THE Reserve Bank of Zimbabwe (RBZ) yesterday escalated plans to punish “outliers” including listed milling giant, National Foods, which it said were “abusing” foreign currency acquired through the auction system.
The central bank named 18 companies which allegedly abused the foreign currency auction system under the recently promulgated Statutory Instrument (SI) 127 of 2021.
SI 127 of 2021 prohibits business operators from charging above the official exchange rate and empowers authorities to punish those that refuse to accept the Zimbabwe dollar for local transactions.
Food processing giant, National Foods, Georgia Petroleum, AfricaSteel and several fuel companies were among the errant businesses said to be abusing the forex facility.
SI 127 of 2021 imposes fines of up to $1 million on firms found guilty of manipulating the auction system and abusing foreign currency.
According to the SI, companies are liable for a fine of $50 000 or its equivalent in foreign currency for refusing to take payment in local currency at the official exchange rate.
Firms will be fined $5 million for supplying false information to their banks when applying for foreign currency at the RBZ auction.
A $50 000 penalty will also be levied on anyone selling goods at a rate above the official exchange rate and the same fine applies to companies that issue Zimdollar receipts for goods sold in United States dollars.
In a statement, RBZ governor John Mangudya said the Financial Intelligence Unit and the central bank’s Exchange Control Division conducted an investigation on business entities defying SI 127 of 2021 and named 18 companies as culprits.
“RBZ wishes to advise members of the public that over the past weeks it has engaged a number of business associations and entities to discuss the modalities for compliance with SI 127 of 2021,”
“The bank would like to express its appreciation to the business community for valuable feedback during engagements which have culminated in business’ clearer understanding of the essence of SI 127.
“The bank (RBZ) has a duty of care to ensure that the significant progress that the economy made since the introduction of the foreign exchange auction system in June 2020 continues on an unabated positive trajectory while at the same time protecting consumers and fostering compliance to engender fair play in the economy.”
The central bank boss added:
“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.
“After investigations by the Financial Intelligence Unit and the bank’s exchange control division, the entities listed hereunder which were abusing the foreign exchange auction system shall be dealt with in accordance with 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.
“The bank’s focus on these key areas coupled with business reality check self-discipline, self-monitoring and per review will sustain inflation and exchange rate stability.”
The reforms under SI 127 of 2021 triggered a wave of price hikes in Zimbabwe and United States dollar terms, as terrified firms raced to protect their interests.
The Confederation of Zimbabwe Industries (CZI) has called on authorities to immediately scrap the SI.The CZI said fear among businesses was that while government’s intentions were noble, the unintended consequences would be dire.
“The immediate impact of applying the SI would be that US dollar prices will be hiked so as to result in the same Zimbabwe dollar price prevailing prior to the SI.
“This means an immediate spike in US dollar inflation, a component of our blended inflation rate,” CZI said.
“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 Zimbabwe dollars 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.”