Since business do not want to seem to be fighting government even when the very government is offside, as expected, most of the formal sector took the new legal instrument empowering the Reserve Bank of Zimbabwe (RBZ).The RBZ has been empowered to impose penalties on traders abusing foreign currency obtained through the weekly foreign currency auctions in their stride as they were already compliant with previous directives and tax laws and did not have to make any changes to pricing.
Nevertheless it is a question of semantics because the same business is giving the government with the left and taking with the right as they are not fully compliant as government may want us to believe.Prices skyrocketed after this instrument animal was shoved down the throats of business.
Speaking to TechnoMag’s Ross Moyo, Confederation of Zimbabwe Retailers President Mr denford Mutashu said ”THE STATUTORY INSTRUMENT 127 OF 2021 HAS RATTLED THE MARKET AND SO FAR FROM THE PRELIMINARY ASSESSMENTS THAT THE CONFEDERATION OF ZIMBABWE RETAILERS HAS DONE IT SHOWS THAT THE GENERAL PRICE OF. GOODS AND SERVICES HAVE SIGNIFICANTLY SHOT UP BY A WIDER MARGIN OF BETWEEN 50 AND 100 PERCENT.AH WE ALSO IDENTIFY THAT CLOTHING APPARELS, ELECTRICALS, BASIC COMMODITIES, NON BASIC COMMODITIES, ESSENTIAL AND NON ESSENTIAL COMMODITIES, HARDWARE GOODS AND GENERAL SERVICES JUST SHOT UP AND I THINK IT IS A MARKET THAT HAS BEEN RATTLED TRYING TO FIND ITS WAY BACK TO NOMARLCY. ”
The new statutory instrument basically converts the previous policy directives into law to allow action against those refusing to co-operate.
Under Statutory Instrument 127 of 2021, gazetted under Presidential Powers (Temporary Measures) (Financial Laws Amendment) Regulations, penalties are now imposed for issuing of local currency receipt for a foreign currency purchase, pricing goods and services above the ruling exchange rate, pricing of goods and services only in foreign currency and using the money obtained from the auctions for other purposes than what the supporting invoices on the bid stated.
Banks are now expected to do their job since they are liable for failure to verify information submitted by their clients.However, tax laws already compelled businesses to keep separate books for transactions in each currency used so they could pay the required percentages of their total tax liability at the same percentages each currency was used in transactions.
Denford Mutashu went on to say ”WE JUST HOPING THAT THE TWO WEEKS GRACE PERIOD THAT HAS BEEN GIVEN BY GOVERNMENT SHOULD THEN DEFINITELY BE USED TO ASSESS THE REACTIONS AND THE IMPACT THAT THE POLICY HAS HAD BUT SUFFICE TO SAY ITS VERY UNFORTUNATE THAT THE POLICY HAS COME THROUGH AND RATTLED THE MARKET WITH SUCH SIGNIFICANCE.”
And many of the larger formal retail businesses simplified this by having separate tills for each currency, although others simply entered a code when using foreign currency to ensure the right currency was recorded in their financial system and the receipt reflected the currency used.
All supermarkets and other businesses that mark prices in local currency but which accept foreign currency have been displaying the auction rate, down to four decimal places, in their stores and since they do little direct importing were quite happy to use the auction rate.
However, there were businesses using different exchange rates sometimes because they were selling imported goods that were not on the priority lists, and so could not be funded through auction bids, or because they were greedy and lied that they were not using auction money.
Mr Mutashu said ”’GIVEN THE BACKGROUND OF NEAR STABILITY THAT WE WERE PUSHING TOWARDS AS FAR AS WORKING TOWARDS THE EXCHANGE RATE CONVERGANCE BETWEEN THE AUCTION SYSTEM EXCHANGE RATE AND OF CAUSE THE PARALLEL MARKET EXCHANGE RATE AND THAT ALSO HAD BEEN QUITE SIGNIFICANT.”
There was little, until the new regulations, that the Reserve Bank of Zimbabwe could do except bar them from the auctions, but most of these businesses were not primary importers, buying from wholesalers who were the importers who had been doing the bidding.
That loophole is now closed. If your imports are bought using auction funds then your whole costing set up must use the auction rate, even if you bid on the high side, and if you fail to do this you can face financial penalties.
The previously compliant businesses, such as major retailers and supermarkets, were continuing without any change in their business practices as they have been complaint for a long time.
