Allow local markets free rein, analysts

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THE government must refrain from its “heavy-handed approach” to the control of local markets, particularly in strategic commodities such as gold, tobacco and currencies.
Lately, unofficial trading channels in these key sectors have been buoyant ― much to the demise of the official markets.
Official figures show that gold deliveries to Fidelity Printers and Refineries (FPR), which were strong last year, have been subdued since the last quarter of 2018 with deliveries in the first three months of this year coming in at 6,5 tonnes, down from 7,3 tonnes during the same period last year.
Meanwhile, this year’s tobacco selling season has had a slow start after farmers earned US$7 million from the sale of four million kilogrammes (kgs) of the golden leaf during the initial period compared to US$50 million in the same period last year after delivering 18 million kgs. And the recently introduced interbank market has not gained traction, with companies complaining that they are still having challenges accessing foreign exchange.
Analysts who spoke to The Financial Gazette this week said the stagnation in these commodities markets were mostly caused by government controls at play.
“Our whole pricing mechanism, from the foreign currency market to markets for commodities like gold and tobacco, is distorted. There is a heavy hand of the government,” Kipson Gundani, an economic analyst, said.
“The government should get out of the market. They can have a distant monitoring stance but they should allow market forces to come into play,” he said.
Gundani said the country’s policy framework has a “kwashiorkor of policies that are meant to stimulate production”.
“There is need for policy clarity. Finance minister Mthuli Ncube has been talking about a new currency but the monetary policy statement in February introduced a new currency, so what other new currency are we talking about? This kind of a thing creates confusion in the market.
“Rules should be clear. They must not violate the laws of business and economics,” Gundani said.
Gold deliveries have been subdued since October last year when the central bank ring-fenced RTGS dollar bank balances and Nostro FCAs.
Mining groups have also been complaining about the central bank’s foreign currency retention policy, which essentially limits the amount of cash they keep from their gold sales ― thus leading to the near collapse of big producers such as Mzi Khumalo’s Metallon Gold and RioZim Limited.
On the other hand, players in the tobacco industry have also been reeling from similar interventions.
Gold and tobacco, which have been the country’s biggest foreign currency earners, had record takings last year. Still, the country has been reeling from a serious foreign currency shortage that has led to shortages of basic commodities such as fuel and medicines.
With the numbers from the country’s biggest foreign currency earners dwindling, fears are growing that the situation may deteriorate further.
Eddie Cross, another economist, is however optimistic that tobacco figures will “pick up as the season progresses”.
He is also not worried about the loss of foreign exchange with regards to gold deliveries.
“With regards gold, the official deliveries have been subdued because of the central bank’s policies on forex retention but the informal market makes up the difference and the foreign currency comes into the country still. The problem is that it feeds the black market,” Cross said.
The former Bulawayo South legislator concurred with Gundani, saying “what government is doing in putting all these controls is actually bad for the economy”.
“If they allow a free market in these commodity markets and the interbank market, the black market would actually wither and the rate on the interbank market, which would then be the mainstream, would converge to something sensible like a 1:3,” Cross said.
“We should just have a simple willing buyer-willing seller framework for all these markets. What they are doing with the controls that they are putting in place is self-destruction; it is destabilising the market,” he said.
Persistence Gwanyanya, another commentator, said: “The first control we need to look at is the mark-up limit in the interbank market”.
“At the moment it is too thin to allow movement to the point where the official market converges with the parallel market,” he said.
“We need to have a situation that allows for the opening up of the market and promotes price discovery,” Gwanyanya added.
Christopher Mugaga, the Zimbabwe National Chamber of Commerce chief executive, says “as long as the interbank market is managed, the issues to do with the access of foreign currency will remain”.
He, however, pointed out that while there is room for improvement with regards the policies at play in the various markets, “it is an anomaly for the country to depend on a few commodities for foreign currency”.