Source: Industry swallows bond notes bait – The Standard May 15, 2016
EXPORTERS are demanding a 15% incentive to boost their production instead of the 5% dangled by the Reserve Bank of Zimbabwe (RBZ) under the $200 million support facility to boost local production.
BY VICTORIA MTOMBA
The move by exporters will come as sweet news to the ears of RBZ governor John Mangudya, who has been battling to win the hearts of Zimbabweans over his plans to introduce bond notes into the economy.
Confederation of Zimbabwe Industries (CZI) president Busisa Moyo said the incentive would be a big boost for exporters who were battling high costs.
“South Africa gives bigger incentives to their exporters. We are still in discussions with the Reserve Bank of Zimbabwe to raise the export incentive to 15% to offset what South African exporters get when they sell in this market for the manufacturing sector,” Moyo said.
He said CZI would partner with ZimTrade to lobby for a higher incentive.
“The funds received from exports will benefit the country as export proceeds go into our nostro accounts. The exporter receives an incentive which can be used to pay for local expenses and costs,” Moyo said.
Two weeks ago, Mangudya announced a $200 million foreign exchange and export incentive facility, which is supported by the African Export-Import Bank (Afreximbank) meant to ease the effects of the high demand for foreign exchange.
He also introduced a 5% incentive facility on all foreign exchange receipts, including tobacco and gold sales.
Qualifying exporters will be given bond notes and coins which are at par with the United States dollar.
The bond notes would operate alongside other currencies in the multicurrency basket.
The bond notes — which will be in denominations of $2, $5, $10 and $20 — will be backed by the $200 million facility.
Moyo said there was need to buttress these measures by prescribing local content rules at 75% for government, supermarkets and private sector procurement in general.
However, Mangudya said the bank would focus on the 5% at the moment and would not increase the export incentive for now.
Since the country dollarised in 2009, over $18 billion has been spent on imports while exports have fared badly, with the trade deficit averaging $2,5 billion annually since 2011 from $400 million in the 2004 to 2006 period.
Economist Willia Bonyongwe said the export incentive was designed to boost exports that had been going down.
“So the governor is trying to sort out the liquidity issue and stimulate domestic production,” she said.
Bonyongwe said increased exports would bring in additional liquidity through foreign currency earnings while increasing production and reducing the dependence on imports for basic products such as tomatoes and potatoes.
“The bond notes are the governor’s solution. His problem is that people don’t have confidence in RBZ and have visions of the bearer notes returning,” she said.
“He is fully aware of that and finds himself between a rock and a hard place.
“The challenge is how to restore lost confidence. Restoration of confidence is always painstakingly slow.”
She urged RBZ to clamp down on those who abused the system.
“The connivance between those in the banking sector who facilitate the process must be stopped and those culpable must be dealt with.
“That might mean enacting legal instruments to punish effectively, including disgorgement [forcing a return of stolen money],” Bonyongwe said.
She said criticism of the bond notes was due to fear of the past, adding that such “fear will stop you from moving forward”.
Zimbabwe National Chamber of Commerce chief executive officer Takunda Mugaga said he was behind the bond notes and the exporters’ incentives, saying criticism of Mangudya was unjustified.
He said the chamber was, however, concerned that Mangudya had concentrated on the five major export products when there were many others.
“If our exports are concentrated in the five major products, there is a risk of commodity decline if the prices of tobacco goes down as it is and metals have been going down. The governor has to be broad and include import substitution,” he said.
“There are people who do not export but they are producing goods that were heavily imported, thereby reducing the import bill.”
Mugaga said there was need for RBZ to embark on a campaign strategy on the bond notes countrywide and to refrain from policy shifts on the bond notes in order to restore certainty and confidence.
International Monetary Fund (IMF) resident representative Christian Beddies said cash shortages were a result of weak external inflows and a decline in prices of commodity exports that was aggravated by the drought afflicting the country, which has pushed food imports. He said IMF was assessing the implications of the measures to deal with the cash shortages.
“Dealing with the cash shortages within a comprehensive plan aimed at strengthening economic agents’ credibility in Zimbabwean policies and institutions will be very important to ensure its success,” Beddies said.