Suspend SI 127: CZI tells government

Confederation of Zimbabwe Industries (CZI), the country’s biggest industrial lobby group, has called for the suspension of the controversial Statutory Instrument (SI) 127 of 2021, which mandates all businesses to use the Reserve Bank of Zimbabwe (RBZ)’s forex auction exchange rate in all transactions.

The local currency is officially at ZWL$84.76 against the greenback according to this week’s auction while in the parallel market it is pegged at ZWL$100 or more against the USD.

According to the SI 127, gazetted last week, businesses that refuse payment at the ruling exchange rate will be fined a fixed penalty of the amount of ZWL$50, 000 or an amount equivalent to the value of the foreign currency charged for the goods or services in question (whichever is the greater amount).

Despite the central bank having given businesses a grace period of two weeks to comply, some traders have since effected price increases in USD.

In a statement, CZI said while the SI purports to among other things control inflation, eradicate the use of the black and informal markets and bring stability to the foreign currency markets, in reality, it does the opposite.

“It is our submission that the SI127 does the exact opposite of the above and indeed will reduce the amount of foreign currency in the official and formal channels, create USD inflation to achieve a perceived required return by business and bring businesses that previously were able to generate forex into the auctions,” said CZI.

“The market believes that the auction is a controlled rate and therefore from the past we have seen that it looks for another reference point to determine a price. That will mean we are back to the dark days when the black-market rate anchors pricing. This market has thin volumes and is driven by rumours and speculation.”

The industrial lobby group further said: “CZI recommends that implementation of the SI be suspended, and urgent stakeholder consultations be held between government and business to come up with a way forward that will not jeopardise the rebound witnessed in the economy to date.

CZI said some of the government needs to take into consideration that confidence is at the centre of all fiat currencies, adding it was important to avoid policy misperceptions that may result from well-intentioned Statutory Instruments.

“The path to de-dollarisation must be more clearly defined and will need stakeholder buy-in along the way for confidence,” said CZI.

“It is important to address deficiencies observed in the auction, which include delayed settlements arising from more currency being sold than is available. There needs to be confidence in the auction or a formal foreign currency market before driving towards a mono currency.

The confederation added: “We have already witnessed the unintended consequences of a premature push towards a mono currency in the past two years. It is important that we move to a single exchange rate at which the entire economy operates as the presence of multiple exchange rates in the economy encourages arbitrage between the different markets/platforms.”

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