A survey conducted yesterday in Harare, Beitbridge, Chinhoyi, Masvingo, Gweru and Kwekwe, Bindura, Marondera and Kariba showed prices were continuing to reflect the official rate of close on 1:84 in supermarkets such as OK, Pick n Pay, N Richards, and in major chain stores such as TV Sales and Home.
These are the sort of outlets that were already compliant. But in reality the Zimdollar price is usually not what meets the eye.
Mutashu further added that ”BECAUSE WE SAW EVEN INFLATION COMING DOWN OWING TO THE SLOW DOWN OF THE RATE AT WHICH PRICES OF GOODS AND SERVICES ESPECIALLY BASICS HAVE BEEN GOING UP.”
IT ACTUALLY DECLINED QUITE TREMENDOUSLY OWING TO THE STABILITY ALSO THAT WE SAW ON PRICES OF OUR MAJOR 17 BASIC COMMODITIES ACROSS THE COUNTRY.”
”AND EVEN AVAILABILITY OF THOSE GOODS HAD BEEN ASSURED AND WE ACTUALLY HAVE BEEN WORKING WITH OUR MANUFACTURERS AND PRODUCERS AND SUPPLIERS TO ENSURE THAT THOSE 17 KEY BASIC COMMODITIES ESSENTIALS AND NON ESSENTIALS COMMODITIES ARE READILY AVAILABLE.”
But most pharmacies were now using the auction rate. There have been growing complaints that while pharmaceuticals were a major item each week on the auction bids, a number of pharmacies were using the black market rate or at least something like 100:1.
This is a sector where more change is expected.
At most shops visited in Beitbridge town yesterday, prices of goods were displayed in United States dollars, South African rands and RTGS, and dedicated pay-points have also been created to accommodate customers paying in a specific currency of trade.
Mr Mutashu went on to say ”THAT MERE EQUILIBRIUM IS SOMETHING THAT HAS ALREADY BEEN RATTLED BY THE POLICY.THERE HAS NOT BEEN A SUPPORT SYSTEM FROM THE GOVERNMENT SIDE TO COME THROUGH AND HELP UNPACK THE POLICY.GOVERNMENT JUST THREW THE POLICY, IT HIT THE MARKET.ITS A CASE OF THE PROVERBIAL CAT THROWN AMONGST THE PEGIONS AND THAT IS EXACTLY HOW THE M,ARKLET HAS REACTED.”
In Chinhoyi, most large formal businesses were continuing as usual because they were already compliant. But some informal traders including boutiques and hardware outlets had not complied arguing that they were not accessing foreign currency from the auction system.
Police spokesperson, Inspector Margaret Chitove said teams have since been deployed to monitor compliance.
In Masvingo, while most huge corporates were complying there was a call to authorities to make the legislation clearer particularly on whether the legislation applied to everyone or only those who were obtaining hard currency from the auction floor.
In Gweru and Kwekwe businesses had complied and a brief survey conducted established that in most shops the auction rate was being used.
In some supermarkets, there was still confusion with till operators declining payments in forex in favour of payments in mobile money platforms.He ended by saying ”with a lot of uncertainity and anxiety growing amongst and within the business community.And it is also the lack of engangement by government that is very worrying.We actually advice and encourage government to engage appropriately and also quite extensively and intensely before such policy and measures are actually unravelled.”
In Bindura and Marondera, some huge shops were declining United States dollars, worried about the legislation until they knew more.
Economic analysts spoken to said the legal instrument would give impetus on economic growth as it seeks to leave no one behind including the vulnerable but cautioned Government to continue monitoring its implementation for it to realise intended objectives.
Analyst Mr Percy Gwanyanya said the legal instrument was noble in that it was meant to protect the poor and economically vulnerable who most of the time are at the mercy of those financially strong.
The instrument, said Mr Gwanyanya is meant to nip arbitrage behaviour by some unscrupulous businesses who would have accessed foreign currency from the central bank auction system.
He said while the SI targeted those accessing hard currency from the auction system, economic benefits accruing would be felt across sectors of the economy.
“The RBZ is saying we need some order in the market particularly those who access foreign currency from the auction system and the benefits from the auction system has been accruing in the economy and I cannot think of any better way to help the vulnerable,” said Mr Gwanyanya.
“Benefits of the auction system are now beginning to be felt particularly in the agricultural sector like maize, soya and beans, prices have started to fall largely reflecting the benefit of accessing money by different corporates. A greater part of traders have been adjusting prices in line with the auction,” he said.
