THE shortage of foreign currency on the auction floor is set to worsen as the tobacco season, one of the major foreign currency earners, has ended. By the close of the season last week, a meagre
65,4 million kg of tobacco valued at US$132 million had been sold.
This compared to US$184 million from 81 million kg sold last season.
At its peak, the tobacco industry earned about US$600 million.
According to the Zimbabwe Tobacco Association (ZTA), before the disruptions of tobacco farming by the land reform programme, tobacco exports contributed more than 25% to the country’s total foreign currency earnings. This has now declined to 20%.
“The close of the tobacco season will worsen the shortage of foreign currency at the forex auction floors,” David Mupamhadzi, an economist from Trust Holdings Ltd said.
He said there were already problems at the forex auction floors and the difference between the total amounts available far exceeded the total number of bids placed.
On September 2 the amount of foreign currency on offer was only US$10 million compared to US$52 million total amount of bids, falling short by US$42 million.
Mupamhadzi said the increase in company capacity utilisation was the major reason why the amount of bids is increasing.
He said foreign currency sourced from other sources such as platinum and gold were already committed to other things.
To better manage Zimbabwe’s foreign currency reserves, the Reserve Bank of Zimbabwe (RBZ) adopted a foreign currency auction system.
The system involves the auctioning of foreign currency to the foreign exchange market through a currency exchange within the RBZ.
All exporters discharge CD1 forms on the basis of gross export proceeds.
Of the total foreign exchange earnings, 50% can be retained in Foreign Currency Accounts (FCAs) for a maximum period of 21 days.
Exporters’ FCAs continue to be deposited with the RBZ.
After expiry of the 21-day retention period, exporters will be required to liquidate their FCA funds through the auction.
The RBZ introduced a carrot and stick retention based export incentive scheme.
Under this scheme, exporters who repatriate their export proceeds timeously will be rewarded while those who exceed the stipulated period without exchange control approval will be penalised.
Authorised dealers will be required to buy foreign exchange from small suppliers such as tourists and individuals on behalf of the RBZ at the ruling auction rate for supply to the auction.