A look into the incentives for exports and investment growth 'Exporting retention changes'

On the 10th of May 18, 2021, Hon Prof Mthuli Ncube published a statement on incentives for exports and investment growth, which changed the exporting companies' retention threshold. Prima facie, the blueprint improves the investor appetite and the investment outlook of exporting companies directly and Zimbabwe as an investment destination indirectly.  However, profitability and government intervention still play important factors in investment decisions. Within a period of approximately five years the political vicissitudes have led to frequent changes to compliance and regulation which is an important factor in investment decisions. Some statutory instruments which have seen the light of day were tweaked within 48 hours following outcry from the interpreters of the law and the economy. I still pose the question, 'Does the RBZ draft these statutory instruments independently or it allows for the political influence in the structuring of these policies?'.

The foreign currency retention policy has increased with exporting companies now exporting 100% of their proceeds. This has been celebrated by investors who are expected to respond positively to the news as expectances about exporting firms have improved. When the government introduced proceeds retention policy, it was received mixed feelings from the exporting firms who argued that greater proportion of their expenses where in foreign currency. Foreign currency has been a hedge against currency devaluation risk in Zimbabwe.
This has a direct effect on the foreign currency reserves which is expected to be crippled in the short run. However, the government is expected to have planned for unfavourable dig in the reserve. Export proceeds retention policy has been one of the contributors to the once depleted reserve. Its reduction could be fatal to the much depleted foreign currency reserve. This could be funded by foreign currency taxes but will this be enough? This also has potential of flooding the market which has serious economic outflows which saw ordinary citizens importing cars from around the world. The government has serious obligations to which require foreign currency reserves e.g. energy and food which have halted the economy in the past.

The policy has opened doors for a probe into lawful externalisation of funds. The externalisation of funds fiasco of 2018 that saw the government accuse over 100 companies, have not been forgotten. The companies who later proved without a reasonable doubt, adhered to the law yet they had channelled millions of US dollar outside the country. The much needed foreign currency could be channelled outside the country within the confines of the law as the past has taught us. Post 2017, the policy which led to the retention changes had been distributing foreign currency from the few exporting companies to the public funds used for basic commodities like gasoline.

The interbank market failed following its liquidity crisis whilst the exporting companies were earning exports proceeds. Some of these companies were accused of fuelling and bring about room for parallel market funding. The parallel market offers convenience and high market rates that are absurd and purposely higher than market rates. The parallel market is highly sensitive to fake news which is purposely spread to drive the market and to tweak economic blueprints.

Despite its loopholes, this incentive blueprint solidifies government efforts in fostering investment growth and stability. This is a necessary step towards fairly regulating exporting companies. Over regulating public limited companies has been disadvantaging export companies who face competition from abroad. Foreign Direct Investment has also been another phenomenon that has been directly affected by the economic policies.

Tryson G. Dube
Banking and Investment Management 'CBA-BIM'