By Thomas Chidamba
In a bid to avail foreign currency to the business community to enable them to import goods, the Reserve Bank of Zimbabwe (RBZ) introduced the foreign currency auction. The auction system has also managed to tame the runaway forex  rate that was fueled by the parallel market. However, delays in the allotment of funds to bidders has been a thorn in the flesh of some and have accused banks of double dipping. ZiMining editor, Thomas Chidamba, spoke to a banker who refused to be named for fear of indictment by the regulator if his responses are viewed as negative. Below are the excerpts of the exclusive interview with ZiMining, read on . . .

Q.  There are allegations that RBZ deliberately creates information asymmetry by not publicly announcing the foreign currency auction number paid but only announces the results of the auction rate for that week. What is your reaction to this view?

A. The RBZ provides summarised auction information for each SME and Main Auction. The information provided includes the following:

•         Number of bids received

•         Number of bids disqualified

•         Number of bids allotted

•         Total Number of Bids Accepted

•         Total Number of Bids Allotted

•         Total Value of Bids Accepted

•         Total Value of Bids Allotted

•         Highest Rate Received

•         Lowest Bid Rate Allotted

•         Weighted Average Rate

The summarised auction information is disclosed on the RBZ website after each foreign currency auction. Whether the above disclosed information is adequate will depend on the different stakeholders’ information requirements.

Q.         Do you think by being reluctant to publish the auction number paid to the public, RBZ is part of a cartel that conducts unauthorised borrowing of bidders’ money without their consent or knowledge?

A.  The RBZ discloses the total value of bids allotted on its website. The RBZ also discloses the detailed breakdown of the successful auction allotments to the banks through which the specific customers would have submitted their bids. The issue that has been observed in the market is the delay by the RBZ to provide foreign currency for the successful auction allotments. Meanwhile, the bidder’s local currency (ZWL) for the purchase of the foreign currency would have already been transferred to the RBZ as soon as the RBZ notified banks of the successful bid allotments. The prolonged holding of the bidders’ ZWL funds before availing of the foreign currency by the RBZ has, therefore, been a crippling constraint on working capital management of the auction bidders.

Q.         Using this primary information, can banks do unauthorized borrowing using these free funds to run their operations and even lend on short term to accrue profits before paying the bidder?

A.  Due to undefined actual time between auction allotments and availing of the foreign currency by the RBZ, there is an inherent risk of customers being prejudiced by their banks using the customers’ foreign currency availed by the RBZ before finally paying the customers. However, considering customers’ insistent follow ups on their banks on the outstanding foreign currency, it is less likely that banks would further prejudice customers by using their foreign currency availed by the RBZ before they avail the foreign currency for customers’ international payments.

Q.         What role does information play in a market or economy?

A.  Information assists business entities to make appropriate decisions to sustain their operations. Disclosure of information perceived to be adequate also brings confidence to stakeholders interested in the particular information.

Q.         Isn’t the RBZ supposed to be conducting an audit of the auction system and money paid to banks to check how it was paid to principals?

A.  The funds allotted on the auction system are mainly for international payments. The banks that receive the foreign currency on behalf of their customers have an obligation to make sure that the funds are used to process payments that are aligned to the supporting documentation at the bidding stage. The RBZ’s Exchange Control Department has systems that track the payment of such amounts and acquittals submitted to confirm that the goods or services that have been paid for have actually been received. Through the RBZ’s Exchange Control systems, processing of customers’ payments for auction allotments can, therefore, be confirmed.

Q.         What do you think should be done to equalize information so that those with superior information do not abuse it?

A.  There should be stakeholders engagement by the RBZ to bring awareness and get feedback on the adequacy and concerns on the information being disclosed by the RBZ on its website. Feedback received may be used to refine the disclosed information to optimise the balance between the level of information details disclosed and usefulness of the disclosed information for stakeholders’ decision making.

Q.         In your view, don’t you think this scenario of unauthorized borrowing caused by information asymmetry makes kite-flying rampant?

A.  The sustained holding of auction bidders’ local currency before availing of the purchased foreign currency is not caused by information asymmetry per se. But it is a result of inefficiencies inherent in the auction system framework, i.e., most likely arising from total auction allotments awarded being more than the available foreign currency. Notwithstanding the resultant working capital constraints on the auction bidders, this may not be synonymous with a fraudulent arrangement as the bid rates at the time of auction bid allotments are not revised at the time of availing of the foreign currency by the RBZ.

Q.         Do you think there is transparency in the auction system?

A.  It is difficult to confirm the transparency considering that the auction bids are submitted to the RBZ through many banks and the results of the auction are disclosed in a summarised way, with detailed outcomes of the auction communicated to only the customers’ bidding banks. This entails that information available to different stakeholders is not detailed enough to reconstruct the summarised information disclosed on the RBZ website.

Q.         Turning to the mining industry, do you think the industry is performing well?

A.  The reported statistics have been pointing to improvement in the sector’s performance, but its impact on the overall economy is not discernible.

Q.         Government has set a U.S. $12 billion mining revenue target by 2023, do you think this will be attained and why?

A.  Over an extended period of time, the whole economy has struggled to raise funding to sustain a national budget of below USD5 billion. Considering the country’s resource base, the U.S.$12 billion target is most likely achievable, but in the long term, not in 2023. 

Q.         What do you think needs to be done to achieve the set target?

A.  Expediting beneficiation of a number of minerals will assist in creating value that will enhance export proceeds as well as earnings going to the fiscus.

Q.         Is mining revenue alone able to resuscitate the economy?

A.  Currently, mining revenues will not solely resuscitate the economy. There might be need for an enhanced strategy, especially around a comprehensive beneficiation framework for the country’s different minerals.

Q.         In your view do you think the amendment of the Mines and Minerals Act will turn the fortunes of the mining industry?

A.  In principle, amendment of the Act is a noble idea as there is need to align the legislative framework with changes in the global arena. The amendment will be, however, of significant contribution to the performance of the sector when there is wide research and consultations to ensure that pragmatic and progressive legislative provisions are enacted.