In June, Zimbabwe’s central bank introduced the foreign currency auction system, one of many policy measures attempted over the past two years to stabilise the crisis-hit currency.
So far, companies have accessed a total of US$434.7 million from the auction. This has encouraged many firms, but is still below the country’s import demand.
The government also allowed companies to trade in forex.
The period of exchange rate stability has not ended scepticism about government policy. The Confederation of Zimbabwe Industries, which campaigned for the auction, has backed the auction, but said this is a “fragile stability” needing other supporting pillars to sustain it.
The Zimbabwe National Chamber of Commerce has been more strident in its criticism. The group says the auction needs to be ripped away from RBZ’s clutches to win full credibility.
Some importers that have “won” bids at the auction report delays in getting the money, a sign of flaws in the system that may weaken confidence.
What do companies themselves think of the currency measures?
For those listed on the Zimbabwe Stock Exchange, their response has reflected that of the CZI: this is a good step, they say, but we need to see it work over the medium to long term.
Over recent months, listed companies have released trading updates on how their businesses have been doing. Here, newZWire sifts through a selection of these reports to see what these companies have said about the impact of the auction system on their operations.
Nampak: OK, but not yet enough
The country’s biggest packaging company says the auction has helped, but forex shortages remain.
“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 USD1. Despite this, the allocated foreign exchange is insufficient to meet all the imported raw material requirements needed to facilitate efficient production schedules,” Nampak says. “Despite some alleviation as mentioned above, the foreign exchange shortage remained the Group’s main concern.”
Innscor: ‘Extremely encouraging’, drought still in play
Innscor, the country’s biggest food manufacturer, says: “The introduction of the foreign currency auction system and Statutory Instrument 185 of 2020 allowed for the implementation of precise pricing strategies, enhanced planning capability, improved capital allocation and value preservation for the Group’s business units; these policy measures are extremely encouraging.”
Innscor cautions: “Despite the relative improvement in trading conditions, the local effects of 2019/20 drought season and COVID-19 pandemic are yet to entirely dissipate.”
Delta: Stability, with distortions
Delta, the country’s biggest beverage producer, says the auction has brought stability, but pricing remains distorted: “The relaxation of regulations allowing use of foreign currency for domestic transactions and the introduction of the foreign currency auction system has to date, stabilised both the exchange rate and inflation. This stability, if sustained, would be welcome for the post-COVID 19 recovery of the economy. There are still distortions in value chain costs as the Zimbabwean economy settles on the dual or multi-currency trading system.”
Sustainability is needed, Delta cautions: “The remainder of the year will depend on whether the current stability in inflation and the exchange rate will sustain. The businesses in Zimbabwe are witnessing recovery in volume and profitability on the back of improved access to foreign currency through domestic Nostro sales and benefits from a stable exchange rate.”
Econet: Successful in some bids
The country’s biggest telecoms firm, which needs forex to keep its network going, says it has managed to raise some of its forex needs at auction: “The Company welcomes introduction of the Foreign Currency Auction System by the Reserve Bank of Zimbabwe and has been successful in some of its bids on the auction system.”
Afdis: auction lifting the spirits
Afdis, which makes spirits, wines and other liquor, says: “The ability of customers to settle in foreign currency and the foreign currency auction system have brought the well needed relief to the industry and the economy at large. The company was able to meet all its demand and satisfy the market requirements owing to the improved foreign currency supply.
Truworths: Product availability
The clothing retailer says: “Product availability was constrained during the reporting period due to foreign currency unavailability and pricing constraints. This has since improved with the introduction of the Foreign Exchange Auction by the Central Bank. But the company is worried about continued Zimdollar liquidity shortages.
Edgars: Carousel’s gain
The auction has helped clothing retailer Edgars’ manufacturing arm: “Carousel has benefitted from the introduction of the foreign currency auction through access to foreign currency for importation of fabric and machinery for retooling.”
Dairibord: Milking it
The country’s biggest dairy says: “The introduction of the foreign currency auction system and Statutory Instrument 185 of 2020 improved foreign currency availability and stability resulting in enhanced planning, efficiency and value preservation.”
Seed Co: Inflation worry
In August, the seed producer raised concern over the impact on prices: “Meanwhile, the introduction of the weekly foreign exchange auction saw the ZWL$ plummet from the previous fixed exchange rate of 25.0 to 57.4 per US$ at the initial auction held on 23 June 2020.”
The company said it would ensure its prices track the exchange rate to minimise losses caused by the softening local currency.
BAT: time to exhale?
The cigarette maker imports the bulk of its raw materials, such as the special paper and filters. It says: “The foreign currency auction platform has opened access to foreign currency required for raw materials imports and has brought about stabilization of the exchange rate which will alleviate some of these challenging trading conditions.”
Turnall: Better planning
The construction materials producer says: “The operating environment for the third quarter improved due to the stability of the foreign exchange rate after the introduction of the foreign currency auction system. The prices for goods and services have relatively remained stable and this has enabled the business sector to improve the planning process.”
Strong bounce-back by Turnall in the quarter to September: Sales volumes 11% higher than in the same quarter of 2019, and 81% above the previous COVID-hit quarter.
Production for the last quarter was 31% higher than in the comparable period last year. pic.twitter.com/kfPVFTSPLk
— newZWire (@newswireZW) November 12, 2020
Masimba: building blocks
The construction company says: “The trading environment in the last quarter ended 30 September 2020 was largely stable supported by the Foreign Currency Exchange auction system and a contractionary fiscal policy. This, resultantly, contributed to the progressive reduction of month-on-month inflation and stability of prices of construction materials and services.”
Medtech: Bitter pill
The medical equipment supplier says the auction had the side effect of higher costs: “As anticipated, the price discovery process resulted in the local currency depreciating from a fixed rate of USD1: ZWL25 to USD1: ZWL81.44 as of 30 September 2020. This caused significant duty increases resulting in subdued demand. During that third quarter, the exchange rate had somewhat stabilised although the market remains distorted and operating expenses continued to reflect a premium to this rate.”