Clampdown on forex dealers hits importers
IN the wake of the Reserve Bank of Zimbabwe (RBZ)’s latest swoop on several bureaux de change and closure of EcoCash agent facilities in a bid to tame currency volatility and illicit foreign currency dealings, industries have been plunged into fresh turmoil as they struggle to mobilise forex which is not readily available in the banks.
Most companies were sourcing forex from bureaux de change, but have been left hamstrung, as they cannot openly get it from the parallel market.The foreign currency trade has also been hit by the RBZ’s decision to suspend 6 000 EcoCash agents for allegedly fuelling the parallel market trade.
The country’s biggest mobile money transfer service provider responded last week by taking the RBZ to court, challenging a directive to suspend and freeze accounts moving money in excess of ZW$100 000 per month. The Zimbabwe Independent understands industry is fully in support of EcoCash’s legal action.
To beat the latest twist to Zimbabwe’s intractable economic crisis, characterised by hyperinflation which stood at 676,39% in March (year-on-year), distressed industries are now resorting to generating their own forex by charging for goods and services in United States dollars using the bank rate of 1:25 or steep prices in the local unit, using parallel market rates.
“Banks have been struggling to meet corporates’ forex requirements; so, the corporates were resorting to bureaux de change. But with bureaux de change, corporates are saying they have to generate their own forex to meet their import requirements for production and buying goods for resale, so the only viable way now is to attract or generate their own forex from sales,” an industrialist told the Independent.
“The strategy is to sell at cheaper prices in forex using the fixed exchange of 1:25, thereby managing government while ensuring customers preferring to buy in forex rather than in RTGS will be charged at parallel markets rates of 1:50. This then helps to discourage consumers buying in RTGS as they would prefer buying in forex, which is cheaper, thus ensuring corporates generate most of their revenues in forex.
“The impact of this is that most people will find it difficult to buy in forex since they don’t earn in hard currency or generate forex. This also means the ordinary people and civil servants will suffer more as the poor will be paying prices which are higher or even double those charged on people with access to forex, usually the well-paid and rich. So, in the new economic and pricing environment, the rich get richer and poor poorer.”
Officials say the ultimate impact is unintended re-dollarisation, which defeats the government’s five-year de-dollarisation plan. The pricing model is also inflationary and fuels poverty, hitting the most vulnerable in society while creating room for arbitrage.
The government responded to inflation by imposing price controls on some goods.But in a submission to the Ministry of Industry and Commerce on the futility of the price freeze, the Zimbabwe National Chamber of Commerce (ZNCC) cautioned that the move was doomed, and would trigger massive shortages and distortions on the market similar to those experienced in 2008, when the country was devastated by hyperinflation.
“With products to be affected by the price moratorium set to include sugar, rice, maize meal, cooking oil, salt and bread, price freeze of these commodities may decrease product availability from manufacturers and producers which will spawn shortages on retail and wholesale shelves,” the ZNCC cautioned. “History has shown that price controls are an adversity. Market controls have never worked in this economy. The economy came to a halt in 2007 after price controls were put in place. This resulted in shortages of basic commodities, queues, inflation and the fall of the Zimbabwean dollar. This also resulted in company closures and retrenchments.”
The business membership group also pointed out that the exchange rate disparities resultantly created market distortions and triggered price increases.
The ZNCC said: “The reality on the market is that the US dollar is trading at more than ZW$40. Price controls accelerate re-dollarisation and put pressure on the same consumers to find US dollars to buy basic commodities.”