Industry frets over delayed Auction start

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Staff Writer

HARARE –   The Reserve Bank of Zimbabwe (RBZ) has deferred by up to a week the opening of the first foreign exchange auction  for 2022 to the 18th of January citing COVID-19 impact on submission of essential information to banks to carry necessary due diligence amid concerns by industry over the move that will prolong foreign currency supply.

COVID-19 cases peaked during the festive holidays but have been slightly easing since the New Year recording 16 deaths and 1121 new cases yesterday- below the 7-day rolling average for new cases which stood at 1 207.

“As a result, Authorized Dealers were not able to submit all the required information for the first auction of 2022, originally set for 11 January 2022,” said the RBZ in a statement.

“In order to give Authorized Dealers sufficient time to carry out the necessary due diligence and submit the required documentation, the first auction of 2022 will be held on 18 January 2022.”

The auction system has improved local companies’ access to foreign currency since its inception in June 2020.

According to the RBZ, between January and December 2021, about US$2 billion was allotted to 7 325 big and small business organizations through the foreign currency auction system.

The last auction was carried out on 14 December 2021 just before the onset of the festive holidays meaning it will be over a month without foreign currency supply to companies from the system.

In November, RBZ announced that all bids for foreign exchange shall be submitted through bidders’ respective bankers at least four business days before the date of the auction in order to give banks sufficient time to carry out the necessary due diligence.

The Central Bank had witnessed a significant increase in the number of bids submitted through the auction system averaging 2 000 per week.

However, the delay has dealt a huge blow to industry which is battling foreign currency shortages to meet its operations, including replenishing stocks which were depleted during the peak festive period.

The Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza told FinEx that the deferment of reopening of the foreign exchange auction system is a setback.

“Industry operates on a daily basis and the weekly auctions whilst ‘working’, are not the ideal solution… businesses need to get forex as and when the need arises. The opening of the auction on 18 Jan means the first month of 2022 is wasted/ gone unless an entity had adequate buffer,”

“The industry needs for a month have not been met and in addition, in a lot of cases there are backlogs. Hence this deferment is certainly not a welcome development for industry,” said Matsheza.

He said there is still a massive backlog in payment of allotted bids from previous year although there had been progress in clearing backlogs towards the end of 2021(last two months), these were building up again.

Matsheza said the absence of the auction system in the interim will also distort the price discovery process for the local currency.

“The other primary function of the auction was price discovery, which of course had derailed due to the distorted supply and demand situation there as can be attested by the bid settlement backlogs running several weeks at a time. This delay compounds the challenges around price discovery,”

The Weighted Average Rate for the ZWL at the close of the final auction last year was ZWL$ 108.67 against black market rate of ZWL$ 180 but currently the black market rate has moved up to ZWL$ 220 widening the mismatch.

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