Zimbabwe puts forex dealers under the whip

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Zimbabwe puts forex dealers under the whip

7:26 CAT | 07 Jun 2016

Reuters / Central bank governor John Mangudya

Zimbabwe’s central bank threatened to cancel the licences of banks and foreign currency dealers found to have violated new exchange control regulations aimed at easing a dollar shortage.

The Reserve Bank of Zimbabwe last week sent a directive changing the way banks and other authorised foreign currency dealers are required to handle export earnings.

The new measures offer an incentive for companies to export their products, according to a copy of the circular obtained by Bloomberg News and confirmed by the central bank.

The regulator also plans to bolster compliance monitoring systems to ensure adherence to the rules, the circular says.

Zimbabwe, which abandoned its own currency in 2009 because of hyperinflation, trades mainly in US dollars, with the rand and euro also used.

Lenders limited cash withdrawals from ATMs last month as the country’s ailing economy caused supplies of the greenback to evaporate.

Zimbabwe also introduced so-called bond notes, which will be equal in value to the dollar, while drawing up a priority list of what can be imported into the country using foreign currency.

“Penalties shall be imposed on those authorised dealers that fail to comply,” the central bank’s directive says. The regulator “will not hesitate to withdraw authorised dealership licences”.

Export incentive

In terms of the rules, half of all proceeds from the sale of platinum, ferrochrome and other minerals will be transferred to the central bank’s offshore account, the central bank said.

The regulator will then immediately transfer the equivalent amount into the authorised dealer’s account for the exporter, while an incentive equal to 5% of the proceeds will be credited to another account set up on behalf of the exporting company.

The rules are being applied “to gradually adhere to the principle of 75% local content by the resource-based sectors of the economy and in order for the economy to benefit from the liquidity derived from the export of its natural resources”, the central bank said.

Zimbabwe, a $14bn economy for which mining is the biggest source of foreign currency, has the world’s biggest platinum reserves after SA, as well as chrome, gold and iron ore.

Lenders operating in the country include units of London-based Barclays and Standard Chartered, as well as those of Johannesburg-based Standard Bank and Nedbank.

Land invasions

Tobacco merchants who draw on their offshore facilities to finance purchases and production will have to transfer 80% of the funds to the central bank’s foreign account, which then immediately deposits the equivalent amount with the authorised dealer. The remaining 20% will remain in an offshore account of the authorised dealer, the central bank said.

Zimbabwe was the world’s second-biggest tobacco exporter and also sold maize, paprika and cut roses to foreign buyers in 2000 — the year that marked the start of land invasions that slashed export income, and caused famines and an economic and political crisis in which gross domestic product more than halved.

Authorised dealers will also retain all of the export proceeds in their offshore accounts for other industries in the economy, ranging from manufacturing and agriculture to telecommunications and transport, the central bank said.

The regulator will then remit 50% of the proceeds sent to its account abroad to the exporting company’s overseas bank, it said.

The Reserve Bank of Zimbabwe was also scheduled to start an interbank foreign-currency committee this month, which it will head to ensure “transparency and efficiency in the distribution and management of foreign-exchange resources”, according to the circular.

The regulator plans to put in place “an enhanced compliance monitoring framework” and will reconfigure its compliance systems to take account of the new exchange-rate policies, it said.

Source: Bloomberg