News / National
Zimbabwe companies to collapse in 30 days
11 Jan 2019 at 09:58hrs | Views
MANY manufacturers could be forced to halt operations if government fails to arrest the crippling currency crisis within the next 10 days as most companies are left with less than a month's stock of raw materials, the Confederation of Zimbabwe Industries (CZI) has warned.
This comes as captains of industry also urged government to acknowledge the reality that the bond note is not at par with the US dollar and liberalise the currency in order to let the market determine its worth.
CZI president Sifelani Jabangwe told journalists on the sidelines of a Confederation of Zimbabwe Retailers breakfast meeting in Harare yesterday that the country is in a dire state, adding that the only way to avert the catastrophe would be to allow companies to sell their products in foreign currency, enabling them to stay afloat.
Jabangwe said a number of companies that closed in the last quarter of 2018 have not been able to reopen and more are on the verge of closing if government does not, as a matter of urgency, address policy issues criminalising the parallel market trade in forex which currently attracts a 10-year jail term. Manufacturers have been battling with raw material backlogs in excess of US$480 million by end of 2018, but Jabangwe believes the backlog is spiralling out of control. While he emphasised the importance of a prompt response to the currency crisis, he said there was an urgent need to implement a transfer mechanism between the bond note and the US dollar which is crucial for the survival of the manufacturing industry.
"As indicated earlier, most of the companies do not have raw material supplies that go beyond January as most of our suppliers cut us out on stock and it is only payment that will unlock the supply lines. The reason is we are eating into our lead times for bringing in goods," Jabangwe said.
"Most of the companies have to pay in the next 10 to 14 days for the raw materials so that they do not close. If we start transacting after that time, closure will be inevitable because we need about two to three weeks at least for the goods to come in. Sometime in February a number of companies will close.
"Last year most of the companies lost between 70 to 80 days of business, which is something that we want to avoid. The biggest challenge is to do with foreign currency; as you recall by the end of 2018 there were policies that were put in to separate the electronic money and the USD nostros, but there is no mechanism between the two."
Jabangwe said the Reserve Bank of Zimbabwe (RBZ) allocations have not been enough to address the backlogs as no foreign currency had been received since the last quarter of 2018 with only about 15% of the total requirement having been met.
"We believe it's a situation that can quickly be unlocked if the law that was put in place to criminalise the trade between bond note and the US dollar is removed. We are caught in a logjam and this has been our request to government to clear away the law or else avail currency but we all know that the government does not have much currency to provide such allocations," Jabangwe said.
"We are saying since government pays its workers in RTGS and they, in turn, buy from us using that currency which does not allow us to procure raw materials, they should just let us sell our goods in the currency in which we buy our raw materials."
CEOs Round Table chief executive Kipson Gundani said it was time government liberalised the currency.
"We have a government which is constantly defying the laws of economics, you cannot violate them and expect no consequences at the end and the law that is being violated now is the issue of the exchange rate which is pegged at 1:1,'' Gundani said.
"Human beings are economic beings. When I am holding my US dollars and l know that the exchange rate is nonsensical, I will then avoid putting it in an official system. So you then find out that people do not put the real currency into the system which, in turn, affects the efficiency of the circulating currency, then we say we have forex shortages," he added. He highlighted the structural challenges which the government is currently facing, including a ballooning fiscal deficit and huge domestic borrowing, saying they can only be solved by liberalising the exchange rate.
"It is clear that the 1:1 exchange is not sustainable and something has to be done about it .What if we liberalise this rate, float the exchange rate and allow it to flow? The authorities think that there will be runaway inflation and things will become uncontrollable, but l would push for a proposal to float the rate, but the money supply growth should be managed. I think the exchange rate will eventually find a certain level of equilibrium which could be marginally above the prevailing parallel market rate," Gundani said.
The currency issue continues to be a protracted crisis in the country after Finance minister Mthuli Ncube, who once publicly said joining South Africa's Multilateral Monetary Area could be a solution to Zimbabwe's currency crisis, is now agonising over currency reforms, as it dawned on him that his preferred choice is a herculean task, while a plethora of problems are standing in the way of other potential solutions.
The CZI is raising the red flag at a time when industry is struggling to secure raw materials, key towards sustaining their operations.
