eBusiness Weekly
Nelson Gahadza
Industry says the US$4,12 billion disbursed by the Reserve Bank of Zimbabwe (RBZ) auction system to businesses since inception in 2020 has seen improved capacity and local product supply; however, if it was more than that, it could have gone a long way towards import substitution.
In a recent auction update, the RBZ said total cumulative foreign exchange auction allotments since the inception of the Foreign Exchange Auction System in June 2020 amounted to US$4,120,819,400.
The central bank launched the Dutch auction system in June 2020 with the sole aim of improving transparency and efficiency in the trading of foreign currency in the Zimbabwean economy.
Since its launch, the bulk of the funds were allotted towards payment for raw materials, machinery, and equipment as businesses invested in their manufacturing processes.
Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza, confirmed to Business Weekly that the industry did benefit from the auction money.
“We are seeing a number of local products on the shelves with an element of imports. If it was much more than that, we would not have seen many imported products and be able to meet that gap,” he said.
He noted that the auction should continue in order for businesses to secure the cheaper funds required for working capital.
Along the journey since inception, the weekly foreign currency auction has almost lost its relevance due to reduced allocations per auction session to an average of US$13 million, from as much as US$35 million to US$40 million.
Additionally, the auction was set up as a price discovery mechanism for the local currency as well as to provide foreign currency to local companies needed for the procurement of raw materials and retooling.
For the greater part of 2021, the RBZ struggled to meet demand for foreign currency on the auction, resulting in a backlog of about US$300 million, which the bank has since cleared.
It is during this period that companies devised other alternatives and relied on the Willing Buyer, Willing Seller (WBWS) option to source foreign currency.
Economist, Vince Musewe, said the Zimbabwe business sector is a hungry beast for foreign exchange, and any forex availed of is welcome.
“The only pity is that nobody measures the impact of these forex inflows into the business sector on job creation,” he said.
After clearing the backlog, the RBZ committed to abide by its own rules, which it had violated after it failed to provide foreign currency to successful bidders within 14 days from the date of the auction.
According to outgoing RBZ Governor Dr. John Mangudya, the sum of US$3 909 195 was allotted to 228 beneficiaries under the retail foreign exchange auction during the month of December 2023, and US$12 830 473 was allotted to 263 beneficiaries under the wholesale foreign exchange auction during the same period.
In a recent auction report, Mangudya said total foreign exchange payments for December 2023 were US$685 413 107.
These were foreign currency accounts (US$651 028 674), foreign exchange auction allotments (US$16 739 668), and the interbank market (US$17 644 765).
“The bulk of the retail auction allotments during the month of December 2023, at 58 percent, were for payment for raw materials (US$1 489 281) and machinery and equipment (US$763 311).
The remaining 42 percent of the total allotments went towards payment for services (US$474 514), consumables (US$556 276), retail and distribution (US$129 617), pharmaceuticals and chemicals (US$399 609), and manufactured goods (US$96 587).
According to RBZ, the introduction of the wholesale foreign exchange auction, on the back of the liberalisation of the exchange rate, saw the parallel market premium decline from a peak of over 140 percent in May 2023 to around 35 percent in November 2023.
Economist, Dr Prosper Chitambara, said there has been challenges in the auction which the central bank has tried to fine tune and the multilateral institutions have been calling for the full liberalisation of the foreign exchange system and that will be the way to go.
