THE central bank this week disclosed that the foreign payment backlog now stretches as far as 12 months for many companies due to a deepening foreign currency crisis, which has restricted the importation of raw materials and equipment.
Although the central bank has secured US$1,1 billion facilities from the African Export Import Bank since 2016 to boost exports and support international payments, the country is still struggling with a foreign currency crisis. The country’s foreign payment backlog is, however, expected to ease when the tobacco selling season opens in the next few weeks. Tobacco sales average $500 million annually, making the crop one of the country’s major foreign currency earners, along with gold and platinum.
When hard currency shortages first resurfaced three years ago, it was taking only two months for companies to settle their foreign commitments.
But Reserve Bank of Zimbabwe (RBZ) deputy governor, Kupukile Mlambo, said the situation had worsened, warning it could get worse if the productive sectors failed to ramp up exports.
This would have dire consequences on critical industries, including mines, which heavily depend on imported raw materials and equipment.
“Some companies are running for over a year without paying for their imports,” Mlambo told delegates at the Zimbabwe Mining Investment Conference on Tuesday. He did not give a breakdown of the firms affected, or the quantum of outstanding foreign payments in the queue.
But he said government was hoping for a turn in fortunes in the mining sector, which he said was “the biggest contributor to exports in the country”.
“We have been punching below our weight for a long time in terms of attracting FDI (foreign direct investment),” Mlambo said.
“We have to find capital at a much longer-term than we have today,” he said, explaining the challenges in the economy.
Under its plan to boost exports and replenish the country’s foreign currency reserves, the RBZ has injected $385 million to support exporters.
In January, measures were also implemented to make it possible for foreign firms to repatriate dividends.
“We have an idea of why people are not coming in, which is the country risk. We want to make sure that money that is sitting outside can come into Zimbabwe, and also be able to walk out when it wants. We have been isolated for too long so we are looking at reintegration,” Mlambo said.
Foreign investors have been unable to repatriate dividends because of the shortage of foreign currency. It was not immediately clear if the 12-month backlog included dividend payments, which have encountered backlogs as long as two years.
Cigarette manufacturer, BAT, has been unable to remit dividends amounting to $10 million to its foreign shareholder since 2016. It also has outstanding payments amounting to $5 million to foreign suppliers.
Mlambo rallied executives of global mining firms at the conference to consider Zimbabwe, which is currently running a campaign to attract foreign investment.
The Chamber of Mines of Zimbabwe (CoMZ) said the sector required $7 billion to stabilise.
But a report co-authored by the CoMZ and Mining Report projected FDI into the sector to reach $12 billion in the next five years, riding on reforms by Zimbabwe’s leadership of President Emmerson Mnangagwa, which was put in place in November after former president Robert Mugabe was forced to resign under pressure from his party and the military.
Sectors worst hit by the currency crisis are manufacturing and mining, which contribute 50 percent of total exports, and 13 percent to the country’s gross domestic product.
Mnangagwa has indicated that his government was able to get foreign investment commitments of $3 billion within days of his inauguration.
Mlambo said foreign investment into mines would address foreign currency shortages in the economy by injecting cash into the economy that could be used to spur growth.
“It is money that banks can’t lend,” Mlambo said.
Government officials told the conference mining would play a major role in turning around the country’s economic fortunes.
“We want to broaden the mining sector and have investors across the board,” said Judith Kateera, permanent secretary for Presidential Affairs and implementation of government policies, responding to the CoMZ’s report that out of 40 minerals in Zimbabwe, 96 percent of revenues were generated by only five.
“The mining affairs board is now sitting regularly to approve applications. Special grants now take 45 days to be issued, and royalties for platinum have been reviewed. We have reviewed the Environmental Management Agency (EMA) fees to improve the cost of running businesses. I do not want to over-emphasise the need to review EMA fees. Everyone has been crying and it will be done soon. This is the time to come. Don’t wait to come later,” Katerera said in a plea for foreign investment.
She said it was possible for Zimbabwe to achieve $3 billion revenue from the mining sector alone if reforms were implemented.
Still, some investors raised concern that while there had been talk about reforming the investment climate, Zimbabwe remained one of the toughest destinations for investment in the world.
“We are seeing some changes but there is still a long way to go,” said Victor Tskhovrebov, CEO of Liberation Mining, which is scouring Zimbabwe’s coal deposits in the western part of the country.
“Zimbabwe is not an easy country to do business. I will not say Zimbabwe is not the toughest country to do business. There are some challenges. The government and authorities need to listen to business,” he said.
An investor exploring opportunities in the lithium sector concurred: “We have just been slapped with a five percent levy for not beneficiating. You will not see investment unless you make it easy to convert currencies. Bureaucracy is stifling us, but we believe this will be addressed.”