Cash barons rescue Zimbabwe firms

By Nyasha Chingono

Troubled Zimbabwean firms failing to make payments to foreign suppliers are scurrying to middlemen offering to liquidate the distressed firms’ foreign commitments due to a worsening foreign currency crisis, the Financial Gazette’s Companies & Markets can report.

The middlemen, who have offshore bank accounts, are charging about 10 to 15 percent for payments to local companies’ international suppliers. They are paid by the Zimbabwean companies using electronic bank transfers locally.

The brokers are mainly Zimbabweans “with fat bank accounts” abroad. These are looking for companies with huge payment commitments and are not entertaining small value transactions.

The middlemen are said to have already paid US$30 million to clear foreign payments for local firms, according to sources.

The brokers, most of whom are fronting political bigwigs and top bankers, use their connections in the banking system to transfer their balances offshore, disguised as external payments. What this means is that the more the payments they facilitate, the more they increase their capacity to underwrite high value transactions. In certain cases their real balance are deployed towards strategic local investments such as stocks and real estate.

While these barons are operating outside the law, they are coming in handy for the local companies that were risking losing business for failing to pay their foreign suppliers on time.
Confederation of Zimbabwe Industry (CZI) president, Busisa Moyo, confirmed the development.

“Yes, merchants facilitating payments have emerged and they are back in business after nine years offering to facilitate payments. These premiums of 15 to 20 percent militate against a competitive export based economy,” said Moyo.

Local subsidiaries with foreign parent companies are also being assisted by their external shareholders to procure critical raw materials for their operations.

Players in the mining sector have had to endure over three months of delays for payments to their foreign suppliers due to a payments gridlock. Although the Reserve Bank of Zimbabwe (RBZ) has said that it would prioritise the mining and manufacturing sectors as well as fuel importers in the allocation of foreign currency, this has not happened.

Other companies are reportedly opening lines of credit with suppliers, also at a premium to avoid losing business to cheap imports that are being smuggled into the country by local traders.

Analysts said the import restrictions put in place last year to protect local industries have been undermined by the payment problems.

Moyo urged the RBZ and local banks to support productive sectors which he said were critical in ensuring economic turnaround.

“With banks and the central bank coming to the party in supporting productive sectors, this will see imports becoming more expensive. This model may actually spur local production,” Moyo said.

Economist, Gift Mugano, said surviving through middlemen was tantamount to externalisation.

“Some companies are surviving through middlemen, but this becomes a money laundering scheme as money does not come back into the formal sector,” said Mugano.
He said dealing with middlemen in facilitating foreign payments was exacerbating the liquidity crunch as money was not being banked.

“There are brokers who are supplying Zimbabwean companies and getting payment locally. Which means money is not being banked,” he said.

The new survival strategy has already proven costly for most companies whose capacity utlisation plummeted from about 50 percent to 30 percent as they could not maintain production levels because consistency of the payments cannot be guaranteed, said Mugano.

“Some companies have dismally failed because they can’t pay for their foreign supplies. Most companies’ capacity utilisation has gone down even after it had been boosted by import restrictions,” said Mugano.

With the tobacco selling season having already begun, more foreign exchange is expected to trickle into the economy.

Moyo said CZI has been in dialogue with the central bank, which committed to improving the country’s foreign payments.

Last week, the RBZ said it had released US$100 million to fund imports.

“We have been in close communication with the Reserve Bank and alerted them of the situation and they have responded swiftly. However, (foreign currency is) constrained as the country is not exporting enough due to a lack of competiveness and high costs. A programme is being worked on to improve exports at multiple levels between government and the private sector,” said Moyo.

Economist, Ashok Chakvarati, said although there were significant delays in foreign payments, companies were getting lines of credit for consistent supply of raw materials.

“There are some significant delays, but some companies are getting lines of credit from foreign companies, but this could only happen to a certain extent. When you get a line of credit it becomes more expensive for Zimbabwe due to the high risk of not paying,” said Chakvarati.

“It’s not anything spectacular, it happens everywhere in the world,” he added.
Chakvarati said foreign payments could improve due to the tobacco selling season.

“Companies are saying there were delays in payment as supplies come after a while, but the situation may change due to the tobacco season,” he said.

Zimbabwe was last week given a US$220 million facility by the African Export-Import Bank (Afreximbank) to stabilise its foreign currency situation and CZI believes the facility would ease foreign payments.

The facility would be used to settle outstanding foreign exchange payments and is expected to come into effect this week. Restrictions in the allocation of foreign currency for external payments were introduced by the RBZ last year as government grappled with its worst foreign currency crisis since introduction of a hard currency regime in 2009.

The crisis has affected critical sectors like the airlines, with reports saying foreign airlines are owed US$30 million after failing repatriate cash from ticket sales. Financial Gazette