Business Reporter
LOCAL MANUFACTURERS sourced only 3 percent of their foreign currency needs from the parallel market last year, representing a dramatic drop from 15 percent a year earlier, as access from formal and official channels improved.
This significant shift — a major highlight in the Confederation of Zimbabwe Industries (CZI)’s 2024 Manufacturing Sector Survey published last week — signals growing confidence in formal markets.
According to the CZI, the improvement was largely driven by increased access to formal foreign currency markets, especially following adjustments to the willing-buyer, willing-seller (WBWS) exchange rate system.
Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mushayavanhu told The Sunday Mail Business that the latest development reflects a more efficient and reliable official market.
“The experience shared by the Confederation of Zimbabwe Industries is a welcome development and reflects the efforts of the Reserve Bank,” Dr Mushayavanhu said.
“The foreign exchange market under the WBWS arrangement is working well.”
The central bank introduced major reforms to the WBWS system in April 2024, making it more market-determined and improving price discovery.
These changes targeted increasing the volume of foreign currency traded through the formal interbank market while reducing reliance on speculative and volatile parallel markets.
“The Reserve Bank refined the willing-buyer, willing-seller foreign exchange market in April 2024 to make it more market-determined, enhance price discovery and ensure increased foreign currency is allocated through the interbank market,” Dr Mushayavanhu said.
A key driver of this transition has been the RBZ’s ability to consistently meet foreign currency demand.
Backlogs in official markets previously pushed businesses to the black market.
“The Reserve Bank has been able to satisfy all the pipeline demand to ensure continued stability,” added Dr Mushayavanhu.
“Importantly, the ZiG-US dollar exchange rate has shown relative stability, evidenced by a collapse in the parallel market premium to levels around 20 percent.”
This stability marks a dramatic shift from the volatility that plagued the Zimbabwean dollar before the launch of ZiG, a gold-anchored structured currency introduced in April last year.
At one point in 2024, the RBZ injected US$50 million into the interbank market shortly after launching ZiG to support its value.
Further bolstering confidence, the central bank later pumped in an additional US$190 million to clear foreign exchange backlogs, helping sustain the new currency regime and ensure timely payments for imports and other external obligations.
“The Reserve Bank is able to strategically intervene in the foreign exchange market to smooth any intermittent volatility or temporary market demand and supply mismatches,” said the Governor, underlining the institution’s role in actively managing stability while letting market forces play a greater role.
The central bank recently opted to keep bank statutory reserve ratios and interest rates unchanged to reinforce a stable policy environment.
Monetary authorities have since committed to “ensure optimal liquidity management and continued accumulation of foreign reserves” to safeguard ZiG’s stability.
Improved access to foreign currency comes at a crucial time for Zimbabwe’s industrial sector, which has faced years of constraints due to chronic foreign currency shortages.
Companies in the manufacturing sector have been for a long time accessing foreign currency from the parallel market at steep premiums.
It is believed foreign exchange market reforms, combined with enhanced transparency and communication, have improved business confidence.
In May 2024, the Reserve Bank released revised foreign exchange guidelines reaffirming that “only the interbank market sets the official rate”, thereby eliminating ambiguity and reinforcing the role of the WBWS system.
“The recent clarification of foreign exchange guidelines will further improve the efficiency of the market and stability of the exchange rate,” noted Dr Mushayavanhu.
“The Reserve Bank will work through any teething problems in the foreign exchange market and ensure that 100 percent of all bona fide foreign payments are fully catered for by the market to support growth and stability in the economy.”
CZI’s latest report emphasised the relative ease with which manufacturers could now access foreign exchange through official channels.
Growing confidence
Confidence in ZiG has grown.
By June 2024, the RBZ reported a 91 percent acceptance rate of ZiG across the economy, including by retailers, fuel stations and utility providers.
The RBZ’s emphasis on full currency backing through reserves and its strategic interventions helped reinforce trust.
While the sustainability of these gains will depend on the continuation of prudent macroeconomic policy, the manufacturing sector’s pivot to formal markets in 2024 represents a positive development.
Dr Mushayavanhu added: “Going forward, to maintain the stability of ZiG and the smooth functioning of the foreign exchange market, the Reserve Bank will maintain the currency monetary policy stance, ensure optimal liquidity management and continued accumulation of foreign reserves.”
If sustained, these measures could provide a firm foundation for the country’s reindustrialisation drive and offer a template for other reforming economies facing similar currency and market challenges.
Market watchers also say businesses are now generating their own foreign currency, thereby reducing their reliance on the parallel market.
This allows them to fund their import needs directly, lessening their dependence on both formal and informal foreign exchange channels, said economic analyst Mr Walter Mandeya of Trigrams Investments.
“While the WBWS improvements are undoubtedly a contributing factor, the increased self-sufficiency in foreign currency generation within the domestic economy should also be considered when analysing the shift,” he said.
“Mind you, the central bank is running a tight monetary policy regime, and ZiG is not as liquid and available for economic activity. For one to demand forex at the WBWS platform, they must have the corresponding ZiG.”
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