EXCHANGE control measures recently introduced by the Reserve Bank of Zimbabwe (RBZ) are scaring away foreign investors who were considering investing in the country, Western diplomatic sources have said.
The measures, which kicked in this week, give the government authority to retain up to 70% of foreign currency export earnings through the central bank.
The measures also allow third parties — such as retailers, technology groups and rival lenders, who are referred to as authorised dealers — access to customers’ accounts.
To facilitate the changes, banks were given until Wednesday this week to separate nostro foreign currency accounts from Real Time Gross Settlement (RTGS) accounts.
While the directive has prompted forecasts of the biggest shake-up in retail banking yet, it has rattled the business sector.
Diplomats from leading bilateral lender countries told the Zimbabwe Independent this week that since the announcement of the measures by the RBZ on October 4, offshore enquiries for investments have significantly plunged, while red flags have been raised by respective governments over the expropriatory nature of the exchange controls.
In the directive circulated among chief executive officers of all banks on October 4, the RBZ increased its retention thresholds for export receipts on all minerals except for gold.
The bank retains 60% of forex earned from the sale of three high-value minerals: platinum, chrome and diamonds. The exporter gets 35% of the forex, while the remainder goes to an authorised dealer.
For all the other minerals, exporters retain 50%, the bank gets 40%, while authorised dealers get 10%.
The bank also reviewed drawdowns for offshore loans for production, purchase and value addition of tobacco and cotton — the biggest foreign currency-earning crops — which attract heavy investment.
The RBZ retains 70% of foreign currency for purchase of either crop, while the investor accesses just 20%. The reminder goes to authorised dealers.
The bank wants 20% of offshore loans for production of the two crops and 10% for value addition.
Previously, miners were required to retain 60% of their foreign currency earnings, except for gold for which RBZ has always taken the lion’s share of 70%.
Mining is the single largest earner of foreign currency in Zimbabwe, accounting for 62% of total exports in 2016.
Tobacco and cotton exporters retained 50% of all new US dollar foreign exchange receipts while the central bank took 40%. Authorised dealers got 5%.
In exchange for the foreign currency, the central bank will pay the exporter using RTGS, thus crediting the exporter’s account with the volatile local currency.
European diplomats who spoke to the Independent this week said following the introduction of the new exchange control measures, several big companies from their countries, which had initially been enticed by sweeping political changes in this country, have made contact with them expressing reservations.
“We talk a lot to big businesspeople, they generally say that the government (of Zimbabwe) is putting too much burdens on business without itself taking any burden. Agriculture is one sector which I know has had great interest.
“Two companies recently made contact with me inquiring about opportunities. They have previously held talks with the RBZ and the Zimbabwe Investment Authority. We have had long telephone conversations with them after this directive to convert real US dollars into local currency,” one diplomat said.
“If they are told that only 40% or 50% of their money will eventually end up in their accounts, that’s expropriation. Where does the rest go? Who is this authorised dealer which will have access to their accounts? This is what is shaking up the business world.
“It raises speculation of doubt about the value of their money. Government will have to abandon these controls.”
Diplomats also said European investors were concerned with the worsening liquidity crisis in Zimbabwe, cash shortages and the various exchange rates applicable in the market.
In its October Investment Notes, Imara Asset Management says the recent monetary and fiscal policy measures were wreaking havoc in the market.
“In attempting to maintain the illusion that an RTGS dollar (RTGS$) is equivalent to a US dollar (USD) and despite the black market rate at the time being 2:1, the (RBZ) governor insisted that the two accounts should be valued at one-to-one,” Imara says.
“The free market’s immediate reaction to the monetary policy statement was to debase the RTGS$ even more to the extent that in just one week the RTGS$ fell from two to the USD to over five. The Old Mutual Implied Rate fell from 2,5 to the USD to an incredible 8,75 to the USD at its worst over the same period. That effectively implies that an RTGS$ is worth 11 cents of a real USD.
“Panic then erupted in the streets and shops, fuel queues re-emerged and supermarket shelves began to empty.
“The hyperinflation years are fresh in the minds of most Zimbabweans which has rightly resulted in a lack of trust in Zimbabwe’s economic and monetary authorities, hence our consistent argument that a local Zimbabwe currency will never be sustainable for very long for years if not decades to come.”