aurora
Business Writer
Statutory Instrument 127 of 2021 (SI 127), which was put in place by Government in June this year had a negative impact on businesses’ ability to generate foreign currency, Business Weekly reports.
SI 127 was put in place by Government to provide for penalties against errant entities that were at the forefront of abusing the foreign exchange auction system to the detriment of the stability of the economy.
In promulgating SI 127, authorities were looking at ensuring that “the significant progress that the economy made since the introduction of the foreign exchange auction system in June 2020 continues on an unabated positive trajectory whilst at the same time protecting consumers and fostering compliance to engender fair play in the economy.”
However, on announcement and implementation, the statutory instrument had unintended consequences as reported by various business entities.
While the outcry that ensured forced the central bank to adjust modalities for compliance, damage had already been done.
In line with the recommendations from the business community on the need to continue to enhance stability in the economy, the apex bank agreed to limit SI 127 compliance “to outliers that wantonly abuse the foreign exchange auction system, exchange rate manipulation and non-compliance with anti-money laundering rules and regulations.”
However, this was not before companies that do not necessarily benefit from the auction system were affected.
The retail and distribution sector, for example, only got 8 percent of the total allotments from the forex auction system and according to the Confederation of Zimbabwe Retailers (CZR), this does not represent all the foreign currency utilised by retailers.
In its State of The Retail Sector report, CZR said in coming up with SI 127, authorities made “a lot of unrealistic assumptions.”
“The last month of the first half of the year also saw SI 127 being introduced. While the intentions of SI 127 were right in principle, by ensuring that those benefiting from the foreign exchange auction system are required to charge prices that reflect the official exchange rate; in practice, it however made a lot of unrealistic assumptions.
“The SI 127 legal instrument also tilted consumer behaviour to favour purchases in the local currency, which also affected the availability of foreign currency generated from trading to allow retail establishments to partially meet their obligations,” reads part of the CZR report.
Zimbabwe Stock Exchange listed entities also revealed the impact of SI 127 on their operations.
In its trading update for the quarter ended 30 June 2021, seed producer, Seed Co Limited said SI 127, may “impact the Group’s value preservation efforts negatively due to the difficulty in pricing its seed at sustainable levels.”
Also to raise concerns, was Amalgamated Regional Trading Holdings Limited (ART) which said the easing inflationary pressures in the country “were negatively affected by the adverse market response to SI 127 of 2021 which sought to put further regulations on foreign currency trading.
It was the same for Starafricacorporation which said “there were some adverse economic effects witnessed on promulgation of SI 127 in May 2021 when some industry players increased prices of United States Dollar denominated products and services to comply with the regulations without affecting enterprise profitability.”
Bongani Ndlovu