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Offshore creditors cut off Zim 

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Foreign creditors have cut off supplies of critical raw materials to Zimbabwe companies on credit following their failure to settle   mounting debts, Business Times can report.

Zimbabwe’s business lobby groups-the Zimbabwe National Chamber of Commerce (ZNCC) and the Confederation of Zimbabwe Industries (CZI) confirmed the development to Business Times this week saying most offshore suppliers have become risk averse when dealing with Zimbabwe companies.

They said the move could trigger shortages of goods in Zimbabwe.

And they placed the blame on the doorsteps of the Reserve Bank of Zimbabwe (RBZ) which they said has failed to  clear foreign currency allocation backlog meant to settle debts owed to offshore suppliers.

RBZ is battling to deal with the forex backlog amounting more than US$300m to local companies. Two months ago, the backlog was at US$75m.

Business leaders said RBZ was taking  more than 50 days to  avail the forex  allotted  from the auction system. They said some bids done in January have not been honoured.

The development has left local companies scrambling for survival as the international suppliers are now demanding pre-payment   until the debts have been settled.

This has further created shortages in the market as the manufacturing sector was already producing at a reduced capacity due to forex challenges.

The business leaders said  the viability of several  companies  has been under serious threat  as a result of the supplies cut off.

In its latest report submitted to Parliament this week, ZNCC, said the auction malfunctioning has resulted in the companies’ credit lines from their  international suppliers being cut off.

“The auction has not been able to supply us with enough foreign currency to meet our creditor and investor requirements,” ZNCC said.

“As a result, some of our foreign creditors have declined continuing to supply us due to long outstanding debts.”

CZI president, Kurai Matsheza, also told Business Times: “It’s a very common business practice that if you take long to settle your debts you will be cut off and that is what has happened to a number of local companies. Unfortunately, the delays on the auction system have contributed to that  and this will have a huge impact on the industry as it survives on these credit lines to operate.”

Industry recently accused the RBZ for flouting the forex auction system  rules.

According to auction system rules, the highest bidder is supposed to access the forex first but the rule was not observed as the central bank  allowed the lowest bidder to get forex first as the central bank will average the bids to come up with the official exchange rate of the day.

Economist Gift Mugano told this publication that challenges that are affecting this economy are multiple and they need a comprehensive package and not a piecemeal approach.

“The government didn’t say anything about these shortages coming on the back of   cessation of credit lines due to the delays on the auction system,” Mugano said.

“Lending suspension has exacerbated the situation as credit suppliers from South Africa are watching about the new developments, what it then means is that the constrained local company will not be able to service their foreign debt.”

He added:  “We expect more foreign credit cuts  and shortages until there is stability in the economy.”

 He said the authorities should stop uttering negative statements and policies which are not well thought out.

Industry players said   a long lasting and comprehensive solution in terms of clearance of the backlog was key to giving confidence to the foreign creditors.

“We will not clear the backlog as long as we continue to flout the Dutch auction system and as long as we manipulate the system we will be disrupting the whole value chain and this will have a negative impact on the whole economy,” Mugano said.

Another economist Christopher Mugaga said the lack of clarity regarding the volatile exchange rate as well as high inflation remains a source of concern.

“We believe any debate on de-dollarization will be mistimed and can lead to unintended consequences. The focus must be on promoting a market determined exchange rate,” Mugaga said.

“We applauded the introduction of the foreign currency auction system as it was anticipated that the auction would bring about stability and the revival in the economy. However, our experience with the auction system has not entirely yielded the perceived outcomes.”

He said the introduction of the foreign currency auction system was intended to liberalise the foreign currency market, however in practice this has not been the case as the disparity between the official foreign currency rate and parallel market rate remains significant.

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