Emmerson Njanjamangezi, Group Features Editor 
THE economy will continue on its current growth trajectory despite the “blips” that followed the introduction of a new foreign currency policy that seeks to deal with unscrupulous traders, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya has said.
Reserve Bank of Zimbabwe governor, John Mangudya
Speaking in an exclusive interview with The Financial Gazette yesterday, Mangudya also emphasised once again that Statutory Instrument 127 (SI 127) was meant to protect businesses and consumers by fostering market discipline.
This comes after the new forex law caught many businesses by surprise when it was instituted, resulting in some price jumps.
“The objective of SI 127 is to protect businesses and consumers through engendering discipline in the economy.
“Our economy continues to rebound on account of the good agricultural out-turn, which has seen stability in food inflation and an increase in industry capacity utilisation due to the existence of a dependable market for foreign exchange that is required by businesses through the foreign exchange auction system.
“This, coupled with an unconstrained use of free funds in the economy and the improvement in prices of international commodities such as gold, shall continue to propel the growth of the economy,” Mangudya said.
“The stable performance of our currency and inflation will not be materially affected by the blip effects of SI 127 and the recent increase in the price of electricity.
“We, therefore, expect the economy to remain on its growth trajectory and to grow by around 8 percent in 2021, and year-on-year inflation to decline to levels of below 55 percent in July 2021 as previously projected,” he further told The Financial Gazette.
On their part, captains of industry and commerce have said that while they appreciate the fact that SI 127 is meant to instill market discipline, the manner in which this had been introduced threatened the country’s growing economic stability.
But Mangudya asserted yesterday that the government had crafted the new law simply to deal with errant entities that were starting to drive up the parallel foreign currency market rates through arbitrage practices.
“Isn’t it surprising that at a time that the tobacco selling season has so far brought nearly US$400 million into the economy, you have parallel market rates going up?
“This means that something is fundamentally wrong. The surge in parallel market rates during the tobacco selling season underscores the importance of SI 127 in dealing with entities abusing foreign exchange, or rent seekers who consider arbitrage as an industry.
“SI 127 is not meant to harm business but to promote fair play. It is meant to promote and foster compliance with rules and regulations and to level the playing field for all businesses,” Mangudya said.
“We want all businesses to operate and thrive within the confines of the law. We have effectively communicated the essence of SI 127 to businesses and advised them that the Statutory Instrument is meant to provide for penalties against a few entities that breach the law by abusing the foreign exchange auction system and the foreign exchange market in general through transfer pricing, under declaration of imports, use of fake bills of entry and abuse of funds received under government projects,” he further told The Financial Gazette.
Henry Ruzvidzo, CZI President
Still, industry says it would appreciate more clarity from the government over certain aspects of the new law. Confederation of Zimbabwe Industries (CZI) president, Henry Ruzvidzo, told The Financial Gazette yesterday that they were expecting fruitful further engagements on the matter with authorities.
“We are happy with government’s efforts to clarify their intentions with regards SI 127. However, there are a few aspects within SI 127 that we will still seek further engagement with authorities for further clarity, especially on the issue of firms that access dollars from the forex auction system.
“But overall, we are still engaging authorities over that. We are confident that our engagements will be fruitful,” Ruzvidzo said.
This comes after the CZI recommended last week that the implementation of SI 127 be suspended to pave the way for urgent stakeholder consultations between the government and business, to find solutions that would not jeopardise the current economic stability being enjoyed in the country.
“We understand and appreciate government concerns for stability, and the frustration with some aberrations by a few corporate entities which access FX (forex) at the auction rate and yet, price it at the alternative market rates.
“This is not representative of the entire industry and we believe engagement between industry and authorities can resolve such aberrations. The industry body does not support such behaviour in any way, but we also believe it does not warrant the blanket SI which has far-reaching adverse implications for the economy,” the CZI said in a position paper on the matter.
“The immediate impact of applying the SI would be that US$ prices will be hiked, so as to result in the same ZWL price prevailing prior to the SI. This means an immediate spike in US$ inflation, a component of our blended inflation rate. Companies have been relying on local US$ sales to generate the bulk of foreign currency used to sustain operations.
“Use of the auction rate would result in consumers converting their US$ to ZWL on the parallel market prior to purchasing, a practice already rampant outside the major retail chains.
“This will deprive companies of what has become their main source of foreign currency,” CZI said further. SI 127 empowers the RBZ to impose penalties in the event of any default in complying with exchange control regulations that govern the use of funds obtained from the auction system.
It also allows the penalisation of natural and legal persons guilty of being sellers of goods and services not authorised by law to charge for them exclusively in foreign currency. This includes businesses and individuals that refuse to allow any buyer to tender payment for them in Zimbabwe dollars at the ruling exchange rate.
All this comes as business has also recently urged the government to stay the course on its new and more prudent fiscal and monetary policies that have lifted the country’s economy in recent months.
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