Exchange controls irk business

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The law was enacted in 2019 to increase foreign currency flows through official channels, which remain limited due to the economy’s high level of informality.
The law has been tweaked several times to adjust retention proportions for various sectors, with the most recent iteration applying a universal threshold of 75 percent.

“We will continue to lobby for 100 percent retention since the economy is rapidly dollarising,” the Confederation of Zimbabwe Industries president, Kurai Matsheza, told The Financial Gazette.

“If the government is no longer taking 20 percent of US domestic sales, why can’t it happen to exporters?” he added.
The Chamber of Mines (CoMZ) said most mining companies were facing foreign exchange shortfalls to meet their operational requirements and funding of expansion projects due to the law.
“The available foreign currency has been coming down largely due to falling mineral earnings, with the mandatory 75 percent now being applied on a shrinking foreign exchange base,” the chamber said in its recent submissions to the Treasury for the 2024 national budget.
It said statistics showed that the amount of available foreign currency to the producers has declined from around US$1,5 billion in 2022, to an estimated US$1 billion for 2023.
“With the PGMs producers undertaking expansion projects and construction of beneficiation facilities, they are now facing cashflow constraints, with some of the mines scaling down operations and deferring ongoing projects.
“The same situation is being experienced in the lithium, ferrochrome and nickel projects.”
Meanwhile, as a result of the increased dollarisation in the economy, there is a disproportionate increase in pressure on US dollar cashflows, with some local suppliers no longer accepting payments in local dollars, while the few that still do usually charge a premium.
“Mining companies have shortfalls on the US dollars required to sustain their operational requirements that include labour costs, mining consumables, capital projects and exploration activities to replace that which has been extracted.
“The mining sector, therefore, appeals for a minimum 85 percent retention threshold to enable them to sustain their operations,” the CoMZ said.
Economic analyst Gorden Moyo also believes that the law is “hurting” business.
“This forces some businesses to source for forex from the parallel market, which may result in inflation surging northwards.
“Coupled with the quasi-fiscal operations of the central bank, as noted by the recently concluded IMF Staff Monitoring Programme, there is a real danger of the resurrection of inflationary pressures due to the shortage of forex,” Moyo said.
Another economic analyst, Prosper Chitambara, said the law had to be scrapped in line with the government’s professed thrust for a market-driven foreign exchange system.
“I think that is what should be done if we are really aiming to liberalise the system. I think that will help obviously to enhance confidence and to also address some of the distortions, especially the widening in the black-market rate premium,” Chitambara said.