Source: New policy to kill forex black market | The Herald February 21, 2019
Africa Moyo Senior Business Reporter
INDUSTRIALISTS and market watchers have hailed the monetary policy statement presented yesterday by Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya, saying it will kill the foreign currency parallel market and help increase production.They described the monetary policy statement as “an excellent” intervention.
Dr Mangudya announced a raft of measures designed to preserve the purchasing power of RTGS money and to restore export competitiveness within the economy.
The measures include the establishment of an inter-bank foreign exchange market; putting in place local nostro foreign currency accounts settlement platform; implementing a monetary targeting framework and ensuring the stability and resilience of the financial system through a macro-prudential framework, among others.
Industrialists and economic commentators have been lobbying for such measures for a long time, principally to ease foreign currency shortages, which were now manifesting themselves in high prices of basic goods.
Critically, the introduction of an inter-bank foreign exchange market unshackles manufacturers, particularly those not on the priority list, to source foreign currency on the formal market and avoid being jailed for 10 years for illegal dealing in forex.
In September 2017, Government gazetted Exchange Control Regulations empowering the police to arrest anyone trading in currency without a licence and allow for seizure of such cash.
Fines not exceeding the value of the currency and sentences not exceeding 10 years are some of the penalties.
Dairibord Zimbabwe Limited CEO Mr Antony Mandiwanza told The Herald yesterday that the pronouncements by the central bank chief were “positive”.
“From an industry perspective, what I am looking at is that if I am going to access my foreign currency to support production that will have a positive effect of increasing production,” he said.
“Secondly, the cost of imports will come down, which means that the cost of goods and services on the consumer will also come down, therefore, we will focus on volumes instead of focusing on price increases.”
Mr Mandiwanza said measures on forex retention by exporters were also encouraging.
“I think you look at it from two angles, there are some exporters who were earning 100 percent, but their retention is now reduced to 80 percent,” he said.
“Prima facie, you think it’s a reduction, but that reduction is compensated by forward value in the balance of the 20 percent. So, the net effect I think is still positive.”
Manufacturers are now expected to retain 80 percent of their export proceeds, while gold producers keep 55 percent; all other minerals (50 percent); tobacco and cotton merchants (80 percent); tobacco and cotton growers (30 percent); horticulture (80 percent); transport (80 percent) and tourism (80 percent).
Economic consultant and University of Zimbabwe lecturer Professor Ashok Chakravarti said; “This is an extremely important development, which was essential in ensuring that the Transitional Stabilisation Programme can be achieved because on the fiscal side, the Ministry of Finance has taken steps, but on the monetary side, you have a problem because strictly speaking, Zimbabwe, is not short of foreign exchange, but we got used to the idea that we are short.
Prof Chakravarti
“The problem was that there was no mechanism by which holders of foreign currency could trade legally with those people who needed foreign exchange.
“So, that is a platform that has been created and I am sure CZI (the Confederation of Zimbabwe Industries), ZNCC (Zimbabwe National Chamber of Commerce), and all the industrial associations are going to stand up and say ‘thank you to the Reserve Bank’ because they will be in a position to access the desperately needed foreign exchange.
“You increase production, increase capacity utilisation and increase employment.”
Prof Chakravarti believes the inter-bank foreign exchange market will choke the parallel market, and rates will start to decline before it “collapses over time”.
He said since the parallel market consists of trades of smaller amounts of money, the inter-bank market will be popular with businesspeople given that they deal in large sums.
Agribank CEO Mr Sam Malaba said; “It’s excellent measures. Basically, we allow the market to set the rate for foreign currency and we allow it to be done through the inter-bank market and those are very positive measures.
Mr Sam Malaba
“You reduce the level of arbitrage and allow these things to be done on a willing seller, willing buyer basis. The Reserve Bank has also committed to providing foreign currency to banks so that they also stabilise the foreign exchange market.
“This will manage the movement of the rate. Critically, imports for electricity and fuel would still be done through the central bank and I think what is important now is that exporters would be paid the market rate in terms of the RTGS, so exporters will not be subsiding importers.”
It is widely expected that the measures will help transform the economy.
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COMMENTS
Complete and utter bull. Zanu has set up the climate for this whole debacle in the first place. Now they want to pretend that it the people and the black market that has caused all the problems in Zimbabwe since 2000? Zanu has engaged Eco Cash and created the Bond Note to steal the savings for a second time like thy did with Gideon Gonzo. This time it will be Magudya, Mthuli and Strive to play the Zanu tune so that the people think that it is not Zanu!!! Gideon Gonzo, ED, Chiwenga, Queen Bee and Mugabe and Disgrace are all Zanu – and have a go with their snouts in the trough for a wee while. Here comes the Zanu Tata matrillions Zimbabwe currency Mark 2. Well done Zanu – the Master Class Thieves.
The cost of imported goods may drop depending on whatever the inter bank rate of the day is set as. But local goods and services costs are set to rise dramatically with the abandonment of the fictitious 1:1. Statutory development costs (such as EMA project approval and Building and Planning Permit costs) will sky rocket in RTGS dollar terms. This move effecetively stiffled private development unless the statutory authorities review the approval fees.
Under the new RTGS rate the fuel price is likely to be back to where it was in January – cheapest in the region. So the authorities will have to increase that again with resultant inflationary effects. And then what happens with wages? Are they to keep track with the effective devaluation? The situation will take months to settle down, if it ever does.
The RBZ intention of removing the ‘black’ market is fiction. The banks will sell whatever forex they have at the rate of the day plus their mark up. But there will still be someone on the street corner selling it at the bank rate plus mark up minus 1 and still making a profit!
This has the makings of another catastrophe.