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Auction market weekly review

Respect Gwenzi Financial ANALYST
With 2022Q1 halfway through, the ZW$ seems to have established a clear path for the year with another week of value depreciation against the US dollar on the Reserve Bank of Zimbabwe’s (RBZ) weekly forex auction platform.

The local unit inched 1,36% higher this week to ZW$120,5174 per US$ from last week’s ZW$ 118,8748.

In the week under review, US$37,2 million was allotted to various productive and consumption-oriented bidders which for the first time since November 2021 included both SME and Main auction energy sector bids amid recurring spells of power outages nationwide and growing concerns over the unavailability of ZW$-priced petroleum products at fuel stations around the country.

The latest set of forex bids maintained an upper limit of ZW$135 this week having last risen in February 2022’s first auction.

On the lower-end, the lowest accepted bid values also held steady at ZW$115 per US$, but the lowest bid rate allotted stepped-up from ZW$116 seen a week ago to ZW$119 recorded this week; an outcome we see as a driver of weighted-average exchange rate decline in the latest forex auction.

The volume of bids saw no significant fluctuations this week due to relatively constant amounts of bid entries and resultant disqualifications by the Central Bank.

But due to outstanding bid transparency issues that characterise the RBZ auction, the 225 accepted bids not allotted funds this week will either be forced to bid again this week or resort to unofficial forex sources to offset time lags and associated opportunity costs.

According to the latest RBZ forex auction Press Statement, January 2022 had 1 598 forex allotment beneficiaries which received a combined total US$69,64 million split 84% to 16% between the Main and SME bidders respectively.

Despite allotment value and weighted-average exchange rate fluctuations on a weekly basis, an unchanged trend has been allotted fund destinations.

Raw materials as well as machinery and equipment continue to receive the bulk of investments funded by the RBZ auction, 68% in January 2022.

The 32% balance was shared among consumables, services, retail and distribution, pharmaceuticals, paper and packaging and Zimbabwe’s energy sector.

Recent media reports citing a renewed State-led commitment to ensure improved availability of ZWL-priced fuel were yet to be supported by economic data, but the latest RBZ auction appears to corroborate press statements from Zimbabwe’s energy and financial sectors.

Looking at Zimbabwe Energy Regulatory Authority (Zera) data, monthly ZW$ fuel price caps have been more volatile than their USD counterparts —  an outcome attributable to value perception variations between formal and unregulated currency markets in Zimbabwe.

But even with regular ZW$ fuel price upsurges, the basic issue of its availability, volumes and network distribution nationwide highlights a pain-point for a market segment that struggles or often fails to access US$ hard cash.

This week’s fuel, electricity and gas forex allotment return in both the SME and Main auction therefore come as a relief and indication of expected fuel sector changes to the benefit of consumers.

With oil market dynamics still unstable, partly due to Russia’s pre-occupation with regional security concerns, downstream fuel prices for net importers such as Zimbabwe are likely to remain high.

As a result, we anticipate more timely and considerate interventions by Zera to maintain commercial viability of fuel trading operations while preventing or minimising historical market supply challenges and disturbingly long fuel queues around the country.

With reference to Zimbabwe’s January 2022 gold delivery reports as a leading indicator of the country’s external trade performance in the period, the 187% upsurge in gold deliveries from approximately 1 tonne in January 2021 to the 2,87 tonnes received a month ago are a likely booster of export revenue —  an outcome derived from volume and price performance, both of which played in Zimbabwe’s favour during January 2022.

As a result, we expect a slight increase in the RBZ’s forex auction fund pool.

However, mining and agricultural sector performance will continue to act as yardsticks for forex auction sustainability in the months beyond January 2022.

  • Gwenzi is a financial analyst and MD of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — respect@equityaxis.net

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