Industry laments high forex costs

HARARE - The Confederation of Zimbabwe Industries (CZI) says the manufacturing sector’s cost of accessing foreign currency increased significantly in 2018.

This comes as the country’s intensifying foreign currency shortage has threatened the viability of businesses with manufacturers reportedly turning to the parallel market for supply of the elusive green back.

“As much as 73 percent of manufactures said they experienced an increase in the cost premium of accessing foreign currency of more than 20 percent,” CZI chief economist Tafadzwa Bandama,  said while making a presentation at the launch of the CZI State of The Manufacturing Sector Survey for the period September 2017 to August 2018, in Harare last week.

The confederation said if “there is no drastic change in policy direction, foreign currency shortages will persist and the 1:1 exchange rate is affecting availability of foreign currency”.

Bandama said low levels of capacity utilisation which have been prevailing in the country, mean companies are eating into capital.

“Capacity utilisation will decline because there is no foreign currency to import raw materials,” Bandama said.

The confederation suggests that “value addition and beneficiation should be encouraged and supported in order to boost the value”.

Bandama said the survey found that manufacturers believe that government should “liberalise the foreign exchange market in order to minimise foreign exchange transactions on the parallel market”.

“Companies highlighted the need for transparency in foreign currency allocation by the Reserve Bank of Zimbabwe,” she said.

She said imports should be reduced by limiting the importation of non-essential commodities to reduce the demand for scarce foreign exchange resources.

“There is need for a foreign exchange trading platform so that foreign currency is traded at a fair value. This will enable product availability, price stability and business viability,” Bandama added.

Meanwhile, capacity utilisation rose by 3,1 percent from 45,1 to 48,2 percent during the period under review.

“In August, some companies were operating at very high capacity utilisation levels which were above 80 percent. 

“Capacity utilisation rose on account of import substitution and export promotion policies that were implemented starting from 2016,” Bandama said.

Compared to August 2018, capacity utilisation in November 2018, however, declined by 6,2 percent to 42 percent.

“The decline in capacity utilisation was mainly a result of policy inconsistencies, such as the suspension of SI 122, as well as shortages of foreign currency,” said Bandama.

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