Companies turn to black market for forex

Companies turn to black market for forex
Published: 02 August 2017
THE ongoing cash shortages in the economy has forced several manufacturing companies to seek foreign currency from illegal dealers popularly known as osiphatheleni to import raw materials.

This, industry experts say, has resulted in increased production costs which impacts negatively on the competitiveness of local companies products.

This emerged during a National Economic Consultative Forum (NECF) dialogue on pricing in Bulawayo yesterday where industry and commerce executives urged monetary authorities to come up with measures to cushion the productive sector.

Presenting a paper on pricing, Dr Nyasha Kaseke, a lecturer from the University of Zimbabwe's Graduate School of Management, said the contribution of the manufacturing sector to Gross Domestic Product (GDP), one of the primary indicators used to gauge the health of a country's economy, remains low with the sector projected to register less than two percent growth due to challenges that include foreign exchange shortage.

"Despite having a diversified manufacturing industry that plays a key role in the economic value chain, the sector suffers from a host of costs that affect competitiveness and pricing. The industry's GDP contribution is down because of operational challenges that have reduced capacity utilisation to around 47 percent instead of the desired 60 or more percent," said Dr Kaseke.

"The major factor to this is the liquidity crisis. Companies are now getting foreign currency from the streets at 20-25 percent premium, which is an additional cost to production."

During the discussion participants said procuring of raw materials was now a nightmare as they have to queue for foreign currency allocation at the central bank or seek alternative avenues. They said delays in payment for consignments has seen some suppliers demanding cash or increasing prices to cover delay inconveniences.

According to stakeholders who attended the meeting, alternative payments such as swiping/RTGS and mobile money, have also become a nightmare for businesses as they are charged a premium range of between 5-25 percent more for not having cash.

For instance, several businesses are now putting "10 percent discount on US$ payments, 5-12 percent premium on bond notes payments, 10-25 percent on swipe/RTGS and 15-25 percent on mobile money," said Dr Kaseke, adding: "all these costs are reflected on the end product pricing".

The Reserve Bank of Zimbabwe has acknowledged the emergency of the parallel foreign exchange market that is capitalising on the cash shortage in the economy. The introduction of bond notes last November appears to have worsened the situation with authorities acknowledging the surrogate currency is now being externalised due to its equal value to the greenback.

Package to recapitalise companies

In his contribution, economist Dr Gift Mugano said there was a need for Government to come up with an adequate package to recapitalise local firms to achieve a multiplier effect on the economy. He also challenged the private sector to come up with effective strategic turnaround strategies that will attract financers and compel policy makers to review relevant enhancing legislation.

Bulawayo businessman, Mr Dumisani Sibanda, said turning around the industry should be buttressed by political will. He, however, challenged the private sector to take the lead in implementing required reforms instead of blaming Government for everything.

"When you (private sector) know the problem we cannot continue to follow the official way of doing things. For instance, as long as we continue to use the US$ we will continue to sink and we need to move away from the US$," said Mr Sibanda.

"This is because each time the US$ strengthens other economies will devalue their currencies and we remain less competitive. The currency issue is a problem and we tend to want to change Government when we also should be speaking to ourselves."

Dr Kaseke also said the local industry has fallen victim to low demand for domestic products as the appetite for imports is still high with some products still finding their way into the country through smuggling. His study also pointed to challenges of infrastructure gap, high utility costs and a multiplicity of regulatory levies and taxes, which continue to weigh down on firms. The cost of technology, labour and transport were also cited as major constraints.

Quickening the ease of doing business

The discussion ended with stakeholders making a series of recommendations that include coming up with production related remuneration, lowering utility and regulatory fees, levies and taxes,  calling on RBZ to prioritise allocation of foreign currency for raw materials, intoducing tax incentives for inward processing and coming up with a package to support recapitalisation of companies.

Participants urged Government to expedite the ease of doing business reform process to ensure quick gains for companies, especially in reviewing cost drivers. They called for decentralisation of key services for businesses and operationalisation of the one stop shop concept. Some suggested that a policy be put in place to address pricing issues and ensure domestic competitiveness. The Office of the President and Cabinet is already seized with the ease of doing business reform programme and has made several milestones under its rapid results approach.

Similar surveys such as the "2014 Cost Driver Analysis of the Zimbabwean Economy", have buttressed the highlighted challenges and suggested a cross-cutting downward review on major production costs to support industry.
- chronicle
Tags: Forex,


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