The country still lacks a transparent formal foreign exchange market that responds smoothly to supply and demand for foreign exchange, the Confederation of Zimbabwe Industries (CZI) said.
Of late, there has been a great concern about the widening gap between the official and parallel market exchange rate. On the black market the local currency is trading at around ZWL$180x per US dollar while the official rate is ZWL$88.55. Its recent drop in value has fueled inflation, with businesses raising prices to hedge against currency volatility.
“After starting well, the Dutch foreign auction in Zimbabwe has now been distorted by a lagging supply stretching over 15 weeks in some instances. This has added to the pressure on foreign exchange that was already very high because of the large payments to farmers and contractors,” stated CZI in its currency situation and recommendations for an urgent action report.
It said these factors are the main drivers of the widening parallel market premium.
“With this widening premium arbitrage, distortions and inflation pressures are entrenching. This has also increased preference for the USD among economic agents making the ZWL$ vulnerable and the inflation environment precarious.”
The extended backlog discourages players that have genuine need for foreign currency, CZI said, and cannot afford to wait for six weeks while those that are importing simply due to the existence of cheap foreign currency do not mind waiting to get their bids honored, even though they have resources tied down during the waiting period.
CZI revealed that the foreign currency auction is now attracting foreign currency demand that would normally not have been there, simply due to the perception that the foreign currency is cheap.
“It is now profitable to import products rather than producing and sourcing locally due to the exchange rate distortions that have emerged from the auction market.
“The same phenomenon is being observed at the bureaus de change with artificial demand for foreign currency both for local use (the US$50s) as well as for travel allowances (US$500) now being the norm,” it said.
Supportive measures needed
- – Temporary reduction of the total amount to be allocated at the auction market to about $25 million or less over the next three weeks while clearing the Auction backlog
- – Adopt a first in first out (FIFO) method in clearing the backlog. In the interest of fairness, those bids that have been waiting in the queue for longer should be settled first before new bids as a way of enhancing confidence among all the players in the market
- – Communicating the amount available for Auction beforehand (say 24 hours before)
- Settling winning bids within 48-72 hours (T+3). This will not be difficult once the auction is based on the declared available amounts.
- – Further tightening of monetary policy – the RBZ has already indicated that monetary policy will be further tightened and this is a vital additional measure to support the other measures that the RBZ has committed to taking.
- – Recommend the broadening of the monetary targeting framework to incorporate the domestic portion of M3 as well as the current Reserve Money targeting framework.
Meanwhile, at Monday’s close, the All Share Index was 2.14% higher to 9,774.81pts. The Top 10 Index gained the most after it closed 2.59% up to 5,880.80pts buoyed by Simbisa and Delta although a loss was recorded in Meikles of 2.11% to ZWL$114.9600.
Quick service restaurant provider Simbisa Brands led the risers gaining 12.33% to ZWL$90.0005 and left its year to date gain at 581.70%. Beverage maker Delta was 6.18% higher to ZWL$123.1326.
Telecoms giant Econet, which advises shareholders of the twenty-third annual general meeting at the end of the month, rose 0.26% to ZWL$62.6161.
Among the mid-tier caps, Dairibord put on 10.47% to ZWL$41.9794. Nampak was up a marginal 9.09% to ZWL$12.0000. The Medium Cap Index was up 1.31% to 20,952.96pts.
Brick maker Willdale was the worst performer after plunging 4.42% to ZWL$4.1997. Other losses on the price sheet were seen in Proplastics which lost 3.98% to ZWL$26.8372 and NMBZ eased 3.45% to ZWL$14.0000.
African Sun, which reviewed the offer’s terms to the holders of the remaining shares in Dawn Properties and the drag along and tag along process, fell 1.14% to ZWL$10.7919 and completed the top five losers set.
The Small Cap Index advanced 0.44% to 260,295.08pts. Media group Zimpapers added 4.71% to ZWL$2.7400.
Fidelity gained 0.73% to ZWL$8.0591. The listed insurance concern doubled net premium written in inflation adjusted terms to ZWL$441.0 million in HY2021 largely to responsible reviews of recurring premiums, new business acquisition and organic growth from the existing book.
Total income (including investment income) in inflation adjusted terms declined by 67% to ZWL$933.8 million due to insignificant fair value adjustments on investment property and equities. It did not declare a dividend.
In its outlook, Fidelity will focus on adopting an investment strategy focusing on real growth, a scrupulous selection of USD generating markets and diversifying into the SADC region.
Turnover reached ZWL$937.74 million with 13.15 million shares traded in 416 trades.-HARARE