CORPORATES in Zimbabwe should adopt hedging products and derivatives to avoid unnecessary foreign currency exchange losses, a leading international trade and currecy expert said.
Report by Clive Mphambela
At a training seminar on managing currency risk organised by Zimbabwe Stock Exchange (ZSE)-listed NMB Bank Ltd in Harare last week, managing director of Swapskills, Simon Rogers, said because Zimbabwean-based companies were using the United States dollar, there was a false belief that they were immune to foreign currency risks.
Swapskills is a derivatives training firm based in Singapore. Rogers said some large Zimbabwean companies that are predominantly import-oriented were losing value on their imports because they were allowing their South African suppliers to give them prices in US dollars instead of South African Rands.
“Zimbabwean companies are essentially being cheated by their South African suppliers when they get priced in US dollars because the South African company will be buying a hedge on the value of the transaction. Zimbabwean trading companies should not take it for granted that just because they have been offered a price in US dollars it is the best deal. They should ask for a rand price and then shop for a hedging product that will immunise them from exchange rate movements,” Rogers said.
He said companies did not have to take full hedges, but partial hedges of, say, between 30% and 70% of exposure.
Rogers said Zimbabwean companies should leverage the huge amount of research that has been written on the US dollar and South African rand trading patterns. The currency of Zimbabwe’s largest trading partner has been very volatile in the past few years.
This week the South African rand tumbled to a low of R10,36 against the US dollar and analysts expect it to slide further.
NMB Bank CEO James Mushore told delegates at the seminar, drawn from over 60 Zimbabwean companies, that Zimbabwe had slowly been integrated into the global economy since dollarisation in 2009.
“This intergration has come with its own risks. For example, you can no longer ignore developments in the Eurozone or the current downward spiral of the Rand because it now has a direct impact on how you run your businesses in Zimbabwe,” Mushore pointed out.
He said the period of economic decline between 1998 and 2008, during which Zimbabwe’s currency was wiped out and foreign currency became non-existent, meant that the country had lost out on a decade of financial innovation, particularly methods of managing foreign currency risks.
“We have now become used to cash payments and foreign exchange terms such as hedging, forward contracts, swaps or arbitrage are now rarely used in our business language, but this is where the world has moved,” he said.
Mushore said Zimbabwean companies must prepare themselves for the economy opening up soon as they will be competing with international companies that have access to sophisticated foreign currency risk management tools.