There has been a lot of chaos and a flurry of activity in the wake of Statutory 127 of 2021. I have also seen a lot of arguments being thrown around as people justify and castigate the law. One argument put forth by those arguing for the law is that those who have been receiving money from the RBZ auction have been turning around and selling it at black market rates. Another popular argument is that the RBZ provides the bulk of foreign currency that is used for imports.
Does the RBZ contribute the bulk of foreign currency?
Again this is what a lot of people including the government itself claim. Is it true though? It’s hard to say but tentative evidence suggests this is not true. According to figures put forth by popular economic commentator going by the handle baba_nyenyedzi and data published by the Reserve Bank of Zimbabwe itself, Zimbabwe has an annual import bill of about US$6 billion. This means each year we import merchandise and services worth about US$ 6 billion.
On the other hand, the RBZ’s auction will provide between US$1.3-US$1.8 billion in foreign currency each year based on what we have seen so far. The amount allocated each week varies depending on what’s needed and what is available. Available foreign currency is divvied up according to the RBZ’s foreign currency prioritisation goals. This is biased towards those entities that are in the production sector. This is done so as to boost productivity and hopefully reduce the import bill.
Quick calculations show that there is a massive shortfall. The money that comes from the RBZ barely covers 30% of the import bill. So where does the other money come from? Logic suggests that it has to come from those so-called free funds. The temptation would be to say 70% of the import bill is covered by the black market. That is strictly speaking not true. Not all free funds are traded on the black market.
The RBZ allows businesses that export to keep some of their proceeds and utilise these. Those who receive remittances from outside Zimbabwe are also allowed to keep that money as it is. Also businesses are allowed to sell in foreign currency and thanks to discounts that they were offering a lot of customers paid in foreign currency before the new law. Money does also change hands on the black market and even when businesses received funds from customers it was at black market rates.
The black market by its nature does not lend itself easily to study. It’s elusive, deep, dark and its full extend unknown. What we can only establish is that free funds and not the RBZ are the major source of foreign currency in the economy. Apart from cases where retained funds are used to import, the bulk of free funds are exchanged at market rates and not the official rate.
The RBZ is not the main source of foreign currency in the economy
We cannot say how big the black market is or whether it is bigger than the auction. What we can state for certain is the RBZ is not the main source of foreign currency when it comes to imports. Their contribution based on data available is less than 30%. It therefore doesn’t seem fair to ask everyone else (the 70%) to base their calculations based on the “official rate” when the rate has no bearing whatsoever to the cost they incurred in acquiring the foreign currency they used.
I must hasten to say it does make sense for those who obtain foreign currency from the RBZ to use the rate at which they obtained the foreign currency when doing their costing operations. This is where I must point out that the official rate doesn’t apply here either! The RBZ uses the Dutch auction system. This means that in most instances no one obtains their foreign currency at the “official rate”. Some pay below and some above this rate. Again there is no logical sense to force businesses to use the “official rate”. Businesses should be compelled to use the rate at which they obtained their foreign currency be it above or below the average weekly rate which is often peddled as the “official rate”.
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