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RBZ’s Financial Intelligence Unit names & shames auction abusers

It has been a couple of weeks since the government/RBZ introduced its latest shock grenade in the form of Statutory Instrument 127 of 2021. They riled the entire economy by trying to dictate what exchange rate businesses use when conducting operations. They also banned USD cash discounts and any incentives to induce USD payments. This was all done to shore up the faltering official foreign currency auction whose rate has remained suspiciously low over the course of a year.

The Statutory Instrument also included a set of punitive measures to be meted upon those found to be violating this law and its provisions. Now, the central bank’s Financial Intelligence Unit (FIU) has publicly named and shamed a list of so-called abusers. The following companies were included on the list:

  1. National Foods (Pvt) Ltd
  2. Georgia Petroleum (Pvt) Ltd
  3. Tettola Investments (Pvt) Ltd
  4. Africa Steel (Pvt) Ltd
  5. Westville Investments (Pvt) Ltd Trading as Omni Africa
  6. Flicknik Enterprises (Pvt) Ltd
  7. Duo Valley Commodity Brokers
  8. Faircclot Investments
  9. GlenuLas Trading
  10. Natural Stone Export Company
  11. Nuvert Trading
  12. Phirebrook Investments
  13. Classic Energy
  14. Clorex Energy
  15. Explochem
  16. Mutare Mart and Exchange
  17. Souzcre Fuels
  18. Kimya Investments

Is that it?

The RBZ’s press statement goes on to make it sound like these entities (auction abusers) are somehow solely responsible for wrecking the entire economy. While I am forced to concede that it was wrong of these companies to participate in the foreign exchange auction and then go on to violate the rules of the auction I do sympathise with them too. Businesses in Zimbabwe are operating in a very tough economic environment and need every leg they can stand upon.

Also, after the lots of noise that has been made by the authorities about how entities were abusing the auction, I sort of expected a bigger list with more recognised companies on it. I barely recognise just under half of these companies. The rest are mysteries to me. It’s kind of underwhelming if you ask me.

Lopsided rules

I especially take issue with how rules are being made by the authorities as we go with some companies granted seeming concessions. For example, some well-known entities continue to only demand foreign currency in payment and yet nothing is happening to them. For some, it turns out they are allowed to do so because of certain laws that have already been passed. For example, fuel companies are already allowed to sell fuel in USD only if they import that fuel using free funds.

Why are informal businesses not allowed to sell their own products in foreign currency only if they have imported these goods using free funds? What possible justification can the government have for perpetuating such discrimination?

Also, it turns out a lot of well-known entities are no longer allowed to access foreign currency on the auction. Of note is a qualifying statement from Delta Corporations released as part of its financial statements. They seem to imply that they are no longer getting foreign currency from the auction. In fact, quick calculations show that about two-thirds of the economy does not get its foreign currency from the auction. I am still struggling to understand the logic behind forcing everyone to use the official rate.

Talking about the official rate. It makes little sense to use it anyway! Yes I mean even if you are getting your foreign currency from the auction it will be in violation of business principles and accounting standards for you to use the official exchange rate in your costing operations. Why? Because no one is getting their foreign currency at the official rate anyway. You are reading this right. It’s almost improbable that any business is getting its foreign currency at the official rate.

That is because the so-called official rate is an average mean. Each business bids in the RBZ Auction and gets foreign currency at a different rate. Certain blessed entities are getting their foreign currency at rates as low as $82 ZWL because the RBZ in their esteemed wisdom deems these businesses more important than others. Others at the same auction are actually getting their foreign currency at a rate of $89 ZWL.

At the heart of Finance is a simple rule that underpins each accouning operation:

Revenue must be matched with expenditure incurred in generating that revenue.

In other words, you must only ever use the cost you incurred and not makeup costs. This means by forcing everyone on that auction to use the official rate the RBZ is erring again. Each business must use the actual rate at which it acquired the foreign currency to do its costing operations including arriving at the price. That would be the magic solution that will clear everything up.

Preaching to stones

I am just preaching to stones here. Nobody will listen to this. The mighty bank and powers be have made up their minds. The thing though is that the fundamentals of Economics have a way of always prevailing even in the face of legislation.

You should check out:

Finance Minister Mthuli Ncube said that the government had a budget surplus of ZWL$9.8 billion in Q1 2021. Now, that’s just over US$100 million (by the RBZ auction rate) and that’s a lot of money. So we discussed what a budget surplus is, if it is a good or bad thing in the Zimbabwean context, and how the government could possibly use all that money.


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8 thoughts on “RBZ’s Financial Intelligence Unit names & shames auction abusers

  1. I don’t understand the idea behind “name and shame” ,if any crime was committed why not arrest them.

  2. They are forcing the issue because too many companies and individuals are favouring the use of USD cash over paying in rtgs… meaning rbz and government are loosing out on billions of 2% and banking fees. I personally almost closed my bank account cause the charges are just ludacris. That list doesn’t include the minister owned business’s either… if you actually research you would find the vast majority of companies that obtain usd at the rate and then use the black market rate are owned by the connected few. Food courts still use 120 rate or usd only. Its nothing but posturing by the elite, zimbabwe is no longer a democracy, its a dictatorship. Since when does a Bank dictate law… it doesn’t. They rbz and Ed are nothing more than villains in zimbabwes history.

    1. “…. Zimbabwe is no longer a democracy, its a dictatorship”. Where have you been these past 40 odd years bro? In a coma or living underground??
      The real reason behind the latest SI bomb has nothing to do with auction rate abusers at all, the government simply wants to know the amount of forex transactions in the economy so that they can effect taxes on those transactions. The funny thing here is that, they think by forcing everyone to use their rate they are supporting the local currency. When in fact they are the ones who are doing the most damage to it.
      By allowing companies and individuals to pay taxes in forex , government is making the local currency weaker.
      Think about it, when you invest in a country, as a foreigner, you bring your forex as capital to set up your business, and then have to pay taxes, operating costs etc in local currency. That need to pay in local currency and therefore convert your forex creates demand , there by helping local currency maintain its value against other currencies. In Zimbabwe, tourists and foreign investors can come over without having to convert the bulk of what ever money they bring with them. And now with taxes being payable in forex, demand for local currency diminishes further.
      Also, about the budget surplus, Is it a coincidence that the surplus amounts to about $US 100 million , which is the same amount that Prof Ncube said was supposedly set aside for vaccine purchases?

  3. While the operating environment is really difficult, it doesn’t sound good that these people get foreign currency and abuse it and that they make poor suffering citizens to be every leg to stand on for them to survive. Everyone will collapse from their weight and them too.

  4. I Have been following Techzim columns in the past 3weeks. The authors are the best economic analyst I ever come across. Very factual and informative,
    Thanks guys for writing nothing but the truth

  5. I am not convinced by that list. Apart from National Foods the rest of the companies are weaklings if not little known entities, does this mean that all the other big names are operating within the confines of the law? Who is behind change monies parading huge wads of brand new notes everywhere in city streets if they are not getting them from commercial banks and other large institutions?

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