Purchase of raw materials by companies dominates use of funds from forex auction

Reserve Bank of Zimbabwe (RBZ) Governor and MPC chairperson, Dr John Mangudya
  • 70% of forex from auction used on raw materials, machinery and equipment
  • Resultantly, operations of various companies have improved due to better access of funds
  • US$624 million had been allotted as at 31 December 2020

Following 29 main and 21 SME Reserve Bank of Zimbabwe (RBZ), foreign currency auctions held from the 23rd of June 2020 to the 31st of December 2020, data from the Central Bank indicates that the manufacturing industry has had the lion’s share of foreign currency funds for their operations.

In the latest monetary policy statement, Reserve Bank Governor, Dr. John Mangudya stated that as of the 31st of December 2020, US$624 million had been allotted on both the main and the SME auctions, representing 97% of total bids received.

As a result of being higher on the auctions’ priority list, raw materials, machinery, and equipment accounted for 70% of the total allotted funds which would translate into US$437 million as of 31 December 2020.

As at 9 February, raw materials alone accounted for 45% of the funds allotted while machinery and equipment were encompassed by 17% of the funds.

This development comes after companies had often lamented the shortage of foreign currency as one of the biggest counter-productive factors to operations along with macroeconomic volatility.

For instance, Bindura Nickel Corporate board chairperson, Muchadeyi Masunda, said that in the company’s fiscal year ended 31 March 2020, “the all-in sustaining cost of producing nickel in concentrate increased from US$6 610 per tonne in the prior year to US$7 606 per tonne mainly due to the decrease in production as well as the incessant increase in the prices of local inputs, which was fuelled by the sourcing of scarce foreign currency on the parallel market by local suppliers for the importation of inputs.”

 Since the initiation of the auction system, however, a number of companies have hailed the improved access to foreign currency brought about by the system in their trading updates and attested to it improving operations.

In their trading update for the quarter ended 31 December 2020, Delta Corporation Limited, reported that the improved access to foreign currency facilitated by the auction had had a very positive bearing on their operations as it had made the acquisition of raw materials easier.

“The improved access to foreign currency has resulted in stable pricing and consistent product supply due to better access to imported raw materials and spares,” the company reported.

Meanwhile, behind raw materials, machinery, and equipment, consumables were also high on the funds allotted taking up 10% of the funds as of 9 February while the importation of various services took up 8%, Fuel, electricity, and gas 6% same as medicals and chemicals, and items for retail and distribution cost 8% of the total funds.

Further, into the year, it can be expected that the total percentage taken up by medicines will greatly improve following the government allowing private sector players to chip in the purchase of COVID-19 vaccines for the vaccination of their employees.

Besides improving access to foreign currency for the formal sector, the foreign currency auction system was also established to counter price distortions in the Zimbabwean economy as well as to attain exchange rate stability.

So far, from a relative scope, along with other policies enacted by the RBZ such as the restriction of mobile money operations, it has been able to bring about macro-economic stability.

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