Manufacturers demand USD payments for 22 key products

MAJOR manufacturers and suppliers of key and popular brands in Zimbabwe are now demanding payment exclusively in US dollars for at least 22 commodities, industry players say.

This sets the stage for potential and immediate forced dollarisation in an economy where the vast majority of formerly employed workers earn a rapidly depreciating local currency.

Secretary for Finance and Economic Development, George Guvamatanga said the pricing indiscipline reflected greed and economically unreasonable tendencies of powerful monopolies.
Only on Monday, the Treasury boss revoked the duty free facility suspension provision it had extended to beverages giant Schweppes Zimbabwe’s subsidiary, Beitbridge Juicing Company, earlier this month for importation of tonnes of key inputs, oranges and grapefruit.

He said the recent withdrawal of fiscal privileges to Schweppes Zimbabwe was only the first of many to be revoked from other market players that are abusing foreign exchange regulations.

In extreme cases, he said, authorities will cancel licences or withdraw banking facilities of companies violating foreign exchange regulations while accessing low priced forex from the auction.
Demanding payment for goods and services solely in hard currency or benchmarking prices to parallel market exchange rates violates provisions of the law gazetted by the Government last month.

The new law, statutory instrument 118A of 2022, provides for civil penalties of up to $20 million or the equivalent in foreign currency, whichever is higher.

The new law is designed to entrench use of both the US and Zimbabwe dollar until 2025, the tenure of the Government’s medium term economic blueprint, National Development Strategy 1.

The law also requires that pricing of goods and services in the local currency reflects a maximum of 10 percent margin above the interbank exchange rate, which currently trades at $393,85/US$1.
Zimbabwe is once again teetering on the verge of relapsing into forced dollarisation, which it adopted in February 2009 following marketwide rejection of the domestic currency due to hyperinflation.
This saw annual inflation peak at a record 500 billion percent in August 2008, according to the
International Monetary Fund (IMF).

Pegging of prices for selected goods exclusively in US dollars comes against the backdrop of exchange rate volatility and an inflation resurgence, which saw the annual rate reach 191,56 percent in June from 131,7 percent the previous month.

The domestic currency has collapsed from $2,5/US$1 in February 2019 to $800/US$1 on the parallel market (bank transfer also known as RTGS or rapid transfer gross settlement and eco-cash, a popular mobile money)’

Confederation of Zimbabwe Retailers (CZR), the umbrella body for retail traders, president Denford Mutashu said on Thursday at least 22 product lines were now only accessible in US dollars.
The products include cooking oil brands among them Zimgold, Roil, Raha, Pure Drop and Honey Gold and basic commodities Red Seal White Rice, Mahatma White Rice, Red Seal Flour, Gloria Flour, Steri Milk, Chimombe Milk, Pfuko Maheu Butter Milk, Iris Biscuits, Delta soft drinks, Delta rgb (returnable glass bottle), Delta lager quarts, liquors Hunters Dry and Hunters gold.

“These lines are exclusively accessed from suppliers in US dollars,” said Mutashu. Earlier, he said retailers had started demanding payment exclusively in US dollars due to supply chain pressures.
“The decision to sell selected goods exclusively in US dollars is derived from supply chain pressures where 90 percent of suppliers and manufacturers are demanding payment in US dollars and rejecting local currency.

“Where one provides an option to pay in local currency, the exchange rate applied is even above the parallel market. One is indirectly disincentive. The quagmire is further exacerbated by the fact that 95 percent of daily sales through formal shops is local currency.

“It is a dilemma as the law stipulates that goods must be offered for sale in all currencies that are legal tender. It is no longer possible to procure goods in foreign currency and offer them for sale to customers applying the interbank rate.

“The interbank rate must be applied along the whole value chain and not at the store level only,” he said.
Mutashu also said pricing of goods in the market should reflect 20-40 percent low priced forex component registered businesses get from the central bank run weekly forex auction system.
The auction, credited with helping reduce inflation from a post dollarisation high of 837,5 percent in July 2020 to a two year low of 50,1 percent in June 2021, has disbursed more than US$3,3 billion since inception in June 2020.

However, some of the biggest beneficiaries of the auction system, among them cooking oil producer Olivine Industries, Cangrow Trading, Dairibord Zimbabwe, National Foods, Dendairy, Arenel, Varun Beverages, Schweppes Zimbabwe and United Refineries, are reportedly among manufacturers demanding payment for their products exclusively in US dollars.

But Confederation of Zimbabwe Industries (CZI) president Mr Kurai Matshezha said the industry lobby body was not aware of its members who are demanding exclusively US dollars for certain products.
“..if the retailers are saying here is proof that they are being charged in USD exclusively from the manufacturers I would be able to comment on why the manufacturers are doing that,” he said.

The industrial lobby group recently said that the fact that there continue to be foreign currency auction backlogs despite several promises by the government remains an issue impacting capacity for manufacturing industries.

Contrary, Achhie Dongo, director wholesale chain N Richards Group told a retailers conference last month that suppliers were now increasingly demanding, exclusively, foreign currency payments for their products with little prospect for settling invoices in Zimbabwe dollars.

He said in some instances, where the local currency is accepted, retailers and wholesalers were subjected to forward rating and this forward rating on Zimbabwe dollar prices then makes the products uncompetitive.

Guvamatanga said the economy was also suffering from the tendencies of monopolies. He said the previous administration had pampered monopolies with fiscal incentives, but the latter were not complementing Government efforts to make goods “affordable and available”.

He said there was a need to destroy the monopolies by, instead, “creating other industries” and extending fiscal incentives and privileges to smaller entities across the economy, which would be done using resources from the Sovereign Wealth Fund.

“This is the result of a structural problem that we now have. Some of the backward integration approach (to industrial and economic growth) integration is allowed, but must be stopped at some point.
“This is a structural problem that should take a structural intervention,” he said.

Guvamatanga said manufacturers and suppliers were misbehaving banking on the basis that they are not getting most of their foreign currency requirements from the auction system, which sells them forex at discounted rates to the open market.

“The auction only provides 30 percent of their total requirements and 70 percent comes from the interbank market, domestic sales in foreign currency and export retentions.

“But they want to make it appear as if the auction is their only source, yet it is just there for augmentation of other sources,” he said.

Guvamatanga said local businesses should consider themselves privileged to have direct access to forex from four different sources.

In any other country, and we do not want to go there, you do not touch the forex, once it comes, it is immediately converted to local currency,” Guvamatanga said.

As a result of the indiscipline, Guvamatanga said the Treasury would undertake a review of all fiscal concessions it awarded to businesses across the economy and revoke the privileges in instances where rules and regulations are being violated.

He dismissed claims that the Government was being inconsistent on policy by reversing incentives and policy measures it would have put in place to support businesses saying “it’s the market that is inconsistent, if they do the opposite I can’t keep my incentives in place”.

Guvamatanga said businesses entities were antagonising Government efforts to improve affordability and availability of goods despite policy interventions and incentives extended “with good intention”.-businessweekly