Parallel Market Rate Threaten Exporting Businesses – CZI

The Confederation of Zimbabwe Industries (CZI) says the parallel market exchange rate in the economy is becoming a big threat to exporting businesses as it eats into the viability of exports.

This week the exchange rate was pegged at US$1:$87.67 at the weekly official forex auction compared to margins of as high as US$1:$150 on the parallel market.

The introduction of the Dutch Foreign Exchange System in June 2020 by the Reserve Bank of Zimbabwe (RBZ) had suppressed the parallel market.

In its recently released Business and Economic Intelligence Report for the second quarter and half year, CZI said its members were being negatively affected by the huge parallel market premium. Said CZI:

The parallel market premium, which has since risen to about 63 percent, is considered a tax by exporting businesses, as they offload the surrender portion of their export earnings at the auction exchange rate while they conduct their business in a cost environment determined by mixed rates depending on where their suppliers of goods and services are sourcing forex.

The best-case scenario being that they are charged at a blended rate of the auction and parallel market and worst-case scenario being the application of the parallel market rate.

Thus, the huge parallel market premium is dampening the motivation for exporting business as it eats into the viability of exports.

The rise of the parallel market rate is attributed to the foreign currency backlog at the RBZ saying it forced businesses to buy forex on the black market.

CZI says the backlog threatens to erode the confidence, which industry had managed to build with the foreign suppliers over the past months.

The RBZ has pledged to clear the nearly US$200 million backlog by end of September and last week, the Treasury revealed that US$70 million had already been released to clear the gap.

More: The Herald

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