US$11m alloted to SMEs at auction

Source: US$11m alloted to SMEs at auction | The Herald

US$11m alloted to SMEs at auction

Business Reporter

THE Reserve Bank of Zimbabwe (RBZ) on Wednesday allotted US$10,7 million to Small and Medium Enterprises (SMEs) on the forex auction, the first time it has disbursed such an amount to the sector in a single session.

Results of this week’s foreign exchange auction show that the main auction, pushed back by a day due to the Heroes and Defence Forces holidays, received nearly the usual weekly allocations, with disbursements totalling US$33 million.

But it was the amount extended to the sector this week that captured more attention, with the disbursement of US$10,7 million signalling the growing influence of the SME’s sector in the domestic economy.

Until this week, allocations to SMEs had not breached the US$10 million mark, with the closest being US$8 million on July 14, 2021. Latest updates from the Reserve Bank of Zimbabwe (RBZ) on disbursements showed that 2 887 SMEs had been given a cumulative US$173 million since the auction was initiated mid last year.

The average lowest and highest bid spread has remained largely between $82 and $195, which has also reflected relatively sustained stability in the exchange rate, which was little changed at $85.7/US$1 this week. 

Economist Persistence Gwanyanya said the allocation of the single largest chunk of forex on the auction system was consistent with the policy thrust of the central bank and central Government.

“What seems to be prioritisation of SMEs is consistent with the policy thrust of reducing the concentration of the economy in the hands of a few large corporate. Economies are driven by SMEs, Germany (being one of them).

“One of our structural challenges today is centred on dominance of the economy by a few large corporations, so you may want to view the structure of the auction system and how it is operated as also supporting SMEs.

“The economy should be well diversified, if these SMEs are well supported we hope that they will climb up the value chain very quickly and start to be bigger manufacturers, as they grow we reduce dependence on a few large corporations,” he said.

Mr Gwanyanya said SMEs now constitute a significant component of the Zimbabwean economy and the structure of the auction system is moving to align its operations with this structure of the economy.

Importantly, Mr Gwanyanya said it was critical that the SMEs read this policy inclination and respond positively, as the country moves to recognise diversity in economic agents to avoid dependency on large corporates.

“Large well established corporations in the country even have capacity to arrange lines of credit better than SMEs, so they need to be supported with foreign currency. 

“Large corporations have the capacity to arrange even letters of credit, but SMEs do not have that capacity.

“The whole idea is to support these SMEs so they quickly grow and start the manufacturing process. We hope these SMEs will also respond positively to the support they are getting,” he said.

In its last meeting, held on   April 30, 2021 the RBZ’s Monetary Policy Committee approved a $500 million facility for purposes of enhancing production and productivity for Micro, Small and Medium Enterprises (MSMEs).

The MSMEs will access the facility from banks and micro-finance institutions at 30 percent per annum.

This is lower than the punitive rates that MSMEs are normally subjected to due to a number of reasons, including lack of eligible collateral.

RBZ Governor Dr Mangudya recently said the central bank was encouraged by the fact that the bulk of the funds allotted (70 pc) through the auction system went towards procurement of raw materials, machinery and equipment.

Out of the US$1,7 billion disbursed since inception of the auction in June last year, raw materials got US$708 million, machinery and equipment received US$324 million, consumables US$168,5 million.