Published: 19 January 2019

GOVERNMENT has swiftly moved to avert a potential catastrophe by availing an emergency US$400 million credit facility to manufacturing companies for the importation of critical raw materials, the Zimbabwe Independent can reveal.

This comes after the Confederation of Zimbabwe Industries (CZI) last week warned that manufacturing companies could be forced to halt operations if government fails to arrest the crippling currency crisis within the next 10 days as most are left with less than a month's stock of raw materials. The 10-day period lapses on Saturday.

The package is in the form of letters of credit being issued by the Reserve Bank of Zimbabwe (RBZ). A letter of credit, also known as a documentary credit or bankers' commercial credit, is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods.

The arrangement means that companies will procure raw materials from foreign suppliers on credit on the strength of the letters of credit which the RBZ has guaranteed.

The Zimbabwe Independent learnt that the arrangement was made at a crisis meeting held between the manufacturers and RBZ officials last Friday.

The US$400 million will cover industries' raw materials requirements for two months. RBZ governor John Mangudya confirmed the development this week, saying the central bank has already begun processing the letters of credit.

"We have been facilitating the issuance of letters of credit for the local firms for the production of essential products. The letters of credit will go a long way to meet and assist firms to cater for their import requirements," Mangudya said.

"The issued letters of credit so far amount to around US$100 million and some are being processed. The way
letters of credit operate is such that amounts repaid can be redrawn, it's a revolving facility of US$125 million. This means that before the issued letters of credit are redrawn, the ones being processed amount to US$25 million," he said.

Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe also confirmed that the RBZ had begun issuing out letters of credit to various companies to facilitate the importation of crucial raw materials to sustain operations over the next two months following last week's engagement.

He said the value of the letters of credit was enough to meet companies' monthly foreign currency requirements of US$200 million.

"Letters of credit have been processed for individual companies; they will be getting raw materials from their respective suppliers. The letters of credit will cover raw material requirements by industry for the next two months. On a monthly basis, we need something between US$180 million and US$200 million," Jabangwe said.

"Now that the letters of credit are being issued, it would be easier to access raw materials."

Before this new arrangement, government was able to provide only 15% of the manufacturing sector's monthly foreign currency requirements, resulting in many firms scaling down operations and, in some cases, shutting down altogether.

Jabangwe said the government's decision to commit itself to availing foreign currency would reverse the catastrophic prospect of industries collapsing en masse.

Industry sources who attended last week's meetings with government said the local manufacturing sector was also pushing for the liberalisation of the bond note, which Harare insists is at par with the US dollar. However, the surrogate currency, introduced in 2015 ostensibly as an incentive to exporting firms, has rapidly lost value against the greenback on the alternative market. And in a tacit admission that the bond currency was inferior to the greenback, the central bank introduced new measures last year to separate nostro foreign currency accounts (FCAs) from Real-Time Gross Settlement (RTGS) bank balances.

"During last week's meetings, industry made it very clear that the fallacy of pegging the US dollar at parity with the inferior bond currency was causing pricing distortions on the market and fuelling the currency valuation crisis. The refreshing outcome of the meeting is that the Reserve Bank of Zimbabwe (RBZ) made the commitment to issue with immediate effect letters of credit to various foreign suppliers to facilitate the importation of raw materials," a source said.

Manufactures have been battling with raw material backlogs in excess of US$480 million as at December 2018, with fears looming that a number of companies in sub-sectors such as oil pressing were on the brink of collapse.

Some companies have also been pushing to be allowed to sell their products in US dollars. For instance, Zimbabwe's largest company by market capitalisation, Delta Corporation, had to reverse its decision to price its beverage products in United States dollars after government committed to meeting the brewer's foreign currency requirements.

The brewer has since increased the prices of its beverages products denominated in the bond currency.

Reeling under the chronic foreign currency shortage, industry is also opposed to government's decision to increase the price of fuel this week, noting that such a move would trigger wage increases, and struggling firms would shut down owing to escalating production costs.

The increases, which have since sparked widespread civil unrest, saw the bond-note price of diesel shooting from $1,26 to $3,11 a litre while the price of petrol rose from $1,34 to $3,31. Fuel is also being charged in US dollars.

This week's nationwide strike, which brought the country to a stand-still, saw industrial activity grinding to a halt as thousands of workers did not turn up for work.

The country is implementing a raft of austerity measures whose biting effects are now being felt by its increasingly restive populace, as President Emmerson Mnangagwa's government seeks to redirect the economy after a catastrophic 37 years under the leadership of Robert Mugabe.
- the independent