RBZ auction list shows the opportunities

21 May, 2021 - 00:05 0 Views
RBZ auction list shows the opportunities Reserve Bank of Zimbabwe

eBusiness Weekly

The Reserve Bank of Zimbabwe is now becoming fanatical about transparency and providing information, with the latest example being the total foreign currency allotments on its auctions since they started in June last year until the end of April this year.

So there they are, the 3078 bidders on the main auction and the SMS auction, some of whom were regular bidders and some making just one bid, and being made up of 1 334 on the main auction and 1 744 on the SMS auction. They range from Blue Ribbon Foods at the top of the main auction, buying US$17 212 404 over the 10 months, all the way down to number 1 744 on the SME auction who happens to be, of all people, the Royal Harare Golf Club who bought precisely US$1 299, in what must be a single bid.

What these bidders bought their currency for is not detailed. There is still some confidentiality in banking details and that is fair enough. But we do know, from the RBZ rules, that every single buyer had to present an invoice for goods or services on the two priority lists and that they must have chewed up their own foreign currency holdings before tapping the auctions.

The other major point is that, besides setting the import priority lists, the Reserve Bank did not choose who was allocated currency and who was not. The system that was in place from November 1965 when Ian Smith declared UDI and took over control of foreign currency allocations and imports right down to June 20 last year, 54,5 years, is now gone. 

Instead of unnamed faceless bureaucrats sitting in the Reserve Bank tower allocating currency at prices determined by some other unnamed bureaucrats and bearing little relationship to the actual market value of that currency, the market now decides who gets and decides the price, or more precisely the narrow range of bid prices each week that the buyers actually pay.

But even without the details, patterns emerge. The top 10 slots are dominated by agro-processors, in particular the cooking oil companies having to import their soya beans and their crude soya oil because Zimbabwean farmers do not grow enough.

Then in the second 10 and town a bit further we find the fertiliser companies, the dairy companies, the biggest packaging concerns, the first couple of the oil and gas importers, and a scattering of others.

Perhaps the most interesting in this top elite section of the main auction list is Varun Beverages (Zimbabwe) (Pvt) Limited who come in at number two after Blue Ribbon with just under US$15,3 million. The interest comes from the fact that this firm is a recent investor, has been expanding operations rapidly, has come to dominate the market in its sector because it sells international brands at a little over half the price of its old and long established competitor, and has started manufacture of products that used to be imported.

The fact that its main products are soft drinks and energy drinks simply shows that the priority lists favour local industry, since neither set of products is a matter of life or death and would be difficult for retailers to import as made up products manufactured somewhere else.

To be sure Varun could not have been spending that sort of money at the auctions buying the syrups and packing they need before buying Zimbabwean materials such as sugar and paying local bills for utilities, taxes and labour. Even chipping in with the royalties and the dividends to external shareholders will not give US$15 million. 

The expansion we have been seeing must have required more plant and machinery to add to what was installed with the original direct investment. So in many ways Varun is an excellent example of the sort of investment we seek, and shows that the Second Republic means what it says when it assures direct investors that they will be treated as Zimbabweans.

It also exhibits what Business Weekly has been preaching regularly. That they way to win retail markets is not to impose controls but to allow market forces to operate openly without cartels and monopolies. Varun won its market share through the time-honoured and sure systems of producing quality (hence the need for a global brand) at a lower price. And combining that with going for volume sales at a lower margin rather than using lower sales at a higher margin. And the marketing has empowered a lot of Zimbabweans, right down to those pushing a far higher quality of insulated pushcart than we have seen before.

But many of the other major importers exhibit another lesson, that we need to get our farmers to grow more of the agricultural raw materials we need. Paying South African and South American farmers to grow our soya beans and other crops and get their cows to supply half our milk is all very well, but Zimbabwe would develop a lot faster if we could pay our own farmers instead.

We talk a lot about foreign currency and import savings when we start growing more of what we need, but the main benefit to Zimbabwe if we switched to local farmers would be the money we pump into a couple of million farming families. When we buy raw materials from Zimbabwean farmers we are creating huge markets that someone has to fill, and who else but Zimbabwean manufacturers if they are on the ball.

The foreign currency savings are useful but a good chunk will be absorbed by other imports, and especially machinery and equipment, needed by the factories that are expanding or opening to make the things that this huge new class of small-scale commercial farmers want to spend their new money on.

Anyone who doubts this should visit some of the small towns in major tobacco areas following the decentralisation of tobacco deliveries and sales. A number of businesses that never really thought much of where farmers lived have suddenly done their homework, found out and are now taking their business to the farmers.

The farmers win because they no longer have to pay incredible transport charges to ship stuff from Harare or Mutare. Their communities win because money starts circulating in small towns. No one loses because the big industrialists are still selling the same stuff, but have stopped taking customers for granted and are putting them first. 

As the large sums of maize and cotton money start moving into farmers’ bank accounts this season, with the Government now sorting out what is only a merchant banking liquidity issue to ensure instant payments, the rural market becomes important. 

So when we look at the RBZ lists and see US$17 million here, and US$10 million there, we need to start imagining what further transformations are possible if half or three-quarters of that money starts emerging in our farming areas.

This is why the major agro-producers need to back to the hilt the Government efforts to get rural production up. Contract farming is one solution, and this does not necessarily mean that the industrialists have to set up a huge farm inputs operation. It would probably be cheaper and certainly easier to ride on the back of Agritex and other Government efforts.

But that does not mean doing nothing. The maize meal millers have shown the way. Few sponsor individual farmers but the entire group is now paying in advance a third of what the GMB, which has been managing contract maize farming, needs to buy the harvest. And they have all agreed to obey the law and forget side marketing.

They are not being totally altruistic. They must all be thinking of that extra money so many families have and be working out what they can make and sell to get their share. And why not?

There was a start this season in getting soya production up. This is obviously a good idea, guaranteeing supplies and creating new markets for cooking oil, let alone the other products that these processing companies can sell to a growing market.

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