To retain 2opc in FCAs
To get preference in forex allocations
Martin Kadzere and Enacy Mapakame
Tobacco and cotton growers will be paid 20 percent of their produce in foreign currency in the next marketing season while the Government will retain the remainder to help meet imports of essential commodities, according to Reserve Bank of Zimbabwe Governor John Mangudya.This follows intense lobbying by players in the billion dollar industry, who demanded to be paid in hard currency to cushion them from distortions resulting from multi-tier exchange system.
While the authorities have maintained that the quasi bond note currency and the Real Time Gross Settlement balances will remain rated at 1:1 with the United State dollar, the farmers argued that the multi-tier exchange system was a reflection that the greenback is not at par with the RTGS balances and the bond note.
Tobacco farmers had warned failure by the Government to pay them in foreign currency would hurt production of Zimbabwe’s single largest foreign currency earner.
The country produced over 252 million kilogrammes in 2017 /18 season, breaking the 236 million kg record set by mainly white former commercial during 1999 /2000 season.
Cotton exports have also recovered from a massive fall in the past four years after Government launched inputs support programme in 2016 which saw a rebound in production from 28 000 tonnes—the lowest output in nearly two decades to 142 000 tonnes this year.
“The current position is that tobacco growers and cotton growers will be paid 20 percent into their nostros FCAs,” Mangudya told Business Weekly this week.
“This is essential to ensure that the rest of the economy is supported with foreign currency to meet essentials such as fuel, medicines and inputs, which they also need. This also means the current multi-currency system, which is supported by the RTGS and bond notes as legal tender shall remain in place up until the fundamentals are right.”
This is in line with the Government’s position that the policy trajectory is to have Zimbabwe’s own currency, but only when fundamentals become right and conducive.
Looking after the goose laying golden egg
Chief executive of the Tobacco Industry and Marketing Board Andrew Matibiri, told Business Weekly in an interview that farmers had given options to be either fully paid in foreign currency, or partly receive their proceeds in forex and get priority in allocations.
“Over and above their 20 percent retention threshold, preference will also be given to tobacco farmers who need to import their requirements. We need to look after the goose that is laying the golden egg,” Mangudya said.
Zimbabwe has been facing severe foreign currency shortage for the past two years and is currently struggling to import sufficient critical commodities such as fuel and wheat. Last month, the RBZ raised forex retention thresholds for gold, platinum and chrome mining companies up to 55 percent from 30 percent to maintain viability of the miners. However, the sectors are demanding 100 percent retention.
Some observers had noted that like small-scale gold producers, with 70 percent in foreign currency, the tobacco farmers deserved to be partly paid in foreign currency. They said the challenges emanating from the exports surrender requirements reflected the bigger problem on the currency regime and without addressing it, policy makers would continue to unfairly punish the exporters who would eventually stop production.
“Zimbabwe urgently needs a currency regime that efficiently allocates resources and in the process, rewarding and incentivising hard work,” economist Brains Muchemwa said.
Another economist Persistence Gwanyanya said the currency problem in Zimbabwe was disadvantaging the generators of forex such as the tobacco farmers.
“What tobacco farmers are asking for is sensible in view of the price obtaining in the economy as well as the exchange rates,” Gwanyanya said.
“These are the people who bring in the forex, they have every right to demand it because the current currency regime means the farmers continue to get less for their product.”
“If for instance we take an average of price of $2,80 per kg, which they get in the RTGS, if they are to buy USD at current exchange rates it means they get very little. If they continue to get RTGS, they will be discouraged because everything else is expensive or charged in US dollar, yet they are the ones who brings in foreign currency.”
“They have every right to make such demands, they bring in the money just like gold producers. What tobacco farmers want is more forex so that they can continue producing; as it is now, they are getting lesser for their product.”
Muchemwa also noted that while it was the duty of the Government to intervene and protect the vulnerable in instances where markets fail, the intervention mechanisms “should not infringe on the property rights of such economic agents as tobacco farmers who have legitimate claims to US dollars since they are earning it after their hard work”.