EDITORIAL COMMENT: What is happening between auction, shelves?

This week the Financial Intelligence Unit of the Reserve Bank, basically the main enforcer of most of the foreign currency and pricing rules, went for the gentler approach by having serious talks with the main industrial and commercial organisations, the ones that represent at least the major companies.

Neither the FIU on one side of the table, nor on the other side the Confederation of Zimbabwe Industries, the Grain Millers Association of Zimbabwe, the Zimbabwe National Chamber of Commerce and the Confederation of Zimbabwe Retailers were being over diplomatic, and the necessary hard facts of business life were being presented and faced.

The FIU was ready to listen, but was simply not prepared to discuss nor negotiate on one point, the enforcement on the ban on businesses trying to sell products solely in US dollars.

The overwhelming majority of consumers are paid in Zimbabwe dollars and it does not matter whether the initiative for breaching the pure foreign currency pricing ban comes from the retailer, the wholesaler or the manufacturer.

The consumers cannot be cut out and excluded because someone in the supply chain is keen on redollarisation of the economy.

Steps had already been taken to stop this, largely by telling certain manufacturers caught trying this stunt that they had to back down, promptly.

Unfortunately, some of those manufacturers seem to have stepped up the pressure by withdrawing their products from the market, or at least the open market, despite the fact that at least one of them is complaining about making losses.

This sort of approach, a sort of Sampson option that they are prepared to risk their own destruction if they do not get their own way, is neither useful not helpful. It possibly was not addressed at the meeting, but the message of pure US dollar pricing did get through.

Everyone accepted that this was not acceptable and that the FIU was ready to take the required action against anyone who tried it.

So that point was won, and won at both manufacturing and retail levels. Perhaps a hotline is needed, and this must be publicised, so the FIU can hear about breaches very early rather than wait for the enforcers to go shopping and see what happens when they walk past the shelves or try and spend their salary at the tills.

The debate on why some manufacturers in receipt of auction funds price according to anticipated black market rates, not even that high rate today, but what is expected, and with frequent price rises that retailers need to pass on for existing stocks, as the price of replacement stock rises, was more open.

Manufacturers say they do not get their full bids accepted at the auction, and were complaining that often they do not get much more than 30 percent. That needs to be investigated of course.

Some manufacturers have been bidding in advance, or overbidding, to get around that limiting factor in some cases or to convert their local currency holdings into stocks that they can sell at new prices in a few months time.

The auction buyers also complain of delays between an allotment and a payment.

These are all factors, but that estimate of somewhere between 30 and 35 percent of currency requirements met through auctions, and we are talking about what importers need not what they want, does not make sense.

Two years ago, when the auctions were started, the system did introduce a high level of rate stability, moved manufacturers out of the black market, and saw monthly inflation rates plummet.

Not a lot has changed. Everyone accepts that the economy is growing, and so currency demand will rise, and everyone accepts that allocations were higher than the available pool, so delays came in.

But to suggest that we can go from 100 percent of bids allotted to 30 percent allotted through that growth and through the determination to match allotments to the pool simply does not add up.

It also assumes the black market is at least twice as larger as the official market, and if that is so then there must be a lot of leakage between the official system and the black market.

The auctions are fed off the 40 percent surrendered portion of export earnings. We know that imports are now higher than exports, although the gap is falling, and that the gap in our balance of payments is largely fuelled by diaspora remittances, that largely flow into the black market.

But the figures bandied around this week could only make sense if these remittances exceeded exports, and that simply is not only false but absurdly false. So where are all these extra US dollars that can supply two thirds of the manufacturers needs through the black market coming from?

We would concur that the bulk of petroleum product imports are paid for, in the end, from black market money, but that cuts the largest single import sector off the official markets.

And as prices of fuels are now falling the excuses that these are driving price rises is even thinner. Even when they were rising, fuel costs only drove a quarter of the total costs in the transport sector, and for most businesses were a tiny fraction of total costs, so that excuse never help more than a teaspoon of water.

Another large block of imports do not use auctions, those brought in by the exporters who use their own cash. This is why, with fuel and supplies for net exporters out of the equation, it was calculated that the 40 percent was enough to feed the rest.

Clearly this is not the case, but the gap cannot be two thirds, or even one third. In fact it cannot be that dramatic.

The correction factor, that 25 percent of unspent retained export earnings must be sold after four months, was clearly thought to be adequate to fill the gap when those who see all the real figures did the sums. It tells us that the gap is small, say around 10 percent and come November those inflows would make the books balance.

This is why we need to urgently investigate the figures given. If the auction percentage is so low then what has happened in manufacturing in the last two years? It has certainly not tripled in size. If the black market is providing two thirds of productive currency, just where is that money coming from? The normal black market inflows are not rising much.

When we look at totals, the figures do add up but when we look at the end results they do not, so something is happening in the middle.

The start of serious co-operation this week between the business sectors and the FIU is a good starting place for a lot more cards on the table and a determined co-operative effort to find out exactly what is happening in the middle. Everyone, except the manipulators, will win.

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