The Reserve Bank of Zimbabwe has imposed heavy financial penalties on seven cotton merchants for violating exchange control regulations during the previous marketing season, sources have said.
Each company has been fined US$100 000, bringing the total penalties to US$700 000.
The central bank moved to penalise the firms after investigations revealed merchants paid cotton farmers 100 percent of to farmers United States dollars.
While beneficial to farmers, this directly contravened the standing 70:30 payment regulation, which mandates that merchants pay 70 percent in foreign currency and the remaining 30 percent in local currency (ZiG).
“The merchants essentially prioritised farmer satisfaction over regulatory compliance,” said a senior banking official.
“By disregarding the 30 percent local currency requirement, they bypassed the liquidation of about US$3 million — a move the central bank views as a threat to the stability of the multi-currency framework.”
Some cotton merchants’ officials confirmed the penalties and expressed hope that ongoing engagements with the RBZ — facilitated by the Ministry of Lands, Agriculture, Fisheries, Water and Rural Development and the Agricultural Marketing Authority — will yield an amicable solution.
“From a compliance standpoint, there were certainly breaches,” said a senior cotton merchant official.
“We wanted to negotiate with the central bank regarding the 30 percent local currency component. We believed that the amount was too small and the mobile money delivery system could have been too costly for farmers in remote areas with poor connectivity.
“Ultimately, the crop was so small that it had already been sold before our concerns were even addressed.”
Many cotton farmers are located in remote areas, forcing them to travel long distances to business centres just to withdraw their funds.
Additionally, in border regions such as Checheche and Muzarabani, transactions are predominantly conducted in foreign currency, making the local currency component even less practical.
AMA chief executive Ms Alice Mapfiza said while the matter was under discussion, compliance was an instrument that brings sanity and order to agricultural sectors — not only in cotton but across all value chains.
“Compliance is not something we can run away from. It should not be viewed as a regulatory burden, but as a foundation for building an organised agricultural sector,” said Ms Mapfiza in an interview.
No immediate action could be obtained from the central bank.
However, according to a directive issued by the RBZ to the respective banks, the fines were applied uniformly across the merchants, regardless of the individual volume of cotton each company purchased.
Official data shows that during the last season, about 30 million kilogrammes of cotton were produced and sold at an average price of US$0,30 per kg.
Under the legal 70:30 framework, roughly US$2,7 million should have been liquidated into ZiG to pay the 30 percent component.
Industry players argue that while non-compliance is non-negotiable from a regulatory standpoint, farmers may ultimately become the victims as merchants find ways to recover these costs.
They noted it is likely that these penalties will be treated as business expenses, leading companies to recover funds by offering lower prices to farmers or cutting back on future input schemes.
Furthermore, they argued that the penalties failed to consider the actual volume of cotton purchased by each company, as some firms bought very little.-herald
