Most forex goes on raw materials

Ngoni Chanakira

THE Reserve Bank of Zimbabwe (RBZ) says most of the foreign currency allocated from its weekly auction system has gone to purchase raw materials.



Arial, Helvetica, sans-serif”>For the period ending May 27 the RBZ gave out a total of US$282,9 million from the auctions held every Monday and Thursday.


In an interview with businessdigest RBZ governor Gideon Gono said raw materials consumed US$103,4 million, which is 36,5% of the total proportion allocated to other sectors.


The figures are for 38 auctions carried out by the central bank for that period.


“It is also pleasing to note that we have now increased our daily foreign currency allocations on the floor from US$8 million to US$8,5 million,” Gono said. “This is largely because foreign currency is now coming in from the diaspora in pleasing amounts.”


It is reliably understood that about US$700 000 is being sent to Zimbabwe through the money transfer agencies daily. The funds are coming mainly from the United Kingdom, the United States and South Africa where the majority of Zimbabwe’s close to 3,4 million citizens living in the diaspora are located.


The Confederation of Zimbabwe Industries (CZI) has however been very vocal about the US$8 million offered at each auction, saying the figure was “too little when compared to the needs of its members”.


To boost its foreign currency coffers, the RBZ is currently trying to entice Zimbabweans in the diaspora to remit their earnings back home to try and help the struggling economy.


Trips have already been undertaken by senior RBZ staff to the US and UK to try and entice them to send their money home.


Rainbow Tourism Group (RTG) chief executive officer Herbert Nkala has been heading the missions to the US and UK where his team met sometimes hostile crowds.


Objectors, especially in London, pointed out that before they could send their “hard earned cash” back home, they should be allowed to vote in next year’s parliamentary election slated for March.


Gono said remittances were one of the least volatile sources of foreign exchange earnings for developing countries in the 1990s according to the World Economic Report published last month.


The report said in 2001, for example, remittances to developing countries from overseas resident and non-resident workers amounted to US$72,3 billion or 1,3% of gross domestic product (GDP).


“Exchange control approvals since 8 January 2004 amount to US$427,6 million against allotments made so far of US$287,1 million – including small bids paid from the US$100 000 float held by banks,” Gono said. “The pipeline demand for foreign exchange as at the end of Auction 38, taking into account approvals which are no longer valid, is about US$28,6 million.

This excludes approvals done at the exchange control for 27 May which are still to be captured into the auction system software.”


Most of the foreign currency was given to Standard Chartered Bank of Zimbabwe Ltd, Barclays Bank of Zimbabwe Ltd, the Jewel Bank and ABC Holdings Ltd.


According to an analysis of allotted auction amounts by purpose raw materials consumed US$103,4 million.


Fuel and petroleum products took up US$50,2 million, the second highest vote at the RBZ and which was 17,8% of the total proportion.


Other sectors which utilised RBZ foreign currency included equipment and machinery (US$30,8 million), spares (US$24,9 million), fees and subscriptions (US$21,7 million), and motor vehicles and bicycles (US$14,8 million).


The RBZ also gave out money for chemicals, manufactured goods, education, loan repayments, travel, dividends and reimbursements.


Of interest is the US$4,4 million allocated for loan repayments, which constitutes 1,6% of the total proportion for the period.


Gono has said he will continue to pay all creditors outstanding fees in order for Zimbabwe to continue receiving more aid.


In March Zimbabwe paid its debt to neighboring Botswana for an outstanding P28 million fuel deal dating from 2000.


Other transactions that have been made by the central bank include pharmaceuticals, maize, seeds, drugs, aircraft and freight.


Since the introduction of the auction system on January 12 a total of 12 380 bids valued at US$282,9 million have been allotted at the auction against the total amount of bids accepted of US$389,5 million after prioritization of the productive sectors of the economy for the period ending May 27.


“This implies a success rate of the auction of 72,6% since its inception,” Gono said. “As to be expected in an auction system, not all bids submitted are awarded. Some bids are, therefore, rejected.”


He said a cumulative total of 5 745 bids valued at US$114,7 million were accepted but not subsequently allotted since the introduction of the auction.


Century Holdings Ltd (Century) chief economist Moses Chundu says the current auction system has merits and demerits for exporters and importers.


“What may be good for one part is usually not very good for the other,” Chundu said recently. “Joint satisfaction of these parties certainly requires that the free market determine the outcome through its invisible hand.”


He said the bottom line is though this system seems unworkable and seems to hurt exporters it is intended for their good if only they can endure the current birth pains.


“The current regime may not be the best in the short run, but it’s certainly a better devil than the previous one for the entire economy, exporters included, in the long run,” Chundu said. “As I always argue, one’s vision determines the outcome – believe in it, it will work, doubt it, it will fail.”