sends a wrong signal. The perception among investors who could add to export revenues would be that the country is not yet worthy of serious consideration.

Do right by exporters
If Zimbabwe is to avoid catastrophe, authorities have to do right by the miners and exporters. This can be done through increasing retention ratios for exporters and allowing the exchange rate to be established through free interaction of currency buyers and sellers. The central bank should not be micro-managing payments and allocations.

That is the purpose of the banks. Rather, commercial banks should be invited to establish trading mechanisms that permit the free trading of foreign currency.

The country can only have an efficiency forex management system if banks are allowed to function independently and be allowed to leverage their balances, especially their forex earning client balances. It is not a secret that the forex payments queue got worse when the RBZ decided to allocate forex itself.

It’s difficult for a central bank to be efficient in the allocation of foreign currency because it is not driven by making profits and will never be able to productively allocate resources.

The RBZ must not be allowed to print money without a transparent process that involves parliament and whoever is going to guarantee the new currency; Afrexim Bank, IMF, World Bank, Russia, China, etc. The central bank would then assume its role of monitoring transactions, and rely on the commercial banks to manage the system in a manner that is fully accountable and subject to public disclosure.

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