BY SHAME MAKOSHORI
THE Confederation of Zimbabwe Industries (CZI) says a standardised foreign currency retention threshold being applied by the Reserve Bank of Zimbabwe (RBZ) should be reviewed, with big manufacturing firms benefitting from much-reduced rates than commodity exporters.
Zimbabwe’s biggest business lobby said last week that big manufacturers expended heavily on market penetration costs compared to their peers, hence the need for the RBZ to consider this when setting export retention thresholds.
Zimbabwean exporters surrender 40% of their export proceeds to the central bank, which is converted to the domestic currency at the ruling foreign currency auction system rate.
Sixty percent of their earnings are then released in United States dollars.
But this is not enough to meet the costs associated with export market development and retention overheads, according to a CZI proposalrequesting government to review the policy in the upcoming 2022 national budget.
The 2022 national budget is expected to be delivered next month, and consultations are already underway.
“Currently, RBZ is operating standardised foreign currency surrender requirements,” CZI said in a draft paper to government titled ‘2022 Budget Statement Issues from Industry’, which recommended that surrender requirements be reduced to 20%.
“This means that exporters of commodities, such as minerals and tobacco, where markets are already set up, face the same surrender requirements as manufacturing sector firms.
“However, market penetration for manufacturing products is a costly exercise, which requires a lot of care in sustaining, hence is a costly exercise.
“Manufacturing sector firms spent significant amount of resource each year to look for markets as well as to build the necessary relationships, which commodity exporters do not face.
“Thus, the 40% surrender requirements reduces viability for the manufacturing sector, especially given that the exchange rate distortions in the market. It is recommended that the surrender requirement for the manufacturing sector be reduced to 20%,” it added.
The CZI said manufacturing sector firms were not allowed to participate at the foreign currency auction, which makes it important for the surrendered portion of exports to be reviewed as the remaining 60% has not been enough to sustain viability.
The CZI also said government must review tax free thresholds upwards and increase civil service salaries in the upcoming 2022 national budget to boost consumer spending.
Companies have grappled with subdued demand since the Covid–19 pandemic exploded in 2020, leading to firm closures and up to 500 000 job losses, according to World Bank statistics.
Supermarket leaders had proposed that tax free thresholds be hiked to ZW$50 0000 (US$555), from the current ZW$10 000 (US$111).
“Industry needs a spending population to thrive; hence the 2022 national budget should prioritise increasing the spending power of the population. In addition to the general need to review upwards civil servants’ salaries, widening the Pay As You Earn tax bands and increasing the tax-free threshold will help create more disposable incomes for the workers,” the CZI said.
“Prioritising social safety nets will also help ensure that the vulnerable population can at least afford some basic needs, which industry would help meet.”