Treat forex as shared resource, exporters told

THE debate on the mandatory foreign currency liquidation threshold for exporters should be viewed from a balanced and developmental perspective given that a number of critical but non-exporting sectors of the economy also require hard currency, economic analysts have said.

This follows an outcry by exporters, after the Reserve Bank of Zimbabwe (RBZ) raised the mandatory liquidation threshold on export earnings to 40 from 30 percent, arguing this will discourage exports. The central bank also said exporters are no longer compelled to sell for local currency unused earning after 60 days

Prior to the latest review, miners had been lobbying the RBZ for permission to retain as much as 80 percent of their foreign currency earnings from the exports. The Chamber of Mines says the removal of compulsory liquidation period is welcome, it is overcast by the reduction in what miners can now retain from 70 to 60 percent.

Analysts say it was critical from a developmental perspective for exporters not to have an “entitlement mentality”, bearing in mind export earnings are a “shared resource.”

The exporters are also arguing that there is already a disparity between the parallel market exchange rate of $110:1 USD and the official auction exchange rate of $82.78:US$1.

Business operators claim the 35 percent discrepancy results in massive taxation on the exporter for every United States dollar that the central bank compulsorily liquidates.

The exporters are supposed to be taxed at a special concessionary income tax rate of 15 percent, which is lower than 25 percent that applies to the non-exporters.

If, however, a plethora of other taxes namely 2 percent intermediated money transfer tax on foreign currency transactions, 40 percent mandatory liquidation at 35 percent lower value than the open market rate, income tax in forex- again at an opportunity cost because of mismatch relating to the real value of a US dollar and the 15 percent income tax, are to be summed up the effective tax rate on exporters rises to over 100 percent.

“Exporters are our champions and soldiers of economic development,” economist professor Gift Mugano said.

“So when central bank make a decision to retain some of the foreign currency it is clearly to have a balanced growth, nothing else.

“To have a balanced growth is to have those sectors which are not exporting to also get the foreign currency.

“We import critical products like fuel, pharmaceuticals, electricity and even cereals; grain for people to have enough food. These sectors we are talking about don’t export.

“We do not export fuel to import fuel, we do not export maize to import maize, and we do not import wheat to import wheat.

“But we then take the share of what we are exporting, earnings from our minerals; farm produce to import these critical requirements. The role of exports is to contribute to economic growth and development.

“By the way, the same sectors, which are exporting need imported commodities. I feel that the export retentions are of no consequence, weather is 40 percent or 100 percent.”

Professor Mugano, who is executive director of Africa Economic Development Strategy, said the debate should rather be on the pricing regime of the foreign currency.

“So that is why you see in South Africa, you don’t even hear the debate on retention because the exchange rate between the rand and US dollar is at the correct price.”

“What we need to admit is that going forward the issue of getting a true price discovery mechanism where there is efficient pricing is a journey and I think we are close to that level.

“We have moved from the fixed exchange rate regime, we are now using the auction system.”

Carlos Tadya, an analyst with a local financial research company concurred with Prof Mugano that the contention in the market was that the disparity between official exchange rate and black market rate.

“What needs to be done now going forward is to close the gap between the black market and official exchange rates so that exporters will not lose on the back of exchange losses,” said Tadya, adding that foreign currency should “ordinarily benefit all.”

“Yes, they might want to keep all the money but they should understand that the money is being generated from minerals in Zimbabwe and that money should benefit all, even those not in exporting business. That is why the central bank wants to have a share of that money so that it can be used to import other essentials.”

RBZ governor Dr John Mangudya said the 40 percent mandatory liquidation on export receipts was critical to sustain the foreign currency auction system and ensure efficient distribution of hard currency.

“He added that in the event of forex shortfalls, exporters can also participate on the auction since “it is a market for all.”

“We need to maintain; sustain the foreign currency auction market to have stability. So it is important that exporters, in the event that they are in short supply of foreign currency, they can as well participate of the foreign currency auction market,” said Dr Mangudya-Herald