28 April 2019

Zimbabwe: Zim Industry Frets Over Interbank Forex Market

Industry has called on government to fine-tune the interbank currency market for foreign exchange, saying the current conditions are not favourable to both buyers and sellers.

The government launched the platform in February this year in an effort to curb a booming parallel market for foreign currency.

But two months down the line, the platform is yet to gain traction with industry players complaining that they were failing to access forex.

Captains of Industry told government during the Buyers-Sellers Forum organised by the Confederation of Zimbabwe Industries (CZI) and the Zimbabwe International

Trade Fair (ZITF) held in Bulawayo last week that the interbank platform was not effective in its current form.

"With the volumes at the (interbank market) at the moment, can anyone who requires currency go on to the market and actually access currency?

"At the moment, that is not happening. So there is a need for further fine-tuning," CZI president Sifelani Jabangwe told Industry deputy minister Raji Modi, who attended the forum.

"What is this fine-tuning that we think should happen there? It should do with predominantly the starting rate because with a commodity that is in short supply, if you go in at the low end of the price as what is happening, you will have a lot of buyers looking to buy since it is a deal, but sellers will not be there because they feel short-changed," he added.

The official and parallel market rate of the US$ and RTGS$ has widened since the introduction of the virtual currency in February, when the government dumped the 1:1 parity that had been in place since 2016 when the bond notes were introduced.

After holding firm at 1:2.5 for a few days, the RTGS$ has plunged to as low as 1:3.2 on the official market, raising inflationary pressures as well as fears that the country could be sliding back to the dreaded 2008 hyper-inflationary era when Zimbabwe experienced a record 179,6 billion percent inflation rate.

"What then happens for exporters is that there is the 20% and then there is the 30-day period in which your currency could be liquidated.

"So if the 20% is liquidated in the interbank market, which is lower than the true market rate as seen by sellers, what has happened is that we will have all got a full value for 80% and the other 20% you have got it low from what is its actual value."

Essentially, if that happens, Jabangwe said, it makes exporters uncompetitive.

"I will predict right now that first quarter forex inflows are lower than what they were last year," he said.

"So we are now chasing even less currency than we were chasing last year.

"That is now causing the rate to escalate at a time the tobacco inflows have not been moving upwards. So essentially, we need to take care of the exporters."

Jabangwe said Zimbabwe was foreign currency-dependent and needs to keep exporters happy for the sake of the economy.

"These exporters then say, if I'm now just exporting $2 million worth of goods and if I am expected to spend $2 million in 30 days, how do I do that?

"If that remainder is liquidated I have lost the entire exports at below market rate and I'm basically not going to do it, I would rather stop until things start changing," he said.

"So I believe that policy measure just to make the exporters happy would see a reversal of all other things, which we are seeing that are actually a symptom of the root cause.

"There could be other things, but certainly just that issue on the exporters would go a long way."

Jabangwe said in the past weeks they had conversations with banks to find out why the platform was not working even though the buyers and sellers were from the private sector.

"Hopefully, we will conclude those conversations in the coming week so that we go and propose to government and say we are the buyers and sellers this is what we want," he said.

CZI Matabeleland chapter president Joseph Gunda weighed in, saying there was need for transparency on the fate of the seed money promised by the government to kick-start the interbank platform.

"Industry has been relying on acquiring forex through the Reserve Bank of Zimbabwe (RBZ) allocations. After the announcement of the TSP (Transitional Stabilisation Programme), the challenges (started) and the foreign currency allocations dried up from the RBZ," he said.

Gunda said business had always indicated that it was not sustainable to get money on the black market.

"It has not been a viable option for industry. I think the question we seem to be skirting is, when the government introduced the floating of exchange rate, I believe there was a mutual understanding that there was going to be seed money given to the banks and we have been waiting for it," he said.

"Many of our members have gone to the banks trying to access that money. I don't know how many have accessed it. We have not been able to access it."

"So if you fail to get that, what do you do? This is why some of our members have had to close companies because they couldn't get the forex.

"And they couldn't get it on the black market.

"So we need the government to be very clear, especially the RBZ on what structure is in place for the acquisition of forex through the interbank exchange rate.

"There must be transparency before we point fingers at each other."

Modi, however, accused business of fuelling the parallel market.

"That question has been asked so many times. I think what is happening is that people link the prices with the parallel market," he said.

"I will give you one example; you go to one shop they are charging 10 times in bond.

"If you pay in US$, it's US$1, if you pay in RTGS$, it's $10. So who is making profit?

"People are blaming government saying it is not doing anything about it, but government is doing everything that is possible.

"We don't want to impose price controls and anything like that. In my view, it's business to blame, not anyone else."

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