HomeBusiness DigestFirms hail forex auction system

Firms hail forex auction system

ZIMBABWE’S biggest companies have hailed central bank governor, John Mangudya’s foreign currency auction system for defusing a forex crisis that had affected production in the past year.


The Reserve Bank of Zimbabwe (RBZ) boss turned to the foreign currency auction system in June after seeing exchange rates rampage on the dominant parallel market where companies were accessing cash for raw materials and other imports.

By the first quarter of this year, the domestic currency had surrendered substantial value against the United States dollar, plummeting to about US$1: ZW$165 on the parallel market, from US$1: ZW$2,50 when it was introduced last June.

But since the return of the foreign currency auction system that faced heavy criticism by experts who said it had failed in 2004, the exchange rate has stabilised at about US$1: ZW$81.

This has also stabilised the parallel market rage, which almost grounded the economy by pushing up inflationary pressures and sparking relentless price hikes.

This week, the US dollar was trading at US$1:ZW$120 on the black market, where it has remained for five consecutive months.

Experts are cautious about the sustainability of the current stability.

But in trading updates for the third quarter, big companies have said the central bank chief has saved the economy.

“The trading environment in the last quarter ended September 30, 2020 was largely stable supported by the foreign currency exchange auction system and a contractionary fiscal policy,” the Zimbabwe Stock Exchange (ZSE)-listed Masimba Construction said.

It said its rebuilding efforts in Cyclone Idai-ravaged Eastern Highlands districts had been bolstered by the system.

“Foreign exchange shortages were alleviated to a large extent, by the introduction of the foreign exchange auction system where the official exchange rate between the US dollar and the Zimbabwe dollar has stabilised at about ZWL$81 to US$1,” Nampak Zimbabwe said.

“Despite this, the allocated foreign exchange is insufficient to meet all the imported raw material requirements needed to facilitate efficient production schedules. Inflation, temporarily at a reduced rate of increase, is likely to remain under pressure to move upward,” Nampak said.

British American Tobacco (BAT) said its operations had also been helped by easier access to foreign currency on the official market since the auction system was introduced.

“The foreign currency auction platform has opened access to foreign currency required for raw materials imports and has brought about stabilisation of the exchange rate which will alleviate some of these challenging trading conditions,” BAT chairperson Lovemore Manatsa said.

“The trading environment continued to be challenging during the nine months ended September 30, 2020, driven by the impact of the Covid-19 pandemic, currency depreciation and rising inflation. The company has not been spared by these challenging factors which have resulted in the slowdown of economic activity across the country and depressed consumer spending,” BAT said.

Several companies have hailed Mangudya for the timeous intervention.

The availability of foreign currency, together with exchange rate stability will be vital factors in helping Zimbabwe’s economy register its projected 7,4% GDP growth next year, after a -4,5% drop this year.

Last month, the Confederation of Zimbabwe Industries (CZI) also said the auction system had helped manufacturers.

“The positives include the stability of the exchange rate on both the formal and informal markets, as well as the slowdown in inflation,” the CZI.

“There has also been increased access to foreign currency by businesses.”

The auction system has injected over US$400 million into industries in the five months it has been operational.

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