CZI believes that SI 127 should be immediately suspended.
CZI agrees with the issues that the MOF is trying to resolve:
- Control inflation.
- Eradicate the use of the black and informal markets.
- Bring stability/ sanity to the foreign currency markets.
- Prevent abuse of the foreign currency obtained on the auction for profiteering and other opaque activity.
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.
- Bring businesses that previously were able to generate forex into the auctions. These organizations were able to collect foreign currency from sales previously.
- 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 rumors and speculation.
- Reduce foreign currency revenues by government as currency will be driven underground.
- Farmers will be negatively impacted as we expect the parallel rate to take over and crash the market. GMB for example has fixed a price for purchase of grain. This price will not reward farmers for their efforts.
Business is mostly interested in long term survival and therefore will take positions that may lead to a defensive posture. Trading takes a back seat to balance sheet integrity should the black-market rate start to devalue the ZWL. This leads to further inflation as fewer goods come to the market.
Read the full publication here(2MB PDF)
Source: Confederation of Zimbabwean Industries