SOME local exporters are curbing their exports due to the central bank's retention policy, a development which may negatively impact foreign exchange inflows into the nation, businessdigest can report.
Local exporters are required by law to surrender 25% of their export proceeds to the central bank in exchange for the local currency.
The move, according to the Reserve Bank of Zimbabwe (RBZ), meant to enhance foreign exchange resources needed to settle national and international obligations that normally require foreign currency.
But the policy is now backfiring, as exporters are cutting down on export volumes to minimise exchange rate losses.
This occurs at a time when foreign exchange rates are uncontrollably rising on the parallel market. As of Tuesday, the local currency was trading at a range of ZW$17 500 against the US$1, while the official rate stood at roughly ZW$13 000 to the dollar.
“The economic environment continued to be challenging, especially so for exporting agricultural businesses as the 25% RBZ export retention coupled with the significant disparity between the interbank rate and the fair market rate used by suppliers became very significant,” Ariston Holdings company secretary Nkosilothando Ncube said in a latest trading update.
“This disparity is making some export lines unviable due to loss of value on the 25% RBZ retention. It is hoped that the authorities will implement positive policies that will support the growth of exporting businesses.”
She added: “In an effort to protect value, more tea sales are being channelled into the local market as the 25% RBZ export proceeds retention is having a significantly negative effect on the tea business’ profitability given the significant disparity between the Interbank rate and the fair rate used by our local suppliers.”
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Amalgamated Regional Trading (ART) Corporation said the retention policy poses a threat to the viability of exports.
“The export proceeds surrender requirement poses a threat to the viability of exports under the prevailing economic conditions,” ART group chief executive officer Milton Macheka said.
“Export volumes declined by 7% as paper exports were curtailed in order to minimize the impact of the foreign currency surrender requirements given the prevailing unfavourable market rates.
“The group faced worsening economic headwinds which impacted raw material availability, operating costs and liquidity. Power availability improved during the period.”
Tanganda Tea Company also revealed in its trading update for the quarter ended December 31, 2023 that this implied significant tax on the topline reduces exporters’ competitiveness and their ability to reinvest export proceeds into value addition and growth in exports.
Economic analysts told businessdigest that export retention policy makes export business unviable.
“The export retention is an indirect taxation, and some companies may prefer not to pay that by focusing on the local market since most transactions, probably about 80% or more, are actually now in US dollars,” economist Prosper Chitambara said.
“It could make more sense to be focusing on the local market. If they could sell at least 80% in US dollars, it means they are better off than exporting because of the retention scheme of the Reserve Bank.”
Victor Bhoroma, another economist, said the exchange rate losses and uncompetitive prices make exporting unviable.
“As it stands, raw mineral exports and tobacco account for over 95% of Zimbabwe's export earnings. The local economy is missing out billions of potential value addition and related services such as banking and insurance to the value adders,” he said.
“The most important implication is the loss of hard won export markets to competitors in the region and loss of production capacity for local manufacturers.”
Economist Chenayimoyo Mutambasere said the RBZ was infringing on businesses’ property rights and impeding their ability to operate profitably through its retention policy.
“Businesses in Zimbabwe already face challenges with high inflation, which puts pressure on their liquidity. The 25% retention rate further erodes their net profit, given the devaluation of the local currency,” she said.
“Consequently, businesses may resort to passing on these additional costs to consumers through price increases or even exiting the market altogether, ultimately harming consumers and the economy. There is a need for RBZ to reconsider its policies to create a more conducive business environment.”
Vince Musewe, another economist, said the policy was stifling trade as opposed to incentivising exporters.
“That arrangement should be scrapped as it does not serve business interests,” he said.
Professor of economics Tony Hawkins said it is not only the 25% that is hitting exports but rising rates of United States dollar inflation in the country.
This, according to him, is making imports more competitive while exporting becomes increasingly unprofitable.
