By Gareth Carter- There is disquiet amongst exporters over the decision by the Reserve Bank of Zimbabwe (RBZ)’s Monetary Policy Committee (MPC) to increase foreign currency retention thresholds from 30% to 40%.
On January 8, the MPC came up with measures which were meant to enhance the administrative arrangements of the foreign exchange auction trading system, introduced in June last year.
As part of the measures, the surrender requirement on export receipts was reviewed from 30% to 40%, which means that exporters are now required to sell 40% of their export receipts to the RBZ at the prevailing foreign exchange auction rate.
The MPC then sought to ease the pain on exporters by removing the 60-day retention period on export receipts in a bid to give them flexibility on the utilization of their export receipts.
As such, exporters may now retain net export receipts in their Foreign Currency Accounts (FCAs) for an indefinite period.
But exporters have refused to be hoodwinked, saying the give-and-take approach taken by the Central Bank has left them in a far worse situation than before.
The said the development couldn’t have come at a worse time.
The Covid-19 pandemic, which has resulted in lockdowns, globally, has placed exporters, especially miners, in the jaws of death. To survive, miners actually need incentives as opposed to the stick.
While industry players don’t want to sound ungrateful for the abolition of the 60-day liquidation period for forex in our FCA, they said it is not healthy for the industry to be given less with one hand while more is taken from them with the other hand.
In an environment where the country is operating a dual economy – dominated by the informal sector –government policy mush seek to achieve equity between the two economies. In this case, foreign currency rates on the auction system have been outpaced by those on the alternative market, where the United States dollar (US$) is fetching well in excess of 120 Zimbabwe dollars (ZW$).
What that essentially means is that exporters are surrendering 40% of their foreign currency earnings to the RBZ at the ruling US$1 to ZW$82 against ZW$120 which they could have fetched on the parallel market. The difference between the two represents value which they foregoing for 40% of their export earnings.
The challenge for exporters then arises at many levels.
To start with, the foreign currency (60%) which they are retaining is not sufficient to cater for their import requirements. As a result, many of them are deferring capital projects. For miners, this affects geophysical exploration for minerals to extend the lifespan of their mines as well as the replacement of antiquated equipment, which puts lives in danger.
At the same time, the ZW$ being debited into their accounts for the surrendered 40% portion are a far cry of what is needed to support their local cash-flow needs, which are currently racing against inflation. Mind you, most mining consumables are payable in US$, not to mention taxes.
This places mining companies at a huge disadvantage when compared with their peers in stable economies whom retain 100 percent of what they earn.
It therefore doesn’t come as a surprise that Zimbabwe’s miners have missed on global rallies or boom in mineral prices, largely as a result of skewed policies.
Unfortunately, the latest development comes at a time when international markets are so unpredictable in terms of prices, with some metals, among them, chrome – plunging by as much as 35% at some point.
With the Covid-19 pandemic wreaking havoc in international markets, the 30% retention threshold should have been scrapped or, at least, be maintained to give miners some breathing space during this difficult period. Sadly, the MPC had other ideas.
It is being hoped that the RBZ may bend backwards, more so, given that Zimbabwe has not been able to avail a rescue package to enable its exporters to pull through during this difficult period.
Because mining involves huge capital outlays and long-term planning, the frequent policy changes are certainly not helpful as they contribute to the climate of uncertainties that have, for years, been dogging the country’s economy.
Gareth Carter is an economist and researcher on mining matters. He is contactable at [email protected]