‘100 firms gobble bulk of auction forex funds’

Top 100 companies have received well over three quarters of the nearly US$ 700 million the central bank has allotted to strategic imports since the inception of the foreign exchange auction trading system last year, research firm Econometer Global Capital says.

Poking holes into the efficacy of the Reserve Bank of Zimbabwe ( RBZ) weekly foreign exchange allocation system, Econometer Global capital said the process displayed a skewed distribution criterion in a country with over 12 000 firms.

The RBZ last week said nearly 800 firms had benefited from the weekly foreign currency auction system where roughly US$ 674 million has been allotted since the introduction of the platform in June last year.

The bank released a list indicating that 788 large corporates and small to medium enterprises in different productive sectors of the economy had secured forex from the auction market to import critical raw materials and equipment.

Notably though, the central bank uses an imports priority list that has seen the bulk of the elusive foreign currency go to procurement of key imports such as raw materials inputs, machinery and equipment.

“Parcelling out nearly US$ 640 million to 100 companies and individuals in an economy where there are circa 12 000 firms speaks to not only the elitist approach of the system, but how vulnerable this economy is to a clique of individuals and companies,” the research firm said.

It is, however, important to note that of the alleged 12 000 firms, not all require foreign currency while some generate their own and have no need to resort to the auction market.

Although the auction market has seen the Zimbabwe dollar remain largely transfixed around $84 to the greenback, helping maintain long periods of relative price stability, Econometer said the system had not helped with market price discovery.

However, prices appeared to creep up from December through the first two months of the year, which authorities attributed to strong festive season demand, profiteering and negative effect of imported inflation.

“The discrepancy between the official and parallel market rate has continued to widen and retailers have responded to this,” Econometer.

The analysts said addressing structural issues in the imports dependent economy and adopting far reaching economic reforms to unlock external funding may be the only sustainable way to the future.

Captains of industry, including former Confederations of Zimbabwe Industries past president

Busisa Moyo, have demanded interventions by authorities to narrow the widening gap between the official exchange rate and parallel market rate.

Speaking during a discussion on implications of the Africa Continental Free Trade Area (AfCFTA), Moyo said it was not wise to follow the black market rate, since its volumes were not known, but that it remained critical to close the margin.

Those that fail to get hard currency on the auction market resort to the parallel market where the hard currency is sold at a premium with the cost passed on to the consumer.

The system has continued to create a thriving environment for forex parallel market as several companies not catered for by the official system resort to the black market.

Finance and Economic Development Minister Mthuli Ncube argues though that the so called “Dutch”auction system has worked wonders thus far and that like anywhere else globally, there always will be disparities between the official and open market exchange rates.

But in other jurisdictions the parallel market plays a complementary role to the official system, but in the case of Zimbabwe, the market works as an independent system with capacity to unsettle prices in the official market.

For instance, companies receiving forex from the auction system’s pricing matrix in RTGS reflects the parallel market rate, discouraging customers who want to use the US dollars who feel shortchanged.

Amid an exchange rate and pricing turmoil, Zimbabwe’s annual inflation raced to a post dollarisation high of about 863 percent in August last year, before gradually climbing down to circa 240 percent this month.