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President Mnangagwa was very concerned over the weekend about rising demand for foreign currency at the auctions when the Government was allowing local businesses to earn and keep far more foreign currency of their own, rather than having to go to the auctions and after yesterday’s bidding at the auctions will be even more concerned over just what local businesses are doing.

At present any Zimbabwean business receiving foreign currency for any goods and services it sells within Zimbabwe can keep all the foreign currency for its own needs, and the latest figures available to the President suggest that about 80 percent of transactions within Zimbabwe are now in foreign currency.

This would imply that the average Zimbabwean manufacturer or retailer earns at least 80 percent of the foreign currency they need for foreign currency payments, usually imports, without having to go to their bank manager or the auctions. They should just be able to make the transaction from their own foreign currency bank account.

What worried the President is that when businesses were able to earn only around 20 percent of their foreign currency requirements and had to buy the other 80 percent or more, they were bidding for a total of around US$20 million a week.

When the ratio flipped the other way, they wanted to buy US$30 million. This week was easily the worst ever. Bidders were seeking US$60 million, and these were bidders whose paperwork was all in order.

The Reserve Bank of Zimbabwe, in upgrading the auction system to a pure Dutch auction as wanted by economists and bidders, had placed US$15 million on the table.

In the end a little of US$14 million was sold, as the Reserve Bank appeared to be implementing a policy of keeping a narrow 10 percent band between the highest and lowest bids as another measure to enforce stability.

But why bids for more than twice last weeks US$30 million, the figure that was worrying the President? One reason, and the least deceitful although still raising questions of ethics, was that a lot of importers were seeking cheap US dollars.

The authorities had made it clear, and the Reserve Bank had done this explicitly, that a major reason for the upgraded auction system was to drastically reduce the premium pertaining on the black market.

It is easy to imagine some in the business world, many perhaps, might well have assumed that the Government and Reserve Bank would take their time to implement the new system, and in any case would massage the numbers, so there was a good chance that they could buy cheaper US dollars, and as premiums vanished be able to sell the resulting goods and services at huge profits, hence the ethical dimension.

Some may well have borrowed the money they needed to back their bids, since bidders have to have enough local currency in their bank account to buy what they bid for, reckoning that they could out of the stocking up procedure make enough extra profit to pay the interest and still have a lot of extra profit.

Borrowing would be required since there is unlikely to be enough local currency around to buy US$60 million, so an interest rate rise now would hammer those borrowers playing the auction card.

The authorities appear to have been smarter by keeping the amount of currency available on the first upgraded auction very tight, just US$15 million, and then tightening up a little more by rejecting bids below $1 801 for a US dollar.

So we have a weighted average of $1 888,8 and the lowest successful bid just 10 percent below the top bid. It seems quite a bit of the upgrade was accomplished a lot faster. Yesterday’s auction average suggests that the “supermarket rate” is approaching $2 100, which should severely dampen the black market.

If recent history is a guide the interbank rate is likely to very quickly adjust to the auction rate, and auction rates tend to adjust to interbank rates, as the two tend to move together since both are based on the identical market forces.

The Reserve Bank sources funds for the auctions from the exporters.

They have to surrender 15 percent of what they bring in, at the prevailing exchange rate, to the Reserve Bank but with the huge surge of mineral exports, and the fact that the Government now uses its own foreign currency taxes to provide for its own needs, the limits on the amount available this week were obviously intended to give a signal that cheap currency is not an   option.

There are growing suspicions in many circles that some of the bidders, probably a significant group, are abusing the system in ways that are criminal or verge on criminal behaviour, since demand seems greater than what is actually needed.

Some will want to get money outside the country, as cash in a foreign bank account unknown to the Zimbabwean authorities. One way is to over-invoice.

All bids have to be accompanied by invoices from foreign suppliers but an importer who is buddies with a foreign supplier who is not very particular can arrange for a higher figure on the invoice, use that to buy the currency at auction, and send it to the foreigner who then takes a commission, deducts the real cost of the goods or services and then banks the rest in the Zimbabwean company’s account in the desired country.

This might require some detailed analysis of the invoices, the sort of thing the Government itself did last year when it realised that some local suppliers were inflating their prices and not giving value for money.

This could produce a list of companies who could be barred from the auctions.

An example of kickback level overpricing could possibly be found in the US$57 million accounting software that some in Harare City Council wanted to buy, and which is now being investigated by the Zimbabwe Anti-Corruption Commission.

Kickback deals have been a problem around the world, and we need to keep them away from Zimbabwe, so ZACC need to do some comparative pricing.

In other cases the goods are paid for but never delivered, with paperwork in Zimbabwe being completed corruptly.

Here we need extra physical checks, an audit if you like, to make sure there is no collusion between dishonest importers, dishonest officials and dishonest suppliers.

This is a nuisance for the honest, and the Government checks last year revealed that a majority of businesses are honest, but that the dishonest are a significant minority who need to lose all access to certain transactions.

But the honest eventually win when they get the sort of business a reputation for integrity can generate.

Consumers also need to be careful over just what are the black market rates that some quote.

There is huge variation and some numbers just come out of thin air from a fraudster wanting a huge profit.

The actual rates on the street are a lot lower than some of the reported guesses, with a wide gap between what dealers pay for a US$10 note and what they then sell it for.

But with the premium falling, and being almost eliminated on the street black market bid rate, most people with foreign currency will once again be spending it in their shopping, rather than cutting in a dealer.