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Hope for speedy rebound dim


ZIMBABWEAN industries have cast doubts over the sustainability of prevailing stability, warning Reserve Bank of Zimbabwe (RBZ) governor John Mangudya that the calm being felt across markets could be shortlived.

Zimbabwe National Chamber of Commerce (ZNCC) chief executive officer (CEO) Christopher Mugaga, who spoke as Mangudya last week said industrial production had surged beyond projections, warned against the dangers of “burying our hands in the sand”, as the headwinds may ricochet and trigger fresh bankruptcies.

Mugaga, whose views were backed by Confederation of Zimbabwe Industries CEO, Sekai Kuvarika, said headwinds stemming from forex auction system backlogs, exchange rate fragilities and inflationary pressures required authorities to keep their eyes on the ball.

In his presentation during an exciting monetary policy statement (MPS) review webinar organised by the country’s largest circulating business weekly, the Zimbabwe Independent, Mangudya said industries’ projections to reach 61% capacity utilisation by year-end had been boosted by steep output rises, with some firms running at 95% of installed capacity.

The central bank chief said his hawkish policy strategy and fiscal discipline have placed Zimbabwe on track to achieve a gross domestic product growth of 7,8% this year, with both inflation and money supply under a tight leash.

However, Mugaga reiterated the ZNCC’s push for the RBZ to scrap some foreign currency policies to release liquidity for crucial industrial operations.

“As the ZNCC, we have engaged you, governor, for quite some time over the issue of the 20% compulsory conversion of nostro accounts,” Mugaga said. “It’s one issue we still believe needs to be done away with. It’s an issue we certainly can’t accept. It’s not something positive for us.

“We have seen a backlog on the foreign currency auction system. We have seen figures of up to US$200 million being thrown in the market in terms of the foreign currency auction system backlog.  What’s worrisome is that you see allocated amounts are rising to US$40 million or US$45 million per week. The question for us is why would you, somehow, auction money which is not available? We are struggling on the auction right now as we see there are places with a backlog of possibly eight weeks plus. It is a worry on its own.”

He raised issues with the size of the market that the forex auction system was currently serving, saying it was only a small fraction of the economy.

“For us to underestimate and overlook that source of forex (black market) for almost 80% of Zimbabweans, I think we will be continuously burying our heads in the sand like the ostrich, we can’t solve it,” added Mugaga, an economist.

The Zimbabwean dollar has taken its worst battering on the black market in the past few months, with rates hitting the US$1:ZW$160 three weeks ago.

On the foreign currency auction system, the rate has been hovering around US$1:ZW$85,6 for about two months.

This rate is cheaper compared to the backstage market, but it has been a struggle for companies to access allotted funds on the official system.

In contrast, liquidity has been healthy in the expensive unofficial market, where corporates have continued to troop back to access funding for raw material and equipment imports.

While the RBZ chief was confident authorities will turn the tables, analysts have given a gloomy outlook, forecasting the rate to reach US$1:ZW$200 by year-end.

That would have potentially devastating effects for a market already rated among the most expensive on the continent.

“We need to interrogate honestly on the exchange rate itself, the determination process. Remember the auction has become more of a forex allocation mechanism than a price discovery mechanism,” Mugaga said.

Mangudya said the backlogs were more pronounced during times when big exporters were not receiving export revenues.

However, he said the positive thing was that authorities were always aware the foreign currency would be available as exports revenues flow and replenish reserves.

Kuvarika said industries were worried about developments at the forex auction system.

“I think we have spoken to a great extent and that what we are experiencing is a fragile stability,” Kuvarika said. “Central to these anxieties is the performance of the auction system as a price discovery mechanism which it was set up to do. If you look at June 2020 to date, there was (an exchange rate) convergence that took place.

“But as soon as settlement at the auction began to falter, you started to see that the parallel market also started to pick up. So it is crucial that we address the efficiencies of the auction system so that it does operate as a true Dutch system according to the rules.”

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