‘Proper tobacco selling can stabilise economy’

PROPER management of the recently opened tobacco selling season will help bring some level of stability in the economy, at a time the country is battling devastating effects of Covid-19 induced problems, analysts have said.

Increased liquidity in the official channels will bring some relief to the economy and eventually push down the exchange rate on the illegal market in line with the rule of supply and demand and bring stability to prices of goods.

This year’s selling season is a peculiar one with farmers required to make a single delivery weekly as part of measures to reduce the spread of the deadly disease that has affected over two million people across the globe.

Among the key measures put in place by authorities include implementation of decentralised floors to reduce the number of people coming to Harare.

There are concerns if unchecked that the decentralised floors may be a breeding ground for unscrupulous buyers promoting side marketing, prejudicing the economy of its true foreign currency earnings.

Economists who spoke to this publication are, however, of the view that proper management of the selling season will enhance liquidity in the official channels, and bring some level of stability on the forex market.

“Farmers are urged to sell their crop at the authorised auction floors and put US$ proceeds to good use especially by procuring equipment for increased productivity. This will help avert the vulture tendencies of middlemen, which if unchecked, can cause a surge in parallel market rate hence causing a spike in prices,” said Pan African Chamber of Commerce board member Langton Mabhanga.

The official foreign currency exchange rate is pegged at $25 against the greenback while the parallel market is trading at a premium ranging from $39 to $46 depending with the mode of transaction.

The tobacco selling season opened on Wednesday. Tobacco is one of the country’s top foreign currency earners being the second single largest export earner after gold.

Economist Persistence Gwanyanya said while the globe battles effects of the Covid-19 which have brought radical changes to the way of doing business, this also presented an opportunity for the Zimbabwe crop.

There is likely to be increased demand for the golden leaf as Covid-19 disrupted operations which may push the process of the crop on the commodities market hence benefiting the country.

In addition to that, the selling season will be staggered throughout the year as one of the measures to contain the spread of the pandemic. This means the country will have foreign currency inflows for a longer period.

“Major challenge is there is high risk of side marketing due to the decentralisation of markets.

“But a smooth staggering of cash flows will solve one of Zimbabwe’s cash problems.

“Depending on the dynamics of supply and demand, our tobacco may actually fetch more money on the market.

“But this needs proper management and RBZ also has an important role to play in ensuring smooth flow of business,” said Mr Gwanyanya.

Another analyst Dr Prosper Chitambara said: “I think the onset of the tobacco selling season which will result in improved foreign exchange inflows into the country will have a moderating effect on the parallel market exchange rate.

However, diminished commodity prices owing to the Covid-19 will mean reduced foreign exchange inflows for the country.

Tobacco earnings go a significant way in enhancing the country’s trade balance, which has averaged minus US$233 million between 1991 and 2019, before posting a record high of US$293 million last December. Deliveries, which totalled 258 million kilogrammes last year, are projected to decline 20 percent this year due to the negative impact of spells of dry weather and drought on crop development experienced in many parts of the country.