12 March 2017

Zimbabwe: Forex Shortages Threaten Exports

Photo: Solidarity Peace Trust
Empty store shelves in 2008 (file photo).

EXPORTS are under threat in Zimbabwe due to foreign currency shortages which have persisted since last year.

Many companies in Zimbabwe depend on foreign currency to purchase raw materials from within and outside the country.

In May last year, the Reserve Bank of Zimbabwe (RBZ) came up with a four-tier import priority list for the efficient use of foreign exchange resources, with a bias towards supporting the productive sectors of the economy and reducing the import bill.

However, exporters have since engaged government complaining that some banks were not adhering to the import priority list and that their businesses were now at risk.

In an interview with Standardbusiness, the export capacity thematic committee chairperson Salie Khan said while banks were making efforts to settle nostro payments to foreign suppliers, the situation remained critical, with some companies still waiting for payments to be made for raw material imports.

"I wouldn't use the words 'deliberately withholding', but would say banks are not adhering entirely to the priority list in terms of foreign currency allocations for critical raw material purchases. The Office of the President and Cabinet (OPC) are committed to the ease of doing export business and their brief to the rapid result initiative [RRI] committees is for them to tackle these issues head-on, which is what we are currently doing. Engagements with the RBZ and the Bankers Association of Zimbabwe are underway by the RRI export working committees, the Confederation of Zimbabwe Industries and ZimTrade to address the issue of foreign payments," Khan said.

According to the report for the end of the first 75 days of the RRI Export Capacity thematic working committee; for exports to improve, foreign exchange allocations for critical raw material imports should be prioritised and low interest trade financial instruments availed by the RBZ through banks should be underwritten jointly by the RBZ and banks to be accessible to exporters.

It also called for the review of the 5% export incentive to 10% for value added exporters to counter regional competition in pricing. They also called for uninterrupted supply of power and other utilities critical to the production process in order to develop a healthy export culture.

Khan said Zimbabwe's export capacity was hinged on the achievement of high capacity utilisation by manufacturers with the attendant critical mass creating the vehicle for development of export markets.

He said the current low capacity utilisation within the manufacturing sector meant that available production was channelled entirely to the local market where there were shorter cash cycles and higher margins than the export market presents, thereby stemming the growth in exports.

Several critical cost drivers such as labour, utilities, cost of finance and manufacturing efficiencies fed into the competitiveness matrix, Khan said.

"There is also the issue of denominating export pricing in the highly valued US dollar against regional currencies that have depreciated since 2013. So in order to make exports more competitive, we need to address these cost drivers and the issue around US dollar pricing."

The OPC has set up two committees to address impediments to exports under the Ease of Doing Export Business Rapid Results Initiative.

The first thematic area that was identified as essential was export regulations, procedures and permits. It was noted that export growth was being hampered by a plethora of regulations and permits, processing lead times, locations and attendant levies and fees. A team was established to work on addressing these challenges. The team then set out an objective of reducing the time and cost of exporting by 50% within 75 days.

The second thematic group identified was export capacity. This thematic group sought to address challenges that pertained to export capacity such as obsolete machinery, prohibitive utility costs and unfavourable import conditions, among others. The group set to increase year on year value added exports by 5% within 75 days. In line with the Rapid Results Approach, specific milestones were laid out to be achieved within the 100-day period.

RRI ease of doing business export regulations, permits, procedures and processes committee chairperson, Benison Ntini said importation of critical raw materials was being hampered by foreign currency shortages.

"As we try to grow the exports, the capacity to import raw materials for manufacture is a critical component to these efforts," he said.

"While we work on all the other initiatives such as the Rapid Results Initiatives on the ease of doing business, the shortages of foreign currency which is being experienced by individuals and companies is a serious threat to the intended goal of reviving the economy."

Ntini said the allocation for foreign payments was erratic due to foreign currency shortages.

"In my view, we then cannot blame the banks. That would be tantamount to suggesting that the banks can afford to be wayward while their supervisor, the RBZ, has suddenly become powerless to act. It is therefore clear that the RBZ may be proffering such an argument about banks yet the real issue is, there isn't enough foreign currency to meet the necessary demand," he said.

He said the RRI and OPC were working to resolve the impediments to the growth in exports.

The improvement and growth in exports, he said, was currently being done by removing or amending impediments such as unnecessary regulations, numerous permits as well as revisiting procedures and processes.

Ntini said the introspection that was currently being carried out under the RRI would go a long way in making exports more competitive, thereby improving the country's Global Competitive Index rating.

"However, it is important to note that some of these challenges can rapidly be addressed and some will be addressed in the medium term. The teams working on these things under the auspices and support of the Office of the President and Cabinet are alive to what can quickly be achieved and what may take time. The initiatives that can show immediate results such as regulations that need changing will be changed expeditiously in order to improve the ease of doing business in the export sector," he said.

According to official statistics, South Africa remained Zimbabwe's top export market for the month in December, although exports declined from $390 million to $238 million, while imports stood at $208 million.

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