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Tobacco cash flows fail to improve liquidity

by Staff reporter
14 May 2018 at 07:55hrs | Views
Foreign currency raised from this year's tobacco sales has not improved Zimbabwe's liquidity position because of the significant increase in the fuel import bill caused by a hike in international oil prices, a securities firm has said.

An April snapshot from the IH Securities survey shows that while the tobacco selling season, which commenced on March 21, is now in full swing, there has been no respite to biting forex shortages.

"The tobacco sales season, which was expected to inject significant forex liquidity, is now in full swing," IH says.

"However, expectations of significant forex income from tobacco sales have since dissipated as demand for forex in 2018 seems generally higher with increased oil prices signifying a relatively larger fuel import bill."

Tobacco earnings were expected to help Zimbabwe to earn more foreign currency and ease pressure on the nostro accounts crisis.

Zimbabwe's cash situation has not improved despite the opening of the tobacco auction floors and banks have been dispensing mostly coins.

Statistics from the tobacco regulator shows that as of day 31 of the floors opening, tobacco valued at $262,6 million had been bought with 91,5 million kg of the golden leaf having been delivered to the floors.

This was higher than the $230,8 million attained during the same period last year from 83,2 million kg of tobacco delivered.

Confederation of Zimbabwe Industries president Sifelani Jabangwe said the impact of tobacco sales had not been felt in the economy.

"The biggest challenge is that there is an increased appetite for forex from companies this time around due to increased industrial activity reflected in the first quarter Zimra (Zimbabwe Revenue Authority) revenue collection report," he said.

"And also because of the existing forex backlog, we don't think we have really felt the impact of foreign currency coming through tobacco sales.

"There is still a lot of pain in terms of accessing foreign currency.

"We don't expect the situation to change within a month because the forex payment backlog had been hovering around $600 million before the start of the season."

The manufacturing sector is the biggest forex consumer yet it accounts for only 5% of exports.

Zimbabwe National Chamber of Commerce CEO Christopher Mugaga said the economy was saddled by a huge current account deficit.

"Tobacco proceeds can't have the impact in the long run because of the unsustainable current account and monetary regime fragility," he said.

"We can also not rely on tobacco, gold and platinum proceeds because they can only hold this economy to a certain extent.

"We should also look at foreign direct investment (FDI), which is very low at the moment. People confuse pledges and real FDI."

Labour and Research Institute of Zimbabwe economist Prosper Chitambara weighed in, saying this year's tobacco season had not eased the liquidity crisis.

"That's a correct assessment. We have witnessed a rise in the fuel prices," he said.

"The government is allocating more forex for fuel importation. "So the country is not benefiting from the tobacco marketing season."

Chitambara said the international oil price increases were an indication of global economic expansion, adding that Zimbabwe could benefit in terms of increased exports.

"The international oil price increases show that the global economy is growing because oil prices are a barometer for the soundness of the global economy," he said.

"Zimbabwe will benefit in terms of exports of some of our products although it may be counteracted by import bills as a result of the high cost of importing fuel."

According to infomine.com, oil prices rose from $68 per barrel on April 6 to $75,68 as of May 8.

However, economist Clemence Machadu said fuel imports did not eat much into the forex earned from tobacco sales.

"Well, that has to be contextualised in terms of impact, but I doubt it is really that material," he said.

"If you look at diesel and petrol imports for February and March, you will see that there was an 8,8% increase in the import bill for these two commodities from $216 million last year to $235 million this year.

"There was an increase of $19 million, but we should also understand that tobacco prices have relatively firmed this year, especially for lowest prices, meaning that tobacco revenue has also grown relatively compared to last year.

"Maybe more data will be required to make an objective deduction because we are yet to get fuel import data for the month of April."

Source - zimpapers