• Borrowings surged by 30% in Q3 ended 30 September 2021
  • Delays in forex disbursement contributed to the rising debt
  • Borrowings were used to fund stocks of materials to support growing volumes and capital investments

Harare - Zimbabwe’s largest milk processor, Dairibord Holdings says that the delays experienced on the disbursement of foreign currency on auction market has resulted in the scaling up of its borrowings by 30% to ZWL839 million during the third quarter ended 30 September 2021.

Foreign Exchange Auction Market was introduced in June 2020 with the aim of improving the availability of foreign currency thus providing the modicum of price stability.

In a trading update for the third quarter ending 30 September 2021, Dairibord pointed the insufficiency of the auction system as one of the main reasons which contributed to the surge in borrowings.

“Borrowings as at 30 September 2021 were ZW$ 839 million, up 30% from 30 June 2021, as the business leveraged the balance sheet for growth.

Delays in disbursements from the auction market also contributed to rising debt,” said the Group.

The Group added that the borrowings were used to fund stocks of materials to support growing volumes and capital investments.

The Reserve Bank of Zimbabwe (RBZ) and the ministry of finance always glorify the auction system, tagging it with a high name profile of being the messiah to the shortage of foreign currency being incurred by the business community.

However, the truth on the ground clearly indicates that the system is struggling to meet its mandate as evidenced by the backlogs it has. Recently the RBZ said they will be availing funds to companies within 14 days from the day of allotment.

Following the allocation of the nearly US$ 1 billion SDR funds to Zimbabwe, Finance and Economic Development Minister Professor Mthuli Ncube promised to use some of the funds on the foreign currency auction market to end the backlog.

However, indications from various company financials show that nothing substantial has changed to ease the problem.

Other evidence showing inefficiency of the auction market

Zimbabwe’s telecoms regulator, POTRAZ highlighted shortages of foreign currency in its second quarter 2021 report on company performances as one of key factor hindering a swift ease of doing business.

Recently, Simbisa Brands, which is the largest fast foods outlet in Zimbabwe was accused of manipulating foreign currency auction funds. To its defense, the Group said their suppliers were using the parallel rate as the auction system continues to falter in disbursing its duties. This clearly indicates the shortfalls of the auction system.

Proplastics also lamented the impact of the delay in foreign currency disbursement in in its half year financials ending 30 June 2021. Chairperson Gregory Sebborn said, “During the period under reporting, the disbursement of foreign currency on the auction platform continued to lag behind despite the liquidation of the local balances at the time of participation.

We urge the authorities to address this matter with urgency as the massive delays are now a huge performance hindrance for industries and the economy at large.”

The Group said backlog at the end of the period stretched to almost two months and arrears to foreign creditors stood at US$1.7 million.

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