HomeBusiness DigestAuction fails to solve hard currency woes

Auction fails to solve hard currency woes

Eric Chiriga

THE foreign currency auction launched in January last year has failed to solve the country’s chronic hard currency shortages, business leaders said this week.

=”Verdana, Arial, Helvetica, sans-serif”>The auction has become irrelevant to desperate businesses that have failed to access foreign currency for the past four months. The failure by the auction to meet the foreign currency demand has led to a boom in the black market where most companies are now trading in a desperate bid to stay afloat.

Business leaders said instead of improving the supply of foreign currency by giving exporting firms first priority to access the meager foreign currency available on the auction, the Reserve Bank of Zimbabwe (RBZ) was paying attention to minor issues.

According to financial results released recently, several companies reported that they were failing to access forex on the auction. They claimed this had adversely affected their production capacity which would in turn reduce their export volumes. A slash in the export volumes means the country would earn less forex and the shortages would continue.

Local exporting firms require at least US$2 billion a year for them to operate viably annually but the auction only provides about US$650 million.

The country is expected to realise about US1,8 billion from exports. The foreign currency auction can only raise US$12,5 million per week.

Economic analyst, John Robertson, said the foreign currency auction was not operating like an auction at all.

“If the Reserve Bank of Zimbabwe (RBZ) operated it like a genuine auction things could have been better. It’s not an auction market but an allocation mechanism,” Robertson said.

He said sellers have no rights on the auction, adding that most companies have been failing to access foreign currency on the auction for the past two months.

Robertson added that there was no hope of the amount allotted on the foreign currency auction increasing because the central bank was addressing the supply side of foreign currency.

Since inception, the auction has been able to raise a maximum of US$12,5 million. The amount increased from US$11 million.

More than 95% of the total amount of bids are rejected. Luxon Zembe, president of companies representative body, the Zimbabwe National Chamber of Commerce (ZNCC), also said that the auction was not serving its purpose of raising foreign currency.

“The foreign currency auction has become irrelevant and ineffective because there actually is nothing to allocate,” Zembe said.

He said that instead of buyers interacting with sellers like in a proper auction, the central bank was interfering in the market by its overbearing control of the rate.

“The RBZ is interfering with the activities of the auction and this is having a negative impact on the exchange rate and ultimately on exporters.”

Zembe said that unless the government amends its relationship with the international community, the economic turnaround programmes would be futile.

“We need balance-of-payments support and Foreign Direct Investment (FDI) and there is no way we can turn around the economy without that,” he said.

“The RBZ is now in a fix,” said Zembe. He said the lack of political will was hindering economic progress.

“Privatisation is also a solution but I know politicians don’t want to hear about that,” Zembe said.

The exchange rate of the US dollar against the Zimbabwe dollar on the auction has surpassed the US$1:$17 500 rate that was announced by RBZ governor, Gideon Gono, in his previous monetary policy statement.

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