RBZ forex auction system overwhelmed

THE Reserve Bank of Zimbabwe (RBZ)'s foreign currency auction system is overwhelmed as it struggles to meet growing demand, leading to a two-month delay in payment of successful bids.

This has created a backlog of tens of millions of United States dollars, crippling the country's economic recovery.

The apex bank, however, insists there is sanity on the auction system with millions trickling back into the auction every week from mineral and tobacco exports and the forex surrender scheme.

The central bank indicated the banking sector was on solid ground with nostro balances breaching the US$1,7 billion mark this July.

Information at hand suggests that businesses, with accounts in foreign-owned banks, have been the most affected, given that the financial institutions have little flexibility without signatures from regional or global head offices to extend a host of facilities, including letters of credit and lines of credit, which act as some buffer in the event of delayed forex allocations.

Delayed disbursements, by at most three weeks, had become the order of the day with the central bank and its clients only becoming worried once it spills into the fourth week, but the situation has since escalated with some businesses on Tuesday making sensational claims they had been waiting to get allocations from winning bids of 13 weeks back.

Investigations over the past week showed corporates, including those listed on the Zimbabwe Stock Exchange, were still expecting to receive forex won over two months ago.

Information at hand also shows some players only received forex allocations for bids they won on May 25 in the first week of July.

Since then, they have not received any funds.

This has become an industry-wide concern with sources in the Confederation of Zimbabwe Industries (CZI) and the Zimbabwe National Chamber of Commerce (ZNCC) saying the forex allocation delays were crippling industry.

"We have all the documentation and it is not helpful to wait for 13 weeks," one tech company, which requested not to be named, said.

Another company, which also preferred anonymity, said: "Imagine you win a tender to supply laptops and you have to wait for two weeks for objections before the award is confirmed then you go to the auction the following week and you have to wait eight weeks to get the money to pay for the laptops. Maybe the price would have changed and you can't be competitive; that's why the black market is still active."

A manufacturing company said it was forced to buy forex from the black market to get raw materials to ensure constant supply of orders.

"What's the point pretending the auction system is working when it can't give us what we need? Why is the RBZ allocating US$46 million every week when the money is not available? They should just do even half of that and clear the backlog instead of pretending," a director with the manufacturing company said.

The CZI confirmed the backlog had worsened.

"I can confirm that some companies are facing that challenge. They are outstanding, maybe six weeks, some four weeks and all the way up to eight or nine weeks. It's different for every case and that is the correct position," CZI CEO Sekai Kuvarika said in a telephone interview on Wednesday.

At the time of going to print, ZNCC CEO Chris Mugaga had not responded to questions.

RBZ governor John Mangudya confirmed that there was a backlog, but insisted the delays were by far less than the nine weeks.

He said the delays were mostly with the "big" banks.

Mangudya said the RBZ and banks have put in place a financial intermediation structure to expunge the backlog of the forex auction allotments through the use by banks of a proportion of forex due to the RBZ under the forex surrender requirement for their customers and through support from the Exchequer Account by the government.

"Over and above these sources, banks are also meeting some of the backlog through the provision of letters of credit, especially for larger businesses. Some companies are also enjoying credit terms from their suppliers which is quite encouraging for continuity of business whilst the backlog is being settled," Mangudya said.

The backlog, he said, was concentrated at a few large banks that handle foreign currency given their large exporters' base, adding that there was no backlog on the small and medium enterprises (SMEs) forex auction system, which is funded within a week from the date of auction.

"Enhancing financial intermediation under these circumstances is therefore essential to leverage on the country's current foreign exchange nostro position of US$1,7 billion being held by banks," Mangudya said.

"What this means is that whilst the country has a forex backlog, it also has a long forex position which can easily be leveraged to close the backlog without necessarily waiting for new export proceeds like under the current position."

The central bank chief said problems with the auction system are at times a result of rent-seeking behaviour by some rogue participants.

For instance, Mangudya said, some players are using surrogate entities to source forex from the auction system thereby clogging the system.