This also comes as Delta Corporation — Zimbabwe's biggest company by market capitalisation — was last week forced to reverse a decision to price its products in US dollars which it had sought to adopt as a survival strategy. The brewer says its business operations are on the brink.
This comes as captains of industry also urged government to acknowledge the reality that the bond note is not at par with the US dollar and liberalise the currency in order to let the market determine its worth.
CZI president Sifelani Jabangwe told journalists on the sidelines of a Confederation of Zimbabwe Retailers breakfast meeting in Harare yesterday that the country is in a dire state, adding that the only way to avert the catastrophe would be to allow companies to sell their products in foreign currency, enabling them to stay afloat.
Jabangwe said a number of companies that closed in the last quarter of 2018 have not been able to reopen and more are on the verge of closing if government does not, as a matter of urgency, address policy issues criminalising the parallel market trade in forex which currently attracts a 10-year jail term. Manufacturers have been battling with raw material backlogs in excess of US$480 million by end of 2018, but Jabangwe believes the backlog is spiralling out of control. While he emphasised the importance of a prompt response to the currency crisis, he said there was an urgent need to implement a transfer mechanism between the bond note and the US dollar which is crucial for the survival of the manufacturing industry.
"As indicated earlier, most of the companies do not have raw material supplies that go beyond January as most of our suppliers cut us out on stock and it is only payment that will unlock the supply lines. The reason is we are eating into our lead times for bringing in goods," Jabangwe said.
"Most of the companies have to pay in the next 10 to 14 days for the raw materials so that they do not close. If we start transacting after that time, closure will be inevitable because we need about two to three weeks at least for the goods to come in. Sometime in February a number of companies will close.
"Last year most of the companies lost between 70 to 80 days of business, which is something that we want to avoid. The biggest challenge is to do with foreign currency; as you recall by the end of 2018 there were policies that were put in to separate the electronic money and the USD nostros, but there is no mechanism between the two."
Jabangwe said the Reserve Bank of Zimbabwe (RBZ) allocations have not been enough to address the backlogs as no foreign currency had been received since the last quarter of 2018 with only about 15% of the total requirement having been met.
"We believe it's a situation that can quickly be unlocked if the law that was put in place to criminalise the trade between bond note and the US dollar is removed. We are caught in a logjam and this has been our request to government to clear away the law or else avail currency but we all know that the government does not have much currency to provide such allocations," Jabangwe said.
"We are saying since government pays its workers in RTGS and they, in turn, buy from us using that currency which does not allow us to procure raw materials, they should just let us sell our goods in the currency in which we buy our raw materials."
CEOs Round Table chief executive Kipson Gundani said it was time government liberalised the currency.
"We have a government which is constantly defying the laws of economics, you cannot violate them and expect no consequences at the end and the law that is being violated now is the issue of the exchange rate which is pegged at 1:1,'' Gundani said.
"Human beings are economic beings. When I am holding my US dollars and l know that the exchange rate is nonsensical, I will then avoid putting it in an official system. So you then find out that people do not put the real currency into the system which, in turn, affects the efficiency of the circulating currency, then we say we have forex shortages," he added. He highlighted the structural challenges which the government is currently facing, including a ballooning fiscal deficit and huge domestic borrowing, saying they can only be solved by liberalising the exchange rate.
"It is clear that the 1:1 exchange is not sustainable and something has to be done about it .What if we liberalise this rate, float the exchange rate and allow it to flow? The authorities think that there will be runaway inflation and things will become uncontrollable, but l would push for a proposal to float the rate, but the money supply growth should be managed. I think the exchange rate will eventually find a certain level of equilibrium which could be marginally above the prevailing parallel market rate," Gundani said.
The currency issue continues to be a protracted crisis in the country after Finance minister Mthuli Ncube, who once publicly said joining South Africa's Multilateral Monetary Area could be a solution to Zimbabwe's currency crisis, is now agonising over currency reforms, as it dawned on him that his preferred choice is a herculean task, while a plethora of problems are standing in the way of other potential solutions.
The CZI is raising the red flag at a time when industry is struggling to secure raw materials, key towards sustaining their operations.
This also comes as Delta Corporation — Zimbabwe's biggest company by market capitalisation — was last week forced to reverse a decision to price its products in US dollars which it had sought to adopt as a survival strategy. The brewer says its business operations are on the brink.
Source - the independent
