Zimbabwe’s currency crisis hits edible oils amid chronic forex shortages

Apr 5, 2019

Cooking oil
Cooking oil processors in Zimbabwe are struggling to access foreign currency from the Reserve Bank of Zimbabwe (RBZ) and the interbank market, which they need to import key raw materials. The situation is raising fears Zimbabwe may face shortages of edible oils if things worsen.

Zimbabwe consumers around 2m litres annually of cooking oil the industry requires around $20m of imports of crude oil and soya bean monthly. Local producers have the capacity to meet 95% of domestic consumption requirements.

In January leading processor Surface Willmar, which acquired oil processor Olivine Industries in 2015, suspended operations because of forex shortages. Other major cooking oil companies, all facing similar issues, include  Willowton, Cangrow Trading, United Refineries and Pure Industries.

The processors, through the Oil Expressers Association of Zimbabwe, have now written to the RBZ seeking clarification on a number of forex issues, including what the exchange rate they should be using.

The key issue is how companies are supposed to acquire forex: in Zimbabwe’s 2019 Monetary Policy, the RBZ has indicated that manufacturers would get forex via letters of credit (LCs) or facilities guaranteed by the African Export and Import Bank. Banks have demanded cash deposits upfront, at the going market exchange rate, to match the amount of foreign currency cooking oil processors may seek to buy from the interbank market. To get forex from the interbank market companies have to buy Zimbabwe’s Real Time Gross Settlement (RTGS) dollars to acquire hard currency. They then buy that hard currency at the market rate.

In February Zimbabwe scrapped its 1:1 pegged rate between the dollar and the bond notes and electronic dollars it introduced to compensate for the hard currency shortage. The surrogate Zimbabwean currencies merged to become the RTGS dollar. When the RTGS launched in February it traded at 2.5 to the US dollar. It now trades at around 4.3 to the dollar on the black market and 3 to the dollar on the official market.

Since the RTGS dollar was introduced, prices of consumer staples including cooking oil, sugar, bread and rice have risen as much as 95% in some areas. The Consumer Council of Zimbabwe (CCZ) has said that the cost of living for the low income urban earner rose 1.21% to $790.77 in March based on the requirements for a family of six, up from from $781.35 in February.

The price rises have put intense pressure on consumer spending and pitted the Zimbabwean government against manufacturers and retailers. When fuel prices rose dramatically in January, it set off a wave of violent protests.

Some retailers have pegged their prices to the black market exchange rate and started offering discounts on U.S. dollar purchases. In January we noted that the country’s largest brewer, Delta Corporation, had abandoned plans to only accept US dollars for payments following government pressure. In September, we reported that the bakeries in Zimbabwe had started to run short of [imported] flour because of a lack of foreign currency.

 

 

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