Tobacco sales expected to pacify exchange rate

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THE commencement of the 2020 tobacco marketing season on Wednesday is expected to pacify the volatile exchange rate through the injection of fresh forex liquidity in the market.

— By Fidelity Mhlanga

The 2020 tobacco marketing season opened this week after a delay of over a month as authorities battle to contain the spread of the coronavirus.

“My take is that it should provide some respite to a distressed economy. But I am concerned about the general depressed prices of commodities,” said economist Prosper Chitambara.

Tobacco is one of the country’s top foreign currency earners and is key in providing liquidity for the importation of key essentials that include fuel, grain and raw materials.

“Rates will be affected after a month or so when the loans from the contract buyers have been paid off from the revenue earned from sales,” economist John Robertson said.

“The percentage of the crop still going through the auction floors is less than one fifth of the total, so the net revenue from sales to contract buyers will take time to make a difference to foreign exchange balances.”

The US dollar is currently trading at 1:50 to the Zimbabwe dollar on the parallel market and 1:25 at the interbank market.

Tobacco Association of Zimbabwe president George Seremwe said farmers were happy about retaining 50% of their tobacco earnings as free funds.

“On payment arrangements, farmers are happy with 50% free funds. Exchange rate for the other 50% has to improve, otherwise it’s a loss if prices do not improve. Many farmers are taking a wait and see approach,” Seremwe said.

Zimbabwe expects at least 230 million kilogrammes of tobacco this year from the record 259 million kg last year.