‘Mangudya-nomics’ charms industry
THE Reserve Bank of Zimbabwe (RBZ) pleased industry with its 2023 Monetary Policy Statement which addressed the crippling retention ratios and interest rates.
RBZ governor, Dr John Mangudya through his monetary policy statement for 2023, said foreign currency retention ratios for exporters are now 75 percent and 85 percent for domestic sales.
According to the governor, the foreign currency retention thresholds on exports and domestic FCAs are key to influencing export earnings and the build-up of foreign currency reserves for the country.
There is a mandate for the central bank to set the thresholds at levels that strike a balance between the promotion of production of exports and export earnings, and the accumulation of foreign reserves.
The RBZ boss said, “Given these two objectives, export retention shall be increased and standardised at a level of 75 percent across all sectors of the economy, including firms listed on the Victoria Falls Stock Exchange (VFEX), with effect from February 1, 2023.”
Accordingly given this new development, the bank suspended incremental export incentives for firms listed on the VFEX.
“With a view to further liberalising the foreign exchange market and reducing demand for foreign currency on the auction system and interbank market, the foreign exchange retention on domestic sales in foreign currency will be reviewed upwards to 85 percent, with effect from February 1, 2023,” he said.
This requirement shall apply to all foreign exchange deposits from domestic sales of goods and services, with the exception of deposits in respect of fuel sales, NGOs funds, free funds, and government funded projects and programmes.
Consistent with the current and expected inflation outturn, the Governor said, with effect from February 1, 2023, the bank policy rate will drop from 200 percent per annum to 150 percent per annum.
Mangudya said his bank will be reducing the lending rate on the Medium-term Bank Accommodation Facility for the productive sectors of the economy (including individuals and MSMEs) from 100 percent per annum to 75 percent per annum.
However, the RBZ said it will be maintaining the prevailing bank policy rates as the minimum lending rates for all banks
Such moves have pleased industry players as they had been advocating for higher retention ratios for two years now.
Confederation of Zimbabwe Industries (CZI) president, Mr Kurai Matsheza said the developments are a welcome relief for members.
“We have been enganging authorities regarding these issues and we are happy that the governor has listened to us. Yes, we might have wanted more but the increase in retention ratios is a very positive development, together with the reduction of interest rates,” Matsheza said.
On the interest rates, Matsheza said, “The issue is that we should respect fundamentals and we feel as we stand today these are the best or near to best
rates we can get. We will continue to engage them if we feel there is a need for a review.”
What it means for those that are importing they will build up their capital faster in terms of either capital equipment or it spares they want to buy.
“Also on the interest rates, those who are going to borrow or in borrowed positions, this just means the cost of doing business has come down and it is good for business and also good for economic growth,” Matsheza concluded.
His counterpart, the Zimbabwe National Chamber of Commerce (ZNCC) president, Mike Kamungeremu also praised the authorities with regard to export earnings retention thresholds.
“We welcome the development. Although we wanted more, we applaud the governor for listening as we were lobbying for such a move because our members were affected. From the exporters' side where the biggest gain is we will see more investment in the sectors they operate in,” Kamungeremu added.
According to the ZNCC president, the surrender portions were bigger and with the parallel market moving, it did hurt their members.
“With the parallel market moving, our exporters felt they were surrendering at a discounted rate and expenses being charged at the former, this erased profitability. So some of our exporters had either stopped exporting or reduced their exports,” he said.
The ZNCC president, however, said the increase in retention ratios meant an increase in money to spend and reinvest at no discounted rate.
Industry feels the governor has listened to them and they will continue to engage the central bank principal in the future. They believe these moves will improve economic growth as more companies will export.