The Confederation of Zimbabwe Industries (CZI), which represents the country’s biggest manufacturers, says many of its members are days away from collapse to due to deepening forex shortages. We publish here in full CZI’s letter to the Ministry of Industry and Commerce, in which the lobby lays out the extent of the crisis in industry and what it says must be done urgently to avert “imminent collapse”.
BACKGROUND
Industry is at a crossroads, and there is a dire shortage of foreign currency that has forced closure of significant factories. While RTGS and Bond Notes remain the main form of payment in Zimbabwe, this does not help in ensuring that industry remains open for business. It is an established fact that since October 2018, RBZ has not allocated foreign currency to industry, which is a net user of foreign currency. The case of Delta is a microcosm of a wider industry challenge.
Foreign currency allocation has not even been adequately availed to the 14 essential commodities, leaving the bulk of the industry to source foreign currency informally, something which has been declared illegal. In reality, the majority of manufacturers who are incidentally not covered under the 14 commodities, have been reduced to a situation where they do not have any source of foreign currency. Stock levels are less than one month supply, while others have recently closed.
In our view, the shortage of foreign currency is a direct function of increasing domestic debt, inflation and widening balance of payment deficit. This has culminated in some companies not opening shop in 2019, and unsustainable wage negotiations in both Government and the private sector. To compound the situation, the private sector has a legacy debt of US$150 million. We thus have a crisis which requires urgent attention.
The efficacy of some policy interventions have not all been successful, as seen from the import bill for last year approximating US$7 billion. These aforementioned observations suggest that, if not dealt with urgently, we run the risk that the TSP objectives will not be achieved.
SHORT TERM SOLUTIONS
Allocation of foreign currency
Most manufacturers covered under the 14 essential commodities have not been able to get foreign currency. Consequently, they are operating at sub optimal levels. Some have shut down, and in one or two cases, there is a serious consideration to disinvest. Industry is of the view that the allocation of foreign currency is neither transparent nor managed with representation from industry. There is a glaring bias towards public sector representation on the new foreign currency allocation committee, and failure over the years to ensure representation at private sector level.
We immediately request that the following be done as a matter of extreme urgency:
• Reconstitute foreign currency allocation committee on a 50:50 weighting between public sector and private sector representatives.
• Introduce a system where foreign currency allocation is publicly posted weekly on the RBZ website.
• Let the allocation committee be considered as a temporary measure up to when full deregulation of foreign currency market is done within six months.
Immediate Solution
The current situation is clearly untenable. We request that as soon as possible, Government allows a mechanism where importers can get foreign currency from exporters and/or free foreign currency via commercial banks in a manner regulated by the Central Bank.
This entails repealing the Statutory Instrument that has criminalised this issue, which arguably is not criminal in any sense given that RTGS and bond notes are legally not currencies. This, in any event, is consistent with section 2.1.6 of the TSP where it states: “Embarking on a convergence programme where exporters who are subject to surrender requirements access export incentives funded wholly by importers benefiting from the export proceed generation; Allowing free trade for all currency not subject to surrender.”
It is disappointing that post the Budget, and by agreement by the same Minister, a detailed proposal on how this can be done was given last year, but this remains unresolved by the Ministry of Industry of Industry and Commerce, the Vice President’s Office and Ministry of Finance and Economic Development. We cannot afford the tranquility of gradualism when industry is literally facing imminent collapse, hence the request to get an answer within seven days under this new dispensation.
GRADUAL STEPS
Our considered view is that we should move as fast as possible to get to a situation where everyone sells in foreign currency as enshrined in the current official multi-currency policy, reaffirmed by Government through President ED Mnangagwa. The reality that RTGS and Bond Notes in our system have created excess liquidity and aggravated inflation is and was never part of the multi-currency position, hence the need to mop up this liquidity as soon as possible.
We are of the view that if this process is done in collaboration with industry, it will invalidate the need for rent-seeking allocation of foreign currency through RBZ while allowing exporters to get full value for the exports without current distortions. There is capacity to mitigate the impact of a big bang devaluation of RTGS and bond notes through instruments that can be discussed with Government. It is urgently suggested to frame out times and ancillary policy to ensure that this is done as soon as possible, especially given the fact that the spate of price increase in the economy and insistence by Government on duty payment in foreign currency suggest that dollarisation is already underway.
ULTIMATE SOLUTION: The Desired Outcome
As patriotic Zimbabweans and business people, our desired outcome is that we should have our own Zimbabwean currency, backed by sufficient reserves. It is urgent that the Government clearly enunciates timeframe when this should be done.
Policy Review
There is need for the authorities to timely review and change policy when it is clear it is not working, as can be shown by the following example:
SI 122: This was repealed for the sole policy objective of ensuring that persons with free foreign currency will import goods into the country and thereby lower prices. The reality is prices have gone up, and are going up, notwithstanding this dispensation. In reality, foreign currency that was being obtained from the informal sector to manufacture goods is now being used to import finished goods that are being sold at a premium. This allocative inefficiency suggests that the policy position needs to be changed. We should be focusing on import substitution with the objective of reducing pressure on foreign currency requirements.
“Separate but equal” monetary policy intervention where the US dollar and RTGS/Bond note are deemed 1:1, but are being separated has clearly brought in unintended negative consequences in the form of price hikes and pressure on the rate. It needs to be pointed out that one tragedy of this policy is that whereas banks obtain foreign currency deposits from the market for onward lending, the foreign currency being banked in NOSTRO accounts is simply being stored in bank vaults, negating the essence of financial intermediation performed by banks. There is thus a need to reverse this unsustainable policy position. The current fuel queues are arguably linked to the application of the aforementioned policy position.
Policy Review Mechanism
There is a need for formal and regular review between Industry and the Ministry given the obtaining crisis, with effect from January 2019, at least once a month and whenever necessary.
Where policies have not worked, it is incorrect to dig in when the reality suggests that an adjustment is needed. It is our view that as part of the monthly review, all policies via regulation and Statutory Instruments be reviewed every three months where the intended objectives are not being met. Our position is that these views are to be shared with the Ministry of Industry & Commerce, Ministry of Finance & Economic Development, the RBZ, as well as the Vice President responsible for Economic Affairs.
The intention is to ensure that all matters are resolved and/or agreed to within the next 10 days.
In summary; the house is burning. We need utmost discipline to compress money supply.
In the interim; create credible market discovery of the foreign exchange rate and its availability. Allow interbank trading of foreign currency. Allow trading in US dollar as a precursor to (the following):
Country must have its own currency defended by reserves and underpinned by monetary and fiscal policies.
