Zimbabwe Coalition on Debt and Development (ZIMCODD) says the central bank needs to come up with a dual auction system with one that accommodates the informal sector as this will go a long way in their retooling especially after 3 months of total lockdown.
This comes as the Reserve Bank of Zimbabwe (RBZ) is replacing the fixed exchange rate system which was introduced in March 2020 with a foreign exchange auction trading system which will go live tomorrow. On the operation of the foreign currency auction system, RBZ said bidders have to submit one bid per auction, with all their bids rejected if they submit more. Bidders can be individuals, firms and public enterprises, with bids submitted through authorised dealers, defined as banks. Bids have to be for a minimum of US$50 000 and a maximum of US$500 000 per auction.
The bidding platform is the Reuters foreign currency auction system and this will be linked to the computerised export payments exchange control system and the computerised exchange control batch application system.
Allotments for winning bidders will be based on the import priority list. Successful bidders will buy the currency at the rate they bid, starting from the highest bidder and working down until all currency on offer is allotted.
ZIMCODD said the minimum cap of US$50 000 will ordinarily crowds out the informal sector from participating in the bidding process. “It therefore creates an opportunity for third party transactions in which the informal sector will have to pass thru to access foreign currency. The premiums involved in engaging third parties will increase the cost of doing business for the informal sector,” it said.
The informal sector, which is undoubtedly the southern African nation’s biggest employer, was only allowed to re-open after registering their businesses with relevant authorities. Working in the informal sector helped many people to deal with the continued fall of the Zimbabwe dollar (ZWL) as prices could be adjusted according to the parallel market rate whose continued erosion continues to devalue earnings and raise prices.
According to an International Monetary Fund working paper titled Shadow Economies Around the World: What Did We Learn Over the Last 20 Years? produced in 2018, Zimbabwe has the second largest informal economy as a percentage of its total economy in the world at 60.6 percent.
Forex shortages have been singled out as one of the major challenges affecting industry and commerce in Zimbabwe. Zimbabwe’s trading position as a net importer of goods and services worsens the situation. The impacts are evidenced by acute shortages of fuel, raw materials and imported electricity which rely entirely on the availability of forex. This has had negative implications on the growing balance of payment deficit, low capacity utilisation, hyperinflation, growing parallel foreign exchange market and market distortions.