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Tuesday, May 28, 2024

RBZ auction system a masterstroke in reviving ailing manufacturing industry

Story by Owen Mandovha, Business Reporter

The decision by the Reserve Bank of Zimbabwe to introduce the foreign currency auction system in 2020 has been cited as one of the game-changing decisions made by the New Dispensation in resuscitating the manufacturing industry whose capacity utilisation was at an all-time low of around 35 per cent.

In an abrupt turn of events, one leading beverage manufacturer shifted to charging its products strictly in foreign currency in a move that rattled the markets, with the company citing acute foreign currency challenges that negatively affected imports of key raw materials and capital equipment.

It was not a scenario only peculiar to the company but the entire manufacturing sector whereby capacity utilisation was at its all-time low of just below 35%. It was long before the Reserve Bank of Zimbabwe introduced the foreign currency auction system which to date has proved to be a masterstroke decision by the apex bank in terms of availing the much-needed foreign currency to industry, while at the same time cooling off the parallel market which was responsible for price distortions.

“The introduction of the auction was a big relief for local firms in terms of establishing a formal platform to access foreign currency whereas firms were utilising the parallel market. This had a dire impact on prices because firms would input the high cost of foreign currency into prices. So, the auction platform enabled companies to access the much-needed foreign currency for key raw materials and capital equipment,” noted economist, Ms Happiness Zengeni.

The auction system has stood at the confluence of driving various Government economic policies including the local content policy which has resulted in the revival of the manufacturing sector as locally manufactured products flood supermarkets.

Buy Zimbabwe executive director, Mr Alois Burutsa noted, “Over 80% of products on supermarket shelves are now made locally, but obviously, thanks to the resuscitation of the local industry which was also aided by the auction system which provided the much-needed foreign currency to enable industry revival.”

So far, over US$4 billion have been disbursed through the auction system with the bulk of the allocations going towards the importation of machinery and other key equipment for industry renewal.

Despite several economic headwinds triggered by a host of external global forces, the government has over the last 5 years come up with a matrix of fiscal and monetary policies which have sustained the growth of the local economy.

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