daniel chigunwe
Business Writer
One of Zimbabwe’s largest grain milling firms, National Foods, is among local institutions facing severe penalties after being caught abusing foreign exchange system, the Reserve Bank of Zimbabwe revealed yesterday.
The RBZ named and shamed 18 companies in a notice yesterday facing penalties for abusing the foreign exchange system.
RBZ governor Dr John Mangudya said in an interview after the publication of the notice that the foreign currency abuse differed extensively from one entity to another, but included sponsoring of shelf companies that misuse auction money as well as double dipping from the auction.
“The details of the abuse differ from one entity to another and range from sponsoring shelf companies to bidding for foreign currency from the auction system over the entity’s entitlement,” the RBZ Governor said.
Further, the central bank chief said the abuse also entailed transfer pricing, participating on the auction market without the requisite regulatory licences double dipping from the central bank run weekly auction system.
Dr Mangudya said the offenders will face the full wrath of the law now that there is a legal instrument, SI 127, which prescribes severe penalties for the offenders, whose actions have the net effect of driving economic instability.
Previously, the Governor said offenders got away with unlawful conduct because while the law was there, there was no instrument to operationalise it, which SI 127 now provides.
“SI 127 is about penalties. The law was there but there was no instrument to punish offenders. SI 127 was promulgated to provide penalties for offenders,” Dr Mangudya said.
While the bank has previously named and shamed companies that violate national laws, this did not have the desired effect as the offenders would still walk away scot free.
Under SI 127, businesses found on the wrong side of the law face penalties ranging from $50 000 to $1 million or a fine equivalent to the value of the foreign currency abused.
A brief background check of the culprits revealed that the majority are shelf companies, some of which are either serial offenders or have previously been convicted for other transgressions.
According to the list, headlined by Zimbabwe Stock Exchange listed National Foods, some firms caught offside are in the retail sector, milling, steel business and petroleum among other key sectors.
National Foods is one of Zimbabwe’s biggest food manufacturers. The company was established in 1920 and produces a broad range of basic foods including maize meal, flour, cooking oil, margarine, rice, salt, snacks, biscuits, pasta, sugar beans, baked beans, popcorn, as well as soap and a full range of animal feed.
The company has two major shareholders; Innscor Africa Limited 37.73 percent and Tiger Brands 37.45 percent The National Foods Workers Trust, which was established in 1985 by way of a donation, also owns 9.85 percent of the company.
Established in 1920, and producing big brands like Red Seal maize meal, Gloria self-raising flour and Pearlenta maize meal, National Foods has manufacturing sites in Harare, Bulawayo and Mutare from which it distributes its products throughout Zimbabwe.
Westville Investments, which is listed among the offenders named by RBZ, was once convicted in 2012 for breaching an advertising agreement and was made to pay nearly US$40 000.
Duo Valley Commodity Brokers, part of the entities named and shamed by the central bank last year, was caught in the dragnet of hundreds of firms and individuals that abused mobile phone lines to trade in forex. The central bank then ordered the closure of all the mobile phone lines of all the culprits involved.
Another offender, Flicknik Enterprises (Pvt) Ltd, is involved in wholesaling and retailing of groceries including cooking oil, rice and pastas and is a regular beneficiary of the auction.
Sources allege the majority of the companies exposed by the RBZ’s speculate extensively in forex including by getting auction money, raising overpriced invoices for imported commodities and selling at huge premiums in local currency.
The RBZ introduced weekly foreign currency auctions in June last year to allow businesses easy access to foreign currency.
The foreign currency auction system has been largely commended for price, exchange rate and stability as well as declining inflation. It has since emerged arguably the most sustainable source of foreign currency for many formal businesses.
Also among the companies caught on the wrong side of the law are Georgia Petroleum (Pvt) Ltd, Tettola Investments (Pvt) Ltd, Africa Steel (Pvt) Ltd, Faircclot Investments, GlenuLas Trading, Natural Stone Export Company, Nuvert Trading, Phirebrook Investments, Classic Energy, Clorex Energy, Explochem, Mutare Mart & Exchange, Souzcre Fuels and Kimya Investments.
“The bank has a duty of care to ensure 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.
“It is against these noble objectives that SI 127 was put in place 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,” Mangudya said in an earlier statement yesterday.
The central bank governor said the bank has held several engagements with business entities on the main import of SI 127, and they now fully appreciate its thrust.
It said in line with the recommendations from the business community on the need to continue to enhance stability in the economy, the bank’s efforts to foster compliance in terms of SI 127 will now be limited to “outliers that wantonly abuse the foreign exchange auction system, exchange rate manipulation and non-compliance with anti-money laundering rules and regulations.”
Bongani Ndlovu