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Forex backlog widens

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The foreign currency auction allotment backlog has widened despite President Emmerson Mnangagwa’s directive for the central bank to clear by end of last month as industry warns that production has been affected which could affect capacity utilisation.

Last month, President Mnangagwa said the backlog was supposed to be cleared at the end of May. Reserve Bank   of Zimbabwe (RBZ) governor John Mangudya told the delegates at the Chamber of Mines of Zimbabwe that the backlog was at around US$156m and the authorities were attending the matter.

Confederation of Zimbabwe Industries president Kurai Matsheza told Business Times that the backlog has widened.

“Our members are still battling forex backlog and the situation is worsening  as the central bank takes between 10 weeks and 12 weeks to clear. Before President’s [Emmerson Mnangagwa] pronouncements there was a serious backlog and the situation has worsened as the allotments before pronouncements have not been settled and some after the statements have not been settled also,” Matsheza said.

Matsheza told this publication that the forex backlog and exchange rate nightmares are destroying the industry on the domestic front.

“Last year the industry’s capacity utilisation was at 56.25% but with continuous failure to settle the allotments on the auction system the manufacturing sector’s capacity utilisation is certainly going to fall significantly.

“The aforementioned   challenges together with fuel price increases, effects  of Russia-Ukraine war and worsening operating environment as VUCA, an acronym  that reflects volatility, 

uncertainty, complexity and ambiguity, production is going to come down as  there is no way businesses are going to continue producing the same products at the same volumes with these cost increases.

“The Gross Domestic Product projections are getting less and less optimistic in terms of achieving them,” CZI boss said.

“With these challenges and the allowing of imports, we may even witness company closures and job losses,” he said.

There were premature celebrations this week after the Bankers Association of Zimbabwe CEO Fanwell Mutogo was quoted as having told the  Parliamentary Portfolio Committee in Budget, Finance and Economic Development  that the backlog was cleared.

The banker told Business Times yesterday that reports in the media were malicious.

“The position is that there is a backlog and there is a commitment to clear it at the end of June.

 “Unfortunately, if there is a commitment from the RBZ that they are going to clear the backlog by June we stand by that.

CZI said the perpetual failure by the RBZ to clear the foreign currency backlog is affecting production and could lead to a serious drop in capacity utilisation if it remains unaddressed.

The development comes after the authorities failed to clear the backlog from March upwards.

During the industry survey launch in May, CZI said the foreign currency auction was taking up to 50 days for the company to be settled after the bid had been accepted.

Recently, RBZ governor John Mangudya said about US$3.13bn has been allotted since the start of the auction system in 2020 and about 70% has gone towards the productive sectors, including capital and equipment and raw materials imports.

But the delay in settling allotments has adversely affected the industry.

“Foreign exchange auction backlog of less than 5% of amount allotted [US$156m] is being attended to,” Mangudya said.

Industry said the RBZ and his superiors keep promising to clear  the backlog   but have failed more than four times.

With reduced agriculture output and weakening aggregate demand, the industry is on the fix, experts suggest that the gains made in the past years will be reversed if the backlogs persist.

The CZI has changed how capacity utilisation is measured.

Under the new definition it is the ratio of actual manufacturing output to potential full capacity output based on equipment supplier manuals, taking into account all idle plants that are not decommissioned.

The industry said it used to omit small players in the industry but this year they have included.

Industry said if the authorities can address the issues at hand, the manufacturing sector is on the rebound.

“With no further shocks and disruptions, momentum to be carried over into 2022 and the government can help sustain this positive momentum by ensuring that the macroeconomic environment is conducive (inflation, exchange rate, enablers), addressing the ease of doing business, which remains an issue,” CZI said.

He said there was a need to address the currency challenges and the associated inflationary pressure can derail the momentum into 2022.

The survey also showed that the manufacturing sector realised a 5.5% increase in exports to US$404m in 2021 from US$383m in 2020.

The survey found out that 42.7% of the manufacturing sector is accessing forex from the auction system and companies are obtaining 39.5% from the auction with the majority of the companies getting their money from the US$ sales.

According to the CZI, local products accounted for 75% of shelf space occupancy in the retail sector.

But with imports starting to affect the local industry, the locally produced goods will certainly go down.

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