THE introduction of US dollar payments for electricity supplies has continued to worsen the ease of doing business and it is promoting dollarisation, which has more disadvantages to industry than advantages, says the Confederation of Zimbabwe Industries (CZI).
Last year in July, the government introduced Statutory Instrument (SI) 131 of 2022, which provided that exporters and partial exporters paid for electricity and related services exclusively in foreign currency.
This was renewed in January 2023, through the introduction of SI 9 of 2023 so that SI 131 of 2022 continued to have effect for a period of six months, that is from January 2023 up to June 2023.
In its Business Environment Insights report, the CZI said since the introduction of SI 131 of 2022, there was an uproar in industry that the move added pressure on the much-needed US dollars in the formal market.
While the economy is largely dollarised, the formal business US dollar sales are still low due to the limitations of SI 118A of 2022 which prohibited businesses from selling exclusively in foreign currency.
“The formal sector is required to sell in both local currency and foreign currency and the pricing must be with reference to the interbank exchange rate with a margin of not more than 10%.
“Due to imperfect exchange rate market reflected by a high exchange rate premium, most of the USD goes to the informal market when the premium is huge,” reported the CZI.
The economy of Zimbabwe is heading towards full dollarisation, with most businesses in the informal sector already transacting in US dollars. However, companies operating in the formal sector are struggling to raise the foreign currency needed as they are still transacting in Zimbabwe dollars as the main currency.
As a result, some of the blue chip companies listed on the Zimbabwe Stock Exchange have moved to the Victoria Falls Stock Exchange to access the greenback.
The Zimbabwe Electricity Supply Authority (Zesa) has a huge demand shortfall, which has been managed through power cuts. The country has been reeling under massive power cuts despite an increase in water levels at Lake Kariba and recent efforts to ramp up electricity generation at Hwange Thermal Power Station’s Unit 7.
The state-owned Zesa pays for power imports in US dollars, hence the need to access foreign currency. However, the CZI condemned Zesa for passing the liability for raising this foreign currency on to business.
“Rather, Zesa should be able to purchase foreign currency from the auction or WBWS [willing buyer, willing seller] like every other importer, rather than getting the prerogative of charging in only one currency in a dual currency environment, where businesses earn a portion in ZWL$,” said the CZI.
In spite of businesses being forced to pay for the electricity in US dollars, the power shortages in the country hampered the performance of companies last year.
“The industry is already experiencing induced costs due to power cuts resulting in damage of machines and increased production costs due to usage of alternative energy,” the CZI lamented.
The worsening power cuts affected the production in the business environment which, in turn, affected sales and revenue of the companies.