Mr Gwanyanya said reduction of prices will inevitably have a bearing in containing the inflation rate thereby helping in achieving Government economic targets as the marketing will be self correcting.
Confederation of Zimbabwe Retailers (CZR) president Mr Denford Mutashu implored firms accessing foreign currency through the auction system to lead by example in complying with the legal instrument.
“Those accessing forex from the auction market should take the lead on compliance and avoid engaging in arbitrage activities,” said Mr Mutashu.
“The SI rattled the market and business is busy trying to reconfigure their operating systems to comply with the new S.I 127. CZR unfortunately observes a wave of price increases on the market from basic commodities to non-essential products as interpretation of the policy was left for the open market,” he said.
Zimbabwe Coalition of Debt and Development (Zimcodd) commended the legislation saying it helped in ensuring that foreign exchange accessed on the auction floor was put to good use.
“Zimcodd commends the move to exercise strict monitoring of foreign currency recipients on the weekly auction system to ensure that the foreign currency is put to proper and intended use. In the same vein, perpetrators in illicit dealings in foreign currency should be prosecuted and blacklisted from benefiting from the auction system,” said Zimcodd in a statement.
It however, cautioned Government to ensure that the legislation did not create inequalities given that the economy was largely informalised and there were many traders who did not have access to auction hard currency.
While most registered businesses continue to operate normally after the Government gazetted new regulations penalising errant operators that abuse forex, it emerged registered entities only account for roughly 30 percent of enterprises in the economy.
This means any solutions the Government may prescribe to address violations of the law on the usage of foreign currency, including from the auction, will need to bring on board the informal sector and entities that do not meet the criteria for auction funds.
Business leaders of registered entities said they were prepared to comply with the new regulations introduced by Government, but pointed out that compliance may be a challenge as long as disparities remain between the official and parallel market exchange rate.
The new provisions, contained in statutory instrument 127 of 2021, empowers the Reserve Bank of Zimbabwe (RBZ) to impose civil penalties on traders or businesses that abuse, directly or indirectly, any foreign currency obtained from the auction.
Under SI 127 of 2021, gazette under Presidential Powers (Temporary measures) (Finance Laws Amendment) Regulations, civil penalties are now imposed for issuing of local currency receipts for forex purchases, pricing goods and services above the auction rate, pricing exclusively in hard currency, and using funds from the auction other than the purposes originally intended.
In terms of the new regulations, traders or businesses may face a civil penalty of up to $1 million (Zimbabwe dollars) for abusing foreign currency or any of the offences listed in the latest legal provisions.
Those found guilty of infringing Exchange Control regulations, will be slapped with a fixed penalty of the amount of one million Zimbabwe dollars or an amount equivalent to the value of the foreign currency obtained (whichever is the greater amount). Offenders will, however, be given 48 hours, from the date of its issuance to show cause why the penalty order should not have been issued, that is to say, to show that the order to penalise was issued in error.
Confederation of Zimbabwe Industries (CZI) president Henry Ruzvidzo, said formal business enterprises are ready to comply with new regulations, but implored authorities to address the gaping disparity between the auction exchange rate and parallel market rate.
He warned compliance could become a big challenge if the gap between the ruling ($84) and open market rates remains or continues to widen. Currently the exchange rate disparity stands at around 25 percent.
“They should focus on what is causing the disparity. They should look at how we can reduce the significance of the parallel market rate so that the official rate is what is used in the whole economy,” he said.
Mr Ruzvidzo said while formal enterprises obtain foreign currency from the auction, they still incur a significant portion of their costs through inputs from the local market where prices are inflated by the parallel market rate.
Market watchers have indicated that the new regulations may see some business entities unjustifiably raising the US dollar prices to comply with the requirement for Zimbabwe dollar prices to follow the ruling auction rate.
This would, however, make locally produced goods less competitive on the market compared to imports, which would create a stampede for forex to import, creating further forex demand pressures.
Retailers association of Zimbabwe (CZR) president Denford Mutashu said registered retailers and wholesalers had continued to operate as they had been doing using the ruling auction market exchange rate.
He, however, pointed out that the challenge pertained to the fact that those who may willingly comply constitute only about 30 percent of total enterprises in the country with the bulk either operating informally or being businesses or traders that do not use the auction.
“We have 65-70 percent that do not participate on the auction; they source their own foreign currency from the underworld; so much is happening in the informal sector,” Mr Mutashu said in an interview