Business reiterates call to clear auction backlog

04 Jul, 2022 - 00:07 0 Views
Business reiterates call to clear auction backlog CZI president Mr Matsheza

The Herald

Oliver Kazunga

Senior Business Reporter

BUSINESS leaders have implored authorities to prioritise clearing the foreign currency auction allotments backlog they say continues to stifle production in the economy.

Last year, the manufacturing sector recorded 56,25 percent capacity utilisation but fears are that if industries continue to struggle to access forex at the auction system, production will be negatively affected this year.

Once production is affected, captains of industry and commerce say this will also have a negative bearing on the levels of capacity utilisation in the manufacturing sector.

The Reserve Bank of Zimbabwe introduced the weekly forex auction trading platform in June 2020 to stabilise the exchange rate as well as improve business access to foreign currency.

RBZ Governor Dr John Mangudya is on record saying since its inception over US$4 billion has been allotted to the beneficiaries in different economic sectors. At one point the backlog hit nearly US$200 million.

Speaking at a Confederation of Zimbabwe Industries (CZI) webinar on inflation spiral and the additional stabilisation measures last week, the business leaders called on the need for the clearance of the RBZ forex auction allotments.

The business leaders said the auction system was no longer working the way businesses expected yet the monetary authorities) have not come out clear on what they are going to do.

“We see that currently it (allotments) has come down to levels of US$24 and US$25 million from an average of US$40 million per week.

“Why are we continuing to auction the amount that we don’t have?

“If what is available is US$5 million, let’s look at that. Let’s make the auction work if we don’t have money, whatever the amount that we have is what we must bring to the auction,” said CZI president Mr Kurai Matsheza.

He said industry has always recommended the need for RBZ prior to accepting bids to declare the amount that is available at the auction as part of measures to curb the backlog.

“We have always given these recommendations to say let’s declare prior to accepting of bids that we are going to have X amount and if people bid knowing that we are going to bid for a quantum of X.”

Turning to interest rates increase, Mr Matsheza said the level of non-performing loans (NPLs) was likely to increase after the central bank increased the bank policy rate from 80 to 200 percent.

“In terms of the interest rates that have gone to 200 percent, obviously this is a shock and we also wonder why it is going to be applied to existing loans.

“We would have preferred that it would only apply to new loans or renewed loans on the renewal date but we negotiated on certain conditions and fundamentals but all of a sudden those conditions under which we negotiated are changed.

“So, defaults will happen and the non-performing loan book may increase and even affect some businesses going forward,” he said.

Effective July 1, 2022, the central bank raised the bank policy rate to 200 percent in line with the annual rate of inflation, which in June stood at 191,6 percent from 131,7 percent the previous month.

The RBZ has said the move is aimed at curbing currency creation and speculative borrowing.

Speaking at the same occasion, United Refineries Limited chief executive officer Mr Busisa Moyo said it was imperative to expunge the existing backlog.

“We need to clear the backlog on the auction system, the information is a little bit scanty because as it is, we don’t know if it is going to be cleared, is there capacity to clear it, are there big problems.

“We need to look more towards the clearance of the auction backlog. 

“The problem is when we think we can clear the backlog or we have the capacity and we don’t. 

“So, there are a lot of things that we don’t know, and I would say whatever recommendations, it won’t be one panacea or a silver bullet; it’s a cocktail of things and certain sectors are going to be affected differently,” he said.

Mr Moyo said the measures that the monetary authorities have taken to curb inflation will have a negative impact on consumer demand.

“One of the big challenges that we are seeing is a fall in demand, quite a big fall actually across most commodity lines and basics.

“It’s a double-edged sword in that it’s also going to depress demand quite significantly. I am talking of demand at the consumer level. 

“The Governor (Dr John Mangudya) acknowledges that ‘we are going to sacrifice a bit of growth in exchange for lowering inflation,’ those were his words just a few days ago.

“So, that fall in demand coupled with the exchange rate minimums that have been brought out, I think it’s quite worrying in terms of the corporate distress that it is going to create across the board,” he said.

“I am always very wary of the sort of silver bullet type of recommendations l think it’s a cocktail of things that have to happen contemporaneously or at the same time but are consistent.

“The problem comes when you have certain inconsistencies or we are trying to solve one problem and we create a fire in another section.”

Speaking at the same occasion, Wattle Company managing director Ms Victoria Jakazi expressed concern over the devaluation of local currency.

“I am really concerned that the local currency is being allowed just to die and be irrelevant. We cannot afford full dollarization at all and I think effort should continue to lobby and point this to the authorities,” she said.

Last week on Tuesday, the Zimbabwe dollar traded at 366,26 against the US dollar at the auction system while in the parallel market the exchange rate was pegged at US1: $720.

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