The Reserve Bank of Zimbabwe (RBZ)’s foreign currency auction system continues to offer relief for businesses seeking rightly priced forex for their operations.
These have been boosted by a largely stable macro-economic environment since the forex trading system was introduced.
Foreign currency shortages for retooling, meeting external obligations as well as acquiring raw materials, machinery and equipment had for years been one of the major challenges faced by local businesses.
However, foreign exchange related shocks, including price volatility, were mitigated after the introduction of the auction system on 23 June 2020, which resulted in notable stabilisation of the Zimbabwe dollar exchange rate, on both the formal and open markets, in the third quarter of the year.
Businesses from across various sectors have acknowledged an improved operating environment since the auction system, which has enhanced access to forex for retooling and importation of essential raw materials. The auction system has also managed to tame the wild run in the rate of inflation.
Commenting on the operating environment for the half year to June 30, 2021, Dairibord chairman Josphat Sachikonye said: “The environment was more stable than in the prior year with inflation receding in response to the foreign exchange auction system, domestic foreign currency earnings and conservative monetary and fiscal policies.
“Foreign currency availability improved as a result of the foreign currency auction.”
According to the RBZ, over 4 000 firms have benefited under the central bank’s weekly foreign exchange auction system since its inception last year, while over US$1,7 billion has been disbursed to importers via the same platform.
The disbursements have benefited in excess of 1 728 entities, with US$1,734 billion allotted under the main foreign exchange auction while 3 588 small to medium enterprises received a cumulative US$234 million under the SMEs foreign exchange auction.
The bulk of the auction funds (60 percent), the central bank said, went towards payment for raw materials (US$794,7 million), machinery and equipment (US$382,5 million) while 40 percent was allotted for importation of consumables, pharmaceuticals and other critical needs of the economy. The apex bank also highlighted that the exchange rate stability was expected to be sustained in 2021 largely due to the measures the monetary authorities have taken to curb speculative and rent seeking behaviour in the foreign exchange market.
Businesses have generally agreed these measures have greatly improved the operating environment with inflation trends also showing improvements.
The declining inflation trend is largely attributed to the continued stability of the auction, which saw the local currency depreciate against the US dollar by only 4 percent between December 2020 and June 2021, closing at $85,42:USD1, according to the RBZ 2020 Financial Sector Stability report.
“The inflation rate continued on a downward trend, from 348,6 percent in December 2020 to 10,6 percent as of 30 June 2021. Further, the exchange rate remained relatively stable to close at $85,37 to the United States Dollar as at 30 June 2021.
“These factors facilitated an improved operating environment, notwithstanding the impact of COVID-19 and its induced lockdowns,” said Masimba Holdings chairman Gregory Sebborn.
However, there have been concerns over delays in the allocation of the foreign currency with businesses calling on the RBZ for a timeous disbursement of the funds.
“The Dutch auction system provides a sustainable source of foreign currency. However, we urge that the responsible authorities address the backlogs in foreign currency settlement,” said Mr Sebborn.