Misconceptions about foreign currency auctions
By Eric Bloch
IT is difficult to blame the population in general, and the operators in Zimbabwe’s many economic sectors in particular, for their initial perceptions of the foreign currency auctions. Even before the first auction had commenced, scepticism reigned supreme, and as the first few auctions were completed and their results publicised, the scepticism continued. There were suggestions that the auctions were “rigged”, that they were “fiddled”, that their results were predetermined, and that only those politically influential had any prospect of successful bids.
That widespread attitude was not surprising, for Zimbabwe has a sad history of government manipulation and distortion of economic vehicles. Moreover, corruption has been the order of the day, as evidenced by the president’s belated appointment of a Minister of Anti-Corruption (although such an appointment would not have been necessary if, over the almost 24 years of Zimbabwean independence the law enforcement agencies, the Attorney-General, and government as a whole had taken positive action to contain corruption, instead of tacit or actual condonation — as demonstrated, for example, by the lack of prosecutions of those exposed by the Chidyausiku Commission as having fraudulently obtained war veteran benefits for alleged losses sustained).
With corruption having been so pronounced, it was inevitable that many would immediately assume that to be a characteristic of the foreign currency auctions, and would interpret the auction results accordingly. This was despite the emphasis that the recently appointed governor of the Reserve Bank of Zimbabwe (RBZ) placed on transparency, not only in his monetary policy statement on December 18, which was a veritable tour-de-force, but also in numerous subsequent public appearances. He spelt out in no uncertain terms that he would vigorously pursue the highest possible levels of good governance in RBZ, founded upon stringent ethical standards, integrity and disclosure.
From the outset, in an endeavour to give the private sector reassurance and confidence that the foreign currency auctions would be conducted equitably, within appropriate parameters as prescribed by economic fundamentals, available resources, and privatisation of national needs, the governor appointed a foreign currency auctions advisory board. That board is representative of diverse sectors of the economy, including industry, commerce, tourism, mining, the financial sector, the tobacco industry, the transport sector, indigenous business development, agriculture, indigenous business women, and others. In addition, he and his deputy governors, and many senior staff of the RBZ are in attendance at meetings of the advisory board.
Members of the board are not only fully appraised of the conduct and outcome of each auction, but are encouraged to attend auctions so as to observe the manner of their conduct and the controls in force. All banks are informed of the results of each auction, which results are published widely in the press. Notwithstanding all these efforts to demonstrate that the auctions are fairly conducted, many repeatedly suggest that bids are rejected on spurious grounds, that bid levels are “doctored”, and the like.
It is in the light of such unfounded contentions that analysis of the RBZ foreign exchange auction reports reveals much interesting data. That data includes that at each of the first four auctions the amount on offer was US$5 million. At the fifth auction US$7 million was offered, and at the next five auctions US$8 million was on offer at each auction. The number of bids has varied considerably, with relatively few being forthcoming at the earlier auctions. The first auction took place when much of the economy was still in annual recess, and only seven bids were forthcoming. The second auction attracted 50 bids, the third 131, and the fourth 171 bids. Numbers of bids then increased, with 333 at the fifth auction, a record 798 at the sixth auction, and thereafter declining to 655, 598 and 372 bids at the seventh, eighth and ninth auctions respectively, followed by an increase to 644 bids at the tenth auction.
Of those bids, none were rejected at the first two auctions, and only nine were rejected over the next three auctions. Thereafter, with the exception of the seventh auction (where only one bid was rejected) the numbers of rejected bids rose considerably, with 291 being rejected at the sixth auction, 227 at the eighth, 164 at the ninth, and 302 at the tenth auction. However, contrary to rumour, no bids were rejected on grounds that they were considered to be too high. A few bids were rejected where they were so low as not to accord with economic fundamentals. In the main, bids were rejected only where they were below the lowest bid rate at which the amount on offer was exhausted. However, bids were also disqualified for reasons such as erroneously completed bid forms, incorrect, invalid or expired exchange control authorisation numbers, failure of banks to stamp and/or sign the bid forms, bids resubmitted although previously awarded, and like defects.
Of particular interest is the diverse range of purposes to which allotted auction amounts pertained. US$18 190 742 was on account of raw materials, being 38,2% of total amounts allocated on the first nine auctions. Also over those nine auctions, US$4 897 352 (10,3%) was in respect of equipment and machinery, US$4 782 465 (10,1%) for fuel, US$4 602 383 (9,7%) for spares, US$4 410 893 (9,3%) for fees and subscriptions, US$1 947 832 (4,1%) for motor vehicles, US$1 601 101 (3,4%) for manufactured goods, US$1 368 633 (2,9%) in respect of reimbursements, US$1 305 592 (2,7%) for loan repayments, US$1 295 543 (2,7%) for education, US$984 990 (2,1%) for travel, US$588 021 (1,2%) on account of dividends, US$510 031 (1,1%) for chemicals, and US$1 096 629 (2,3%) for other purposes.
Up to, and including, the tenth auction, the total number of successful bids was 2 765, which collectively were allocated US$55 582 208, against a total for all bids received of US$70 172 794. Thus, bids awarded represented, in value terms, 79,2% of the bids received.
It is particularly relevant to note that prior to the commencement of each auction, RBZ is totally unaware of the bidders, the number of bids, or the amounts bid and the amounts of foreign currency sought. Although the RBZ is, of course, aware of the payment authorisations which it has given against applications for authorisation, it does not know when the recipients of such authorisations will bid in the auctions, although the authorisations generally only have a 10-day validity. The bids are administered by the bankers of those bidding for currency, the duly completed bid forms being placed by personnel of those bankers into a sealed and locked box in the foyer of the RBZ headquarters.
At nine o’clock on the day of an auction, the box with the bids placed in it is taken to the auction venue, where it is unlocked and opened in the presence of an RBZ auction committee, representatives of the advisory board and, on many occasions, other invitees from the private sector. Each bid is announced and subjected to computer processing which identifies any unauthorised or otherwise defective bids, and collates the bids for participation in the auction. Thereupon, the allotted foreign currency is allocated sequentially from the highest bid downward until the available foreign currency is exhausted. Thereupon, all bids below the final level of allocation become rejected bids, and that accounts for the high number of such bids in the more recent auctions.