eBusiness Weekly
Nelson Gahadza
The upcoming tobacco marketing season is expected to augment forex inflows into the country and lead to enhancing stability in the foreign currency market and continuation to price stability, an official has said.
Zimbabwe received improved foreign currency inflows estimated at over US$6 billion last year, however, this has had minimal impact on the economy and exchange rate due to high demand for foreign currency within the economy.
The high demand of hard currency is also a result of the economy, which is now more dollarised, while others have a different school of thought that the there is an increased demand of money to retool.
However, traditionally, the tobacco marketing season has been associated with improved liquidity on the market and last year brought in close to more than US$900 million in earnings.
Reserve Bank of Zimbabwe (RBZ) governor, Dr John Mangudya, told Business Weekly that opening of the tobacco marketing season would improve foreign currency inflows in the economy.
“Tobacco is an important crop for the country and the upcoming tobacco marketing season is expected to augment forex inflows into the country and thus leading to enhancing stability in the forex market and of course to the continuation of price stability,” he said.
He indicated that with Zimbabwe being the largest tobacco producing country in Africa and on the top six producers of tobacco in the world, the central bank is pleased with the economic impact of this crop on the economy from forex generation to employment creation.
Tobacco farmers will this year retain 85 percent of their earnings in foreign currency, while the remainder will be liquidated at the prevailing exchange rate.
The 2023 tobacco marketing season will start on March 8, according to the Tobacco Industry and Marketing Board (TIMB).
Auction sales will begin on March 8 while contract sales will begin a day later. About 95 percent of Zimbabwe’s tobacco is produced under contract schemes.
Tobacco is the country’s largest foreign currency earner after gold and according to initial forecasts, output is expected to grow to 230 million kg, from 212 million kg produced last season.
At its peak, Zimbabwe produced 257 million kg of tobacco three years ago and the Government intends to expand production to 300 million kg.
Investment analyst, Rufaro Hozheri, said farmers will benefit much this market season given the higher retention thresholds.
“Last year Zimbabwe exported $968 million worth of tobacco representing a 68 percent increase from the 2021 season and accounting for 13 percent of exports.
“The RBZ raised the retention from 75 percent to 85 percent, which means farmers’ complaints were responded to and should incentivise them to produce and sell more,” he said.
Dr Prosper Chitambara, an economist said the season will see improved liquidity in the economy and the markets which will have a stabilising effect in terms of exchange rate and also buffering the reserves at the central bank.
“It’s a positive development and it will have overall stability in the economy,” he said.
However, investment analyst, Enock Rukarwa, said exchange rate stability has been predominantly due to a cocktail of inflation tightening measures instituted by the Government from May 2022.
There has been a gradual decline in month on month inflation from September 2022 largely as a result of a plethora of Government measures instituted earlier to tame inflationary pressures as well as the exchange rate volatility.
The Government measures included the decision to suspend payments to contractors, government agencies and departments which it accused of active participation in the deteriorating exchange rate.
The Central Bank has also on its part has maintained the bank policy rate and medium-term lending rate on the upper end and has vowed to maintain a tight monetary policy stance.
According to Rukarwa, tobacco earnings in 2022 only contributed 8,37 percent of total foreign currency receipts.
“More so over the years the tobacco marketing season has not been sufficiently effective in anchoring inflationary pressures and exchange rate dynamics due to its relative insignificancy to the broader inflation model,” he said.
He noted that tobacco inflows will definitely cushion farmers in the short to medium term however influence on exchange rate may be minimal.
Meanwhile, tobacco farmers have said most of the crop is ready for the 2023 tobacco marketing season and are expecting a record output this year.
The farmers are anticipating average prices to be around US$4 and US$4,50 per kg.
The Government is looking at localising the funding of tobacco and beneficiation to maximise earnings because under the current financing model, tobacco is largely funded by offshore money.
The Government has announced several policies and incentives that are meant to build capacity in the selected crops and minerals, under its Vision 2030 agenda.
In the tobacco industry, under the Tobacco Value Chain Transformation Plan, the Government set a target of producing 300 million kilogrammes of tobacco by 2025 and the US$60 million tobacco funding facility is among the various initiatives aimed at driving the agenda.
According to TIMB the implementation of the Tobacco Value Chain Transformation Plan is work in progress to achieve a US$5 billion industry by 2025.
The plan focuses on increasing primary production of the crop from 211 million kg (in 2021) to 300 million kg by 2025, localising financing for the 150 000 debt-ridden small-scale producers, value addition and beneficiation, and export of cigarettes instead of raw tobacco targeting to create a US$5 billion industry by 2025.
