A normal government would be prompted to intervene by the news that local exporters have begun to lower their export quantities in an effort to offset the effects of the country's central bank retention policy.
The Reserve Bank of Zimbabwe harmonised the foreign currency retention on exports at a level of 75% across all economic sectors in November of last year.
Accordingly, an exporting company is entitled to retain 75% of the foreign currency balance from its overall export proceeds, and it must remit the remaining 25% to the central bank in return for local currency that has been converted at the current interbank exchange rate.
While the retention of foreign currency is a widespread practice worldwide, Zimbabwe’s intricate economic structure makes it a risk for businesses.
This is because the 25% surrendered to the apex bank is converted to local currency at a rate significantly lower than the parallel exchange rate, resulting in companies incurring serious financial losses.
The regulation also lessens exporters' ability to re-invest export earnings in value addition and export growth, which lowers their competitiveness.
In order to minimise exchange rate losses, some listed exporting companies disclosed in their most recent trading updates that they were reducing their export volumes. These include Ariston Holdings and Amalgamated Regional Trading Corporation.
Despite the fact that the number of businesses engaged in this practice may be small at the moment, the number may rise given the volatility of the nation’s currency rates.
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As a result, the nation’s merchandise exports may bring in relatively little foreign exchange.
Zimbabwe uses foreign currency to import drugs, electricity and pay civil servants. It cannot, therefore, afford to lose money in this manner.
The government ought to devise strategies that incentivise enterprises to engage in export trade, as opposed to destroying the goose that lays the eggs.
Additionally, it ought to encourage the export of goods in order to reduce the dangers that come with a heavy reliance on commodity exports.
Over 95% of Zimbabwe’s export revenue, according to economist Victor Bhoroma, comes from the export of raw minerals and tobacco.
According to him, the local economy is losing out on billions of potential value additions, as well as associated services like banking and insurance that complement value adders.
To prevent losing the desperately needed foreign currency, the government ought to take action right away. Should this persist, the nation may even forfeit hard-won export markets to rival nations in the region.
We don’t believe this is what the authorities want.
