eBusiness Weekly
Kudzanai Sharara and Michael Tome
Exporters are set to lose out on close to $1 billion worth of export incentives they were enjoying in the wake of the 2019 Monetary Policy Statement presented by Reserve Bank of Zimbabwe Governor Dr John Mangudya this week who said the incentives were no longer making sense in the current inflationary environment.
In 2016, the central bank introduced export incentives as a way of encouraging exports including tobacco and gold receipts.
At the time of introduction, Dr Mangudya also said the incentives would encourage productivity as a way to boost the economy.
Gold as the largest export automatically became the largest beneficiary of the scheme, raking in $310,6 million since the incentive was introduced up to 21 September 2018. In total, exporters got at least $743,2 million since the introduction of the incentives.
Tobacco exporters also got a sizeable chunk of $153,3 million while those in the manufacturing, agriculture, tourism, transport and services among others got $215,9 million.
But all this has come to an end with Dr Mangudya stating in his MPS that “the export incentive scheme has been eroded by the forex premiums induced inflation.”
He said such a scenario is not conducive for enhancing exports and diaspora remittances.
Post MPS presentation, Dr Mangudya also noted that the export incentives had naturally fallen away due to galloping inflation, which had reached 56,9 percent year-on-year in January this year.
“When we used to give an export incentive scheme, which by the way, after this, falls away, naturally, because 5 percent or 10 percent incentive makes no sense when inflation is 42,09 percent (in December 2018).
“The export incentive scheme was very useful when inflation was below 5 percent, because producers used to get the real incentive. Now at 42,09 percent, with parallel market at between 3 to 4 (times) it means that the incentive has been overtaken by events,” said Dr Mangudya.
Exporters, however, said the export incentive was useful while it lasted.
Ariston chief executive officer Paul Spear, whose company got approximately $2,7 million in export incentives, said while the export incentive had fallen away, the policy statement, on a first impression, was a positive one. Overall agriculture related exports got $36,8 million in incentives since the scheme was introduced.
Spear said the interbank market, where foreign currency is going to be sold on a willing buyer willing seller basis, would compensate the removal of the export incentive.
Exporters will now get real value for their export earnings as buyers will now pay a market determined rate as opposed to the past where exporters surrendered their money at a rate of 1:1.
Brainworks chief executive officer Brett Childs, shared the same sentiments saying while the export incentive has been a bonus to exporters, their removal was good for the overall economy.
“I think it was expected, we were expecting the export incentive to be taken away ever since the MPS in October, it was coming. The export incentive has been a bonus to exporters like ourselves in helping us generate RTGS which obviously we can use, but certainly for the economy it is a good move.
“To make a policy work, we must ensure new money is made, to use a phrase, so by taking away the export incentive it gives us confidence that RTGS is no going to continue to be created.
“I think the policy for us, obviously to retain 80 percent of our foreign currency and be able to use it within 30 days is definitely something we will be sitting down in the next few days to work out how we manage our businesses now within that framework.”
“Those are certainly policies that we had not foreseen, so we have to seat down and work out how we manage our export incentive within the framework of losing out 20 percent of our export incentive,” said Childs.
Brainworks is the major shareholder of hospitality group African Sun.
The tourism sector got $18,5 million in export incentives since the scheme was introduced.
Confederation of Zimbabwe president Sifelani Jabangwe said floating of the currency will enable the value of local medium of exchange to be determined by the market forces hence the industry’s cost structure will fall into place as they will be competitive enough to cover for the incentive.
“The MPS intends to stabilise the currency situation in the country, this will bring cost advantage to those who manufacture for export incentive so withdrawal of export incentive is not really a matter because exporters will be able to price competitively across the region, what exporters want is clarity on currency matters,” said Jabangwe.
