Firms hiding domestic USD sales cash: Treasury

TREASURY has accused the majority of firms looking for foreign currency on the interbank market of dishonesty, claiming the companies hide forex from their domestic sales and always seek to quickly dispense with their local currency stocks through forex purchases.

This was exerting undue pressure on demand for the precious commodity, Treasury said.

Growing claims by retail and manufacturing firms about the acute shortage of forex for key imports recently prompted the Reserve Bank of Zimbabwe to intervene in the interbank market with a US$50 million injection.

Several companies in Zimbabwe require significant amounts of foreign currency for key imports that include raw materials, equipment, machinery and products not produced in the country.

The availability of forex remains a thorny issue given that exporters are allowed to hold on to 75 percent of their export proceeds, with the balance sold to the central bank.

This leaves the monetary authorities and Treasury as the only major sources of forex on the official market.

The limited supply often pushes businesses and individuals to the black market, a scenario often blamed for driving local currency volatility and inflation in a country where prices are indexed to the US dollar.

As part of efforts to support the new local currency, the Zimbabwe Gold (ZiG), which was introduced in April, the Government has designated certain taxes and import duties to be paid in local currency.

Authorities expect this to induce a certain level of forex sales from exporters to meet their domestic currency tax obligations and help oil the economy, especially regarding imports.

Secretary for Finance, Economic Development and Investment Promotion, George Guvamatanga, told a breakfast meeting to discuss the 2024 mid-term budget review in Harare on Wednesday that he “knew” inside out most of the companies that recently sought US dollars from the interbank market from his time as a banker.

Guvamatanga told the meeting, organised by the Zimbabwe Economic Society, that if it was his decision, he would only give foreign currency to one company from the top 20 that got the funding after the RBZ’s recent intervention.

The ex-Barclays Bank Zimbabwe managing director, said the bulk of companies on the top 20 list of the firms given forex by the central bank had no genuine requirement for the money they sought, beyond the need to offload their ZiG holdings.

“What we have actually studied and seen with most of these companies is that they are not declaring their (US dollar) cash sales, and when they sell in ZiG, they want to offload that ZiG as quickly as possible.

“In the meantime, they are putting their (US dollar) cash under the table,” he said.

“I have had the opportunity personally, and I know each and every corporate that operates in this economy inside out. I know their cash flows, I know how they operate inside out.

“I looked at the 20 list yesterday (Monday).

“There were telecom companies, beverage manufacturers, there were millers; milling companies who were also on that list, some of whom I had just paid US dollars the previous day; but they were on that list.

“I said to the governor (RBZ), if he was to give me the list of the top 20 who were demanding US$48 million, I would only issue foreign currency to one customer,” he said.

Guvamatanga said he would tell the rest of the companies to go back and utilise the US dollar cash stashed away in safe boxes somewhere at these companies’ safe hideouts.

“I know it’s there and I can challenge them, all of them on that top 20 list,” Guvamatanga declared.

“I do not want to mention them here, I do not want to name them here, but maybe on another platform,” he said.

Guvamatanga said this was the reason he has always argued that Zimbabwe did not have a problem of foreign currency shortage, calling for dialogue among the key stakeholders namely the central bank, companies and banks to address the issue.

He said the practice by companies of hiding forex from their domestic sales was unfairly starving the market of the much sought-after forex. Guvamatanga pointed out that firms withholding forex from their domestic sales were violating the terms of a social contract agreed before the policy regarding the retention of domestic US dollar cash sales was allowed.

“As Government, we do not want to be forced to put into place more stringent regulations that make it difficult for businesses to operate; to say we also want to look into your safe deposit box because we do not want to go there, we have no intention to go there and we will not go there,” he said.

Guvamatanga’s assertions, however, fly directly opposite claims by the Confederation of Zimbabwe Retailers President Denford Mutashu, who on Wednesday said retailers and wholesalers were burdened with substantial stocks of ZiG, yet there was insufficient market capacity to absorb these funds, creating a liquidity trap.”

For instance, Mutashu claimed sugar suppliers were now requiring payments in a split of 85 percent US dollars and 15 percent ZiG, underscoring the disparity between available currencies and the operational needs of businesses.

“The primary constraint currently facing businesses in the retail wholesale sector is the volatility of the exchange rate, which is severely hampering operations across the supply chain,” said Dr Mutashu.

“The existing exchange rate mechanism is making it nearly impossible for businesses to recoup their investments.

“This instability has led to a significant demand for the US dollar, which is not readily accessible through formal banking channels, further exacerbating the issue.

Asked to share his sentiment on the matter, industrialist and Confederation of Zimbabwe Industries (CZI) immediate past president Kurai Matsheza said companies had genuine challenges regarding access to forex.

He acknowledged that there may be a few companies in the habit of withholding forex from their domestic sales, but indicated the majority of companies had genuine issues regarding forex availability, pointing out that some even had to suspend production due to forex glitches.

“I was not at that meeting, but I guess the companies’ (situations) are genuine. There could be those who are doing as he alleges, but I believe there could be a very small number; the majority of cases are really genuine.

“We are not privy to that list, so we do not know who is on that list and also am sure those on that list would be able to defend themselves on what he said is happening, but we believe most of the cases (forex demand) are genuine because most of the companies are struggling to access foreign currency.

“Some of them actually closed operations. Why would somebody stop producing when he has got the US dollars under his desk; it’s to prove what; I do not think it would make sense.

“ So, there are genuine companies who are not able to operate, who have actually closed their operations at some point because they have run out of materials and so on,” he said-bsinessweek