Last week Zimbabwean authorities invoked the Presidential powers to enforce temporary regulations under the Statutory Instrument 127 of 2021 (SI 127 of 2021) which sets out offences and penalties associated with the infringement of the Exchange Control Act [Chapter 22:05].
In English; the purpose of the S.I is to ensure that those obtaining foreign exchange from the foreign currency auction system do not use parallel market rates. That’s according to the Reserve Bank of Zimbabwe (RBZ) anyway.
RBZ Governor Dr John Mangudya had earlier complained that companies were abusing the Foreign Currency Auction and wanted the central bank to be given more powers to penalize the culprits. As such, the latest regulation gives the RBZ the powers to punish those that abuse the foreign currency auction.
Penalties from SI 127 OF 2021
According to the instrument, you could get penalized for as much as ZWL$50,000 if you’re caught doing the following:
- Issuing of local currency receipt for a foreign currency purchase;
- Pricing goods and services above the ruling exchange rate;
- Pricing goods and services only in foreign currency;
- Using the money obtained from the Foreign Currency Auction for other purposes it was acquired for.
Comments From The Industrial Sector
Players in the industrial sector have given their thoughts on the latest amendment to the Exchange Control Act.
Confederation of Zimbabwe Industries (CZI) believes that SI 127 should be immediately suspended sighting unintended consequences foreseen by the business sector.
The membership organization says applying the SI gives an immediate spike in USD inflation.
“Companies have been relying on local US dollar sales to generate the bulk of foreign currency used to sustain operations. Use of the Auction rate would result in consumers converting their US dollars to ZWL on the parallel market prior to purchasing, a practice already rampant outside the major retail chains such as Pick n Pay, OK, and Bon Marche.”
“This will deprive companies of what has become their main source of foreign currency,” the organization says.
Could Shortages Be On The Horizon?
The CZI also says the move will increase the demand for foreign currency on the auction. As the RBZ becomes the only source of foreign currency in the absence of domestic sales in US dollars.
“Goods such as fuel are priced in USD and companies cannot bid for local payments at the auction. Inability to sell in US dollars locally will thus cause supply chain issues unless service stations are also compelled to sell fuel in ZWL at the prevailing Auction rate. Such a pronouncement however has led to fuel shortages in the past and thus is undesirable,” the organization says.
Is The SI 127 OF 2021 Implementable?
Zimbabwe National Chamber of Commerce (ZNCC), Chief Executive Officer (CEO) Chris Mugaga said the move to introduce SI 127 of 2021 should be a lesson.
The CEO said ZNCC has been calling for reform, review, revamp and realignment of the forex auction, and that the coming in of SI 127 2021 (Financial Laws Amendment) confirms why the organization believes the prevailing Auction Exchange rate is distorted.
“The Exchange rate is one of the most sensitive instrument. It can build or completely destroy market confidence alongside Interest rate policy. SI 127of 2021 is not implementable unless everyone had access to forex-auction,” Mugaga said on Twitter.
President of Zimbabwe Congress of Trade Unions (ZCTU) and General Secretary of Zimbabwe Banks and Allied Workers Union (ZIBAWU), Peter Mutasa added on.
“A government that colludes with capital to repress and exploit workers and the majority poor, will end up toppled by its business cronies. Workers tried in vain to show both government and business that the current economic policies are not sustainable,” he said.
