• RBZ has reduced export retention thresholds from 75% to 70%, sparking criticism
• HDC labeled the policy as "unfair and counterproductive", arguing that it undermines viability
• The policy creates a significant mismatch between reduced forex inflows and high USD-denominated costs

Harare- The Horticulture Development Council (HDC) has strongly criticized the Reserve Bank of Zimbabwe’s (RBZ) recent decision to reduce export retention thresholds from 75% to 70%, as outlined in its Monetary Policy Statement (MPS) released on the 6^th of February 2025.

The council has labeled the policy as “unfair and counterproductive,” arguing that it undermines the viability of Zimbabwe’s horticulture sector, which relies heavily on foreign currency to sustain operations, drive growth, and maintain competitiveness in global markets.

This policy shift forces exporters to retain only 70% of their foreign currency earnings, with the remaining 30% converted into local currency, the Zimbabwe Gold (ZiG).

For an industry where most inputs such as electricity, fuel, seeds, fertilizers, packaging, and freight are priced in U.S. dollars, this creates a significant mismatch between reduced forex inflows and high USD-denominated costs, leading to cash flow constraints and limiting reinvestment opportunities.

The HDC’s CEO, Linda Nielsen, emphasised the adverse impact of this policy, stating that “The horticulture industry operates within tight cost margins, and the reduction in forex retentions means less hard currency to meet critical expenses.”

This strain on cash flows could force producers of high-value export crops, such as peas, to scale back operations or pivot to alternative crops targeting local cash markets.

However, such a shift would deprive the economy of much-needed foreign currency inflows and the long-term economic benefits associated with export-oriented agriculture.

Nielsen recommended that local utility providers, such as ZESA and local authorities, align their pricing with the new retention framework by charging services in ZiG.

Currently, exporters are required to pay for many local obligations in U.S. dollars, creating an unsustainable imbalance where they receive less forex but continue to incur high USD-denominated costs.

When compared to regional practices, Zimbabwe’s export retention policy appears particularly restrictive. In South Africa, exporters retain 100% of their foreign currency earnings, enabling them to fully cover USD-denominated costs and reinvest in their operations.

This policy has supported South Africa’s position as a regional leader in horticulture and other high-value crops.

Similarly, Zambia allows exporters to retain 70% of their foreign currency earnings but in a couty where the Kwacha is not overvalued. Because of that, the remaining 30% converted into local currency strikes a balance between supporting exporters and contributing to the national forex pool.

Kenya, another regional competitor, permits exporters to retain 80% of their earnings, fostering a thriving horticulture sector that significantly contributes to the country’s GDP.

When retentions were at 75%,  some exporters found it more profitable to sell locally rather than abroad due to high surrender portions.

A local company exporting agricultural products such as macadamia, maize, and tea revealed that the surrender requirements eroded profitability, making domestic markets more attractive despite their limited scale.

Therefore, while the policy aims to bolster the national forex reserve, it risks stifling export growth, discouraging investment, and pushing producers toward less lucrative local markets. To remain competitive, structural reforms, such as pricing local services in ZiG, are essential to create a more balanced and sustainable operating environment.

Equity Axis News