About fuel, and forex shortages

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Taurai Mangudhla
Foreign currency problems emanating from externalisation and declining productivity are no secret in Zimbabwe and several measures, including tightening exchange controls and importing more cash, have been adopted to try ease the situation.

Strategies to boost Zimbabwe’s industrial production sector such as a 17,5 percent export incentive on receipts, which gave birth to bond notes late 2016, have also been pursued.

But it appears more needs to be done.

The foreign currency backlog for imports is growing with corporates queuing for as long as six months for payments to foreign suppliers. The forex shortages have also affected repatriation of dividends to foreign shareholders creating.

Although businesses are finding ways to survive and also to still make profits, the pressure is mounting, and probably inching towards a breaking point for some.

This means the Government and the central bank — already working on new strategies — must do more, and move in with someunless immediate interventions.

The cash and foreign currency shortage remains topical given that Zimbabwe has no currency of its own. The public focus is whether the country has, on a day to day basis, cash for national needs such as fuel and public use.

The recent fuel shortages just dramatised the issue.

Fuel imports comprised 26,4 percent of merchandise imports in Zimbabwe in 2015, according to the World Bank.

In the past few weeks, queues have resurfaced at service stations while some have run dry, bringing back memories of 2008 when fuel became a precious resource, rare to find, while shop shelves went empty.

The Reserve Bank of Zimbabwe recently announced it doubled allocations for fuel imports to maintain supplies and stability.

While the infrastructure has managed to withstand pressure — ensuring essential like power and fuel imports are in constant supply, food imports and critical inputs in health and industry are available — fuel scarcity could just be the breaking point.

Fuel unavailability will trigger a lot of problems such as increases in transport the cost, transport problems, fuel adulteration, increase in the cost of food items and living, social unrest.

Currently a number of dealers are having to pay cash upfront for fuel supplies because of the known foreign currency challenges bedevilling the country and delays in foreign remittances, which is untenable in the long term and interrupts supply.

Our fuel supply cover is low and having to rely on upfront payments adds to the problem.

If the central bank fails to provide the cash on time, then unscrupulous dealers will start selling fuel for hard currency or charge a premium on electronic payments in order to keep importing. Already reports are that the fuel black market is resurfacing with trucks supplying desperate motorists.

This has the obvious effect of increasing prices. For arguments sake, petrol is about $1,30 per litre using any form of payment including mobile money.

This is because the dealer gets cash to import from the central bank and once they don’t, they immediately will charge a 50 percent premium in line with prevailing black market rates for foreign currency which puts the diesel cost to $1,95.

Such an increase will trigger lots of price increase starting with transport and distribution.

A 50 percent hike in fuel will spark huge price hikes across industry, bringing back run-away inflation and making life difficult for business especially lending.

When the black market emerges, quality control become difficult and contaminated fuel is consumed more, damaging engines.

In cases where dealers struggle to meet demand they will be tempted to mix diesel with paraffin for instance, because paraffin is cheaper. This gives them greater margins.

The world fuel price will also be a factor to consider.

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