Emmerson Njanjamangezi, Group Features Editor 
BUSINESS is getting increasingly jittery about the impact of the resurgent foreign currency parallel market and ongoing power cuts on the country’s recovering economy.
To this end, captains of industry and commerce who spoke to The Financial Gazette this week implored the government to do more to enhance the forex availability and pricing system, while also tightening loopholes in the legal framework — to ensure that all financial crimes were successfully prosecuted.
The president of the Confederation of Zimbabwe Industries (CZI), Kurai Matsheza, was among the business leaders who warned that the economic gains the country recorded over the past year now risked being eroded by the double-whammy of currency challenges and continuing power cuts.
“This is the period when businesses are supposed to be ramping up production, stocking up fo
Kurai Matsheza
r the festive season.
“Forex shortages, coupled with electricity outages, are slowing down the momentum. As business, we continue engaging the authorities for the resolution of these issues.
“A lot of our members are not net exporters. They depend on forex for their inputs, especially raw materials and consumables.
“Prolonged difficulties in forex availability doesn’t bode well for increased production and productivity,” Matsheza told The Financial Gazette.
“The momentum created in Q1 may decelerate in Q4 and beyond if forex availability is not addressed.
“This is made worse by the emerging forex violations,” he added. The immediate past president of the Employers’ Confederation of Zimbabwe, Israel Murefu, also said it was crucial that authorities dealt decisively with forex violators, while at the same time addressing exchange rate challenges.
Christopher Mugaga, the ZNCC chief executive officer.
“So, holders of foreign currency may just prefer to hold on to their money or transact in that currency in their business dealings, rather than subsidise some unscrupulous importers who benefit twice by obtaining cheap currency from the auction and selling their products and services at prices that speak to the alternative market.
“It is some kind of conundrum that needs resolution by involving all stakeholders in finding a mutually acceptable solution which results in a win-win outcome to both exporters and importers.
“While the law may assist in fighting indiscipline, it’s difficult for the law to regulate against market forces,” Murefu told The Financial Gazette.
He added that what also needed to be looked at was whether the exchange rate or price discovery mechanism was driven by market forces or the willing-seller willing-buyer principle.
“It’s doubtful whether the supplier of forex is willing to supply at the obtaining exchange rate because he or she has no choice because of the compulsory surrender requirements.
“The seller of forex at the auction is not the supplier and so authorities must work with the real supplier in arriving at a solution.
“The solution must be one, which encourages the seller to sell even beyond the surrender requirements, which currently is not happening,” Murefu said.
“However, the fear around free market forces is that they will fuel inflation and disrupt the current economic stability because supply is way below demand in forex. So it’s a tricky situation for the authorities.
“Any instability will slow down the current gains and expected growth in GDP, which in turn will be detrimental to the recovery so far seen in the economy,” he further told The Financial Gazette.
The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Chris Mugaga, chipped in, saying authorities needed to revisit the foreign exchange pricing system, while also fixing current laws, which were not sufficiently watertight to make it easier for law enforcement agents to successfully prosecute financial crimes.
“There are a lot of loopholes in the legislation such that not many would actually go to jail. In short, this is not deterrent enough.
“What also makes sense to us is to address the root causes of these violations of exchange rules. How do you explain, for example, a scenario where someone gets forex at $86, when the parallel market is at $170?
Gift Mugano
“And when you ask the same companies if they are willing to receive $86 for their exports, they don’t want to. The motive to abuse forex is thus, high because this is rewarding,” Mugaga told The Financial Gazette.
“This problem cannot be solved by arresting and releasing people. As long as we are using a pricing system that is not market-led, the problem we are seeing today with forex traders will not end.
“The chances of the government succeeding in prosecuting these people are slim. Policies should be put in place that somehow stop such people continuously breaking the law.
“All these people who are being arrested are probably two percent of the people breaking the exchange rules,” Mugaga added.
“So how do you set a behaviour if you are only prosecuting two percent of violators? Let’s deal with the price discovery. It has to be market-led,” he added.
On his part, economist Gift Mugano said authorities needed to deal decisively with unscrupulous firms and individuals who were getting money from the auction system and trading it on the black market.
“Assuming that these people have been given money for raw materials, then we should see more production, more job creation supporting the thrust to reduce the current account deficit.
RBZ governor John Mangudya
“If that money is taken to the black market, and we are now trading currency, clearly you will see more activity on the black market and the rate will continue to increase. Clearly, the government has to act to rectify that,” he said.
All this comes as the Reserve Bank of Zimbabwe (RBZ) has upped the ante against some of the people it accuses of being at the forefront of driving the parallel forex market in the country.
Speaking to The Financial Gazette last week, RBZ governor John Mangudya said the recent arrests of a number of people, as well as the freezing of bank accounts belonging to those accused of engaging in illegal forex transactions, were part of the efforts by the government to stem errant market behaviour and indiscipline.
“The significance of naming and shaming those who are continuously manipulating and fixing the exchange rate for their selfish gains is meant to enforce discipline in the economy and bring sanity in the foreign exchange market.
“It is never the wish of the Reserve Bank to unnecessarily inconvenience the banking public, but we can not sit back and watch while the interests of the rest of the economy are being harmed by a few people.
“The economy is on a positive growth trajectory that does not need disruptions from those that are against economic progress,” Mangudya said. “The bank is, therefore, going to continue to put in place measures to stabilise and grow the economy using tools at its disposal that include, but are not limited to a tight monetary policy stance,” he added.
This came after concerned business had warned that monetary authorities needed to refine the country’s foreign currency auction system — which is widely credited with stabilising Zimbabwe’s economy and its once derided local currency since its introduction in June last year — to stem the growing threat to the economy posed by the resurgent forex parallel market.
After more than a year of holding steady against the coveted United States dollar, the local currency has now slid to up to 180 against the greenback on the parallel market — compared to the auction rate of about 88 — thereby jeopardising the country’s economic recovery.
Mangudya also recently told The Financial Gazette that the central bank was “seized with the matter” — adding that authorities had started to significantly reduce the forex backlog over the past few weeks as part of its efforts to remedy the situation.
Speaking at the just-ended Zimbabwe Agricultural Show (ZAS) in Harare last week, Vice President (VP) Constantino Chiwenga warned that authorities would deal ruthlessly with forex violations.
“Whilst government is very pleased with the continued increase in production and productivity across most sectors of our economy, I would like to urge all businesses to be responsible and disciplined in their operations.
“They should not be hoodwinked by some malcontents that are operating in the parallel foreign exchange market where foreign exchange arbitrage has become their lucrative business at the expense of the stability of the economy.
“Government will not tolerate this misbehaviour of currency manipulation by these malcontents. The relevant arms of government shall continue to deal decisively with them for the betterment of our people.
“By December, we will have dealt with all money changers and currency manipulators … There will be no mercy, ladies and gentlemen,” the no-nonsense VP added.
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