Reserve Bank of Zimbabwe (RBZ) is now exercising its powers granted through the Statutory Instrument 127 (SI 127) to penalize 18 companies for abusing the foreign exchange auction system.
The government gazetted SI 127 gave the Central bank powers to penalize companies after an outcry by RBZ Governor John Mangudya that the monetary institution was toothless against those that abuse the exchange auction.
Mangudya in a press statement says the Financial Intelligence Unit (FIU) and the Bank’s Exchange Control Division have been investigating the targeted companies.
“The bank has a duty of care to ensure that the significant progress that the significant 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,” he said.
“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.”
Response to The Penalisation of Companies
Commenting after the latest developments, Zimbabwe National Chamber of Commerce (ZNCC), Chief Executive Officer (CEO) Chris Mugaga said if the foreign exchange auction sends wrong price signals, the SI is bound to be fought.
He also said ZNCC’s preoccupation is not on how to comply with SI 127 but rather on how to model an auction around free-market ethos.
“To abusers of forex, let the law take its course ……We will not promote pillaging of the precious commodity ….. however with free markets, there won’t be an incentive to abuse the forex by these players,” Mugaga said.
The ZNCC CEO also said Zimbabwe should shun ‘commodifying’ foreign currency through an arbitrary exchange rate for competitive bidding to thrive. Whilst the parallel markets rate the US: ZWL at 1: 120 the RBZ auction system insists on around 1:83.
View of the Business Sector Towards SI 127
SI 127 has not been very popular amongst leaders in the business sector who demand the government to consult before creating laws.
Confederation of Zimbabwe Industries (CZI) has been calling upon the government to suspend the statutory instrument citing unintended consequences foreseen by the business sector.
President of Zimbabwe Congress of Trade Unions (ZCTU), Peter Mutasa said “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,”
Mugaga said SI 127of 2021 is not implementable unless everyone had access to forex-auction.
RBZ-Business Sector Engagement
Mangudya however said that the central bank has engaged a number of business associations and entities to discuss modalities of compliance with SI 127.
The Governor added that the engagements in the past two weeks have culminated in business’ clearer understanding of the essence of SI 127.
“Going forward and 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 shall 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,” he said.
The central bank claims to also have received feedback from the business associations during the consultations.
Entities facing penalties include National Foods (Pvt) Ltd, Africa Steel (Pvt) Ltd, Westville Investments (Pvt) Ltd, and Explochem amongst other companies.
