CONFEDERATION of Zimbabwe Industries (CZI) is restructuring the manufacturing sector's US$183 million legacy debt to foreign suppliers, but says the prevailing interbank forex market rate of 1:3 will prolong the repayment and is not sustainable.
As reported by the Zimbabwe Independent last week, companies with foreign debts and other liabilities face the risk of unsustainable debt burdens or technical insolvencies and bankruptcies due to currency volatility and exchange rate movements -- foreign exchange risk.
The confederation, which is engaging the Reserve Bank of Zimbabwe and Ministry of Finance over the matter, says it is pushing for a 1:1 rate for the repayment, which it intends to spread over a period of two years in order to avert strain on the country's fiscus.
Payment of the debt is critical for opening fresh lines to procure raw materials and equipment for manufacturing to bring in the much-needed foreign currency.
CZI president Sifelani Jabangwe in January revealed that the organisation was hoping to commence clearing the debt in March at the onset of the tobacco season which is usually characterised by improved foreign currency liquidity. He said the introduction of the interbank forex market has, however, failed to improve liquidity, making the repayments difficult.
Prior to the announcement of the Monetary Policy Statement on February 20 this year, the CZI had engaged the monetary authorities, making submissions on behalf of members.
Central to these submissions was the issue of legal and transparent access to foreign currency. The CZI specifically requested for a formal currency trading platform which would give industry legal access to foreign currency which was then expected to allow manufacturers to make payments offshore.
While the RBZ put in place the interbank platform which is supposed to facilitate transactions, Jabangwe said there is a need to revisit the mechanism of the forex trading platform which he said lacks the clarity necessary to attract meaningful trades and improve market liquidity.
This week, Jabangwe told businessdigest that the CZI's ongoing engagement with the monetary authorities was to push for the 1:1 rate at which the debt was procured. Jabangwe warned that failure to do so will result in the sector being saddled with debt for over three years, a situation which will result in lines of credit being cut by suppliers.
"We are also talking to suppliers, but the initial idea was never to pay it all at once but to clear it in a way that will not cause further turmoil to the economy of burdening the economy. We are looking at a win-win situation where we are able to clear it in the next two years but, in case the negotiations with the authorities fail, it will take up to three years or more to pay back the debt at the prevailing intermarket rate but then we always need raw materials to be able to produce. It's a situation that needs serious attention. We are pushing for a 1:1 rate as we truly can't do it at the prevailing rate; it needs all the important stakeholders to intervene and find a way forward," he said.
Jabangwe said everything will depend on the liquidity of the market, as is the norm during the period March to October every year.
The introduction of the interbank market, he said, has brought more confusion than money in the market.
Jabangwe said the interbank forex trading platform lacked a clear mechanism and it was imperative for the government to review the real cause of the non-functionality of the newly introduced trading platform.
So far, the trading platform has failed to draw sellers due to low rates being offered when compared to the rates on the parallel market which offer higher premiums.
Meanwhile, he said the industrial sector's capacity utilisation may also remain flat at an earlier projection of 34,3% in 2019 as the introductions of the interbank forex trading platform might not bring significant change as long as the liquidity crisis continues in the country.
The CZI projected capacity utilisation to drop to 34,3% in 2019 from 48% in 2018, mainly driven by foreign currency shortages with at least 34% of companies shutting shop, increasing unemployment.
"Capacity utilisation may improve slightly or will remain flat as it will depend on the currency availability which is supposed to push production to expected levels. In the short term we need to ensure the liquidity of the market, but it's pointing the other direction. The interbank is supposed to be on a willing seller, willing buyer basis but we have seen only buyers and no sellers. We can't continue to have a situation where the black market thrives over the formal market," he said.