Forex auction bolsters productive sector

Oliver Kazunga, Senior Business Reporter
THE Reserve Bank of Zimbabwe (RBZ) says US$32,1 million out of a total of US$71,1 million so far traded at the Foreign Currency Auction has gone towards the procurement of raw materials and packaging material for the productive sector.

Last month, the Central Bank introduced the weekly forex auction system replacing the fixed exchange rate as part of measures to bring about transparency and efficiency in the forex trading.

RBZ Governor Dr John Mangudya said the auction system has been able to achieve its core purpose of stabilising prices and enhancing transparency in the management of foreign exchange.

“To date, a total amount of US$71,1 million has been traded on the Foreign Exchange Auction, with the number of bids increasing from 92 at the commencement on 23 June to 290 bids received on the recent auction on 21 July 2020. Funds allotted were mainly utilised for productive sector import requirements including procurement of raw materials and packaging (US$32,1 million), machinery, plant, equipment and spares (US$18,2 million) procurement of medicines, chemicals and consumer goods (US$16,5 million) and services (US$4,3 million),” he said in a statement.

Dr Mangudya said priority would continue to be given to productive sector imports while service and capital payments will be restricted to no more than 20 percent of auction allotments.

He said bids for funding legacy foreign exchange obligations and/or blocked funds will not be eligible.

“A payment plan to expunge blocked funds is being developed and will be advised in due course.

“Individuals and entities with adequately funded foreign currency accounts (domestic or foreign Nostro) are also not eligible to participate in the auction,” said Dr Mangudya.

The RBZ boss said while a significant number of bidders have complied with the Foreign Exchange Auction Rules, a few have been found wanting for various reasons ranging from failure to abide by Exchange Control Regulations and failure to disclose to their bankers their foreign currency account balances, especially by multi-banked entities.

“It is against this context that, going forward, all bidders are required to sign a declaration of compliance with the Foreign Exchange Auction Rules.

“Failure to make the declaration and false declaration will result in penalties including bid rejection,” said Dr Mangudya.

He said banks should continue to conduct Customer Due Diligence (CDD) to ensure that funds are used for permissible and legitimate transactions and to adhere to Know Your Customer (KYC) principles to safeguard the integrity of both the Foreign Exchange Auction System and the banking system as a whole.

Meanwhile, Dr Mangudya reminded individuals and entities to bank cash received from the sale or provision of goods and services as required by the Bank Use Promotion Act [Chapter 24:24].

He said the requirement to bank cash extends to foreign currency received in respect of sale or provision of goods and services.

“Banking of cash will enhance circulation of money within the economy,” he said.

Turning to the sale of petroleum products, Dr Mangudya said oil marketing companies and retailers of petroleum products are also required to display, quote or offer prices for petroleum products in Zimbabwe dollar and in foreign currency as required by law.

All foreign currency realised from the sale of petroleum products should be banked in the domestic foreign currency accounts, which shall be subject to monitoring by the RBZ’s Exchange Control Division and the Financial Intelligence Unit.

“Banking of sales proceeds will assist the efficient replenishment of petroleum products in the market,” he said. — @okazunga