Reserve Bank of Zimbabwe (RBZ) governor John Mangudya yesterday made moves to liberalise the foreign exchange market by announcing a raft of measures designed to buttress the narrative “Zimbabwe is open for business”.
BY NDAMU SANDU
The measures, include among others, enhancement of the nostro stabilisation facilities and ring-fencing of foreign exchange inflows, provision of investment guarantees to lure foreign investors, increasing tobacco and gold facilities, export incentives for horticulture, cotton, gold and macadamia, and establishment of an offshore financial services centre.
They also include the upward review of threshold for exports by individuals, purchasing of gold for value addition and issuance of diaspora tobacco and gold financing bonds.
Announcing the monetary policy statement, Mangudya said Zimbabwe has to capitalise on renewed confidence brought about by the new administration led by President Emmerson Mnangagwa by going back to basics to restore business confidence and foster discipline within the national economy.
He said the monetary policy statement “seeks to buttress” that by putting in place measures that gradually liberalise the foreign currency market in order to indicate that the country is indeed open for business.
Mangudya said supportive monetary and fiscal measures were essential to walk the talk under the nation-is-open-for-business narrative. He said the narrative calls for a dramatic change from the current “business as usual approach”.
Mangudya said RBZ was enhancing the nostro stabilisation facilities by $400 million, to provide assurances that “international remittances and individual foreign currency inflows received through normal banking channels are available for use when required by the owners.
The enhanced facilities, he said, were designed to meet the foreign exchange requirements for the importation of essential requirements that include fuel, medicines, electricity and cash imports among others. He said the nostro facilities would refine the operations of the Portfolio Investment Fund by ensuring that “all portfolio investment inflows are ring-fenced to meet portfolio investment outflows which shall be processed by giving priority to capital before capital appreciation (profits) and dividends.
“This measure is necessitated to augment the current $5 million that has been provided in the Fund as seed capital and to further provide assurances to investors that Zimbabwe is open for business,” Mangudya said.
The move comes at a time foreign investors on the stock market have been struggling to repatriate dividend proceeds, due to the prevailing foreign currency squeeze.
Mangudya said RBZ was working with the African Export-Import Bank to put in place a $1,5 billion facility earmarked for the provision of guarantees to investment coming into the country and for liquidity support. Of that amount, $1 billion is for investment guarantees and $500 million for liquidity support.
“Such guarantees and liquidity support are necessary to protect investors’ funds from country risk, and in doing so, enhancing investor confidence,” he said.
Mangudya said RBZ would sweat Real Time Gross Settlement System (RTGS) balances by deploying the funds to productive sectors of the economy to enhance exports.
“We need to ensure that we deploy RTGS productively to enhance exports. Last year we deployed $28 million to small sacral tobacco farmers. They will produce 44 million kg of tobacco. We have used $74 million to gold producers and they have increased gold production. We are using money that is lying idle to produce goods for exports,” he said.
Mangudya said in line with the tobacco finance order, deserving tobacco merchants shall be granted authority by RBZ to use RTGS money to purchase tobacco from the auction floors.
The RBZ boss said the foreign currency retention threshold for all services and products except gold, diamonds, platinum, chrome and tobacco remained at 100% of export receipts for exporters’ use in their business operations within an extended period of up to 14 days from the receipt fund. He increased the retention threshold for private-owned diamond firms, platinum and chrome producers to 35% from 20%.
He said the apex bank would issue diaspora tobacco and gold financing bonds to raise funding to increase output in the country’s two of the largest foreign currency earners.
Mangudya said the narrative “open for business” meant that Zimbabwe was prepared to embrace a paradigm shift to attract investors, both local and foreign.
“It calls for a dramatic change in the conduct of business from the business as usual approach,” he said.