eBusiness Weekly
Growth exerts pressure on forex
Delta, Nampak also feel the heat
By Golden Sibanda
Central bank governor John Mangudya, says the Zimbabwe economy has started registering growth on the back of improved industrial productivity, but the expansion was coming at a price of rising demand for hard currency against limited supply.
The governor’s assertion tallies with Finance and Economic Planning Minister Patrick Chinamasa’s 2018 National Budget projection that the economy will this year grow by 4,5 percent driven by higher global metal prices and renewed confidence after the onset of the new dispensation.
Delta’s forex dilemma
Dr Mangudya’s remarks come amid frequent reports that large manufacturing entities, including Delta Corporation and packaging products supplier Nampak Zimbabwe, were badly affected by the prevailing forex crisis. He, however, said he was on top of the situation.
The Zimbabwe Stock Exchange (ZSE’s) biggest company by market capitalization, Delta, owes credit suppliers, external shareholders (for dividends and profits), lenders (including Barclays Bank SA) and others a cumulative $150 million, as it struggles to secure the forex to pay them.
In an interview with Business Weekly, Dr Mangudya said the fact that Delta’s requirement for foreign currency had grown from $500 000 to current $1 million per week, was a reflection of growing productivity, driven by stronger demand for its products.
Forex shortages causing payments backlog
Critical shortage of foreign currency, due to poor state of the economy, has seen many firms struggling to fund critical imports (raw materials/equipment), resulting in foreign payment backlogs.
Zimbabwe uses a basket of currencies dominated by the US dollar, but cannot meet the demand for hard currency due to its high import dependency against negligible inflows of export earnings, foreign investments and limited access to lines of credit among other factors.
The central bank chief said that the foreign payment back log, which stood at an estimated $600 million as at September last year, was a moving target, which made it difficult to quantify from time to time.
Tobacco, Zimbabwe’s single biggest foreign currency earner and gold, whose exports rose 60 percent in the last 12 months to April this year, have helped reduce the pressure on demand for foreign currency.
“What has happened is that demand for products has gone up and the economy is expanding. When we talk of an expanding economy that is what we mean, that there is expanding demand for products. But the increase in exports has not matched increase in demand for foreign currency from companies that are expanding,” he said.
CZI confirms jump in productivity
Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe confirmed industrial production was on the rebound, which he said reflected in the exceptional performance after Zimra collected $1.3 billion in the first quarter against a budget of $803 million.
“There is a lot of pain due to foreign currency (shortages), but growth is there in terms of consumption and so forth. Calculate how much Zimra exceeded budget, it is a frightening number. The target was $800 million, but they achieved $1.3 billion; about 60 percent above target.
“Consumer counters like Delta had 19 percent growth in the first quarter, which is probably why they are running out of foreign currency,” Mr Jabangwe said. He said Zimra collected more tax last year compared to 2016, which was an indication of a rebound in productivity.
RBZ interventions
Dr Mangudya said the fact there no longer were frequent reports of companies that were closing down due to economic challenges was ample evidence that production was on rebound and the economy on recovery.
“That is why we continue to look for facilities from the likes of Afreximbank, PTA Bank and others to bridge the gap between supply of foreign currency and demand for foreign currency,” he said.
The central bank chief said that the bank continued to assist all companies with resources at its disposal, including Delta and Nampak, which require hard currency for key imports such as concentrates and resin.
Concentrates are a major ingredient used by Delta in the in the manufacture of soft drinks while resin is used by Nampak Zimbabwe in the production of PET bottling products, which Delta needs for its beverages.
Dr Mangudya said while the central bank was making all interventions within its capacity, the gap between exports and imports remained unsustainable. He said there was need to grow exports to close the gap.
“We are quite aware of that gap. This is why we keep looking for facilities to bridge the gap between the imports and exports. We know the gap that is there and we are dealing with it,” Dr Mangudya said.
