Zimbabwe: Gono Removes Twelve Zeros, Issues New Currency
Reserve Bank Governor Gideon Gono has just removed twelve zeros from the Zimbabwe currency and issued new currency with immediate effect. The new currency is as follows:
Main points from the MPS:
• Removes 12 zeroes,with immediate effect, accompanied by the introduction of the following new currency denominations, $500, $100, $50, $20, $10, $5 and $1 the new re-valued currency will initially co-circulate with the old currency up to the 30th of June, 2009. The current denominations will continue to circulate as legal tender with the following value-equivalents: The current $10 trln note will be equivalent to the re-valued $10 note and so on.
• Extends framework for licencing of shops to sell goods and/or services in forex implies the transformation of the entirety of Zimbabwe’s commercial sector into Special Export Processing Zones, or Foreign Currency Generating Zones. The following sectors of the economy shall be licenced to sell goods or services in foreign currency; Agriculture, Manufacturing, Mining, Tourism, Transport, Services, Construction, Banking and Finance, Media, Entertainment, Sport, Automotive Industry, Distribution, Energy, Small Scale Business Sector, Flea Markets, Post and Telecommunication, Information Communication, Technology, Education, Health, Pharmaceutical, Beauty and Care, Street Vendors
• All licensed traders, save for those explicitly exempted, are to sell 5% of their gross foreign exchange sales to the RBZ, at the going market exchange rate; All traders to be licenced under the Extended Framework for Foreign Exchange Licenced Shops shall be required to pay a non refundable annual licence fee, as follows:- Foreign Exchange Licenced Shops Annual Licence Fees, Urban (all Sectors) US$12,000 per outlet annum Peri – Urban (all Sectors) US$6,000 per outlet per annum. Towns (all sectors and all areas with town council status) US$4,000 per outlet per annum. Rural (all sectors and areas with rural district council status) US$1,200 per outlet per annum. Small to Medium Enterprises (all Sectors Registered with Ministry of SMEs) Urban Council located US$3,000 per outlet per annum. Small to Medium Enterprises (All Sectors Registered with Ministry of SMEs) US$2,000 per outlet per annum. Hawkers – Urban As Above US$25 (once off payment) Hawkers - Town as above US$10 (once off payment). Hawkers - Rural as above - free Licencing. Schools and Tertiary Institutions all zones - free licencing. Farming Community – A2 all zones US$1,200 per outlet Farming Community – A1 all zones - free licencing.
• All traders shall therefore in addition to selling their goods and services in forex, adopt a dual pricing framework where goods will also be quoted in local currency. This means that prices can be in Rand and Zim$, US$ and Zim$ as the case may be. The dual pricing framework to be adopted by all licenced entities shall be legally enforceable and the pricing formulae to be implemented shall be based on the inter-bank market determined exchange rate which shall be fixed at the mid-rate level and communicated to the market by the Reserve Bank of Zimbabwe regularly and/or as appropriate.
• ZESA will, with immediate effect be granted a licence to bill or charge their electricity tariffs in forex. The levying of electricity tariffs in forex shall be limited to corporates (both exporting and non-exporting, and Foreign Exchange Licenced Shops), NGOs, Embassies, International Organisations, and residents in low density suburbs. Residents in high density areas and those domiciled in the communal areas shall continue to pay electricity tariffs in local currency.
• Have given ZINWA the licence to charge all corporates and residents in low density suburbs in forex. All high density and communal consumers, hospitals, non-foreign currency charging schools and social centres shall continue to be levied in local currency.
• Hwange Colliery has been granted, with immediate effect, licence to sell coal and its associated products to all their customers in forex.
• All Local Authorities are, with immediate effect, being granted licences to charge their rates and other fees in forex to all corporates and low density residential areas.
•Air Zimbabwe was granted, a licence to charge for all its fares on local, regional and international flights in forex.
•Tel*One, Net*One and POTRAZ, including all service providers in the telecommunications industry, shall charge for their services in forex.
• With immediate effect, the National Railways of Zimbabwe, ZUPCO, Rural Transport Operators and Commuter Omnibuses, shall charge for their services in forex.
• ZBC shall be allowed to charge licencing fees, advertising slots and any other services in forex.
• All players in the print media shall also charge for their products in forex.
• All property transfers shall be paid in forex.
• Street vendors and hawkers operating in urban areas, as designated by the country’s laws, shall be eligible for the payment of a once-off licence fee of US$25 or its equivalence, prior to issuance of the RBZ identification card for licencing to sell in forex.
• All academic institutions intending to charge school fees in forex will be exempted from the payment of the annual licencing fees and the 5% upfront market sales. These will however still need to be licenced under the framework.
• Urban and private schools as well as tertiary institutions shall be allowed to charge fees in forex.
• Tobacco growers shall be entitled to 100% of the forex proceeds from the sale of tobacco at the auction floors or any designated contract of sale point. In this regard, no merchant shall be allowed to purchase green leaf tobacco using foreign exchange resources sourced from the local market.
• Cotton ginners shall also be allowed to sell seed cotton in forex.
Banking and Finance
• With immediate effect, all restrictions on forex cash withdrawals are removed. Banks are therefore, required to implement complementary measures to ensure that cash is readily available to the transacting public. In this respect, banks shall continue to be allowed to import forex cash from their Nostro Accounts. To ensure the viability of the banking sector, authorized Dealers can now levy their bank charges for FCAs and related transactions in forex, export for nonforeign exchange earning entities, individuals and other special cases.
• Banks are further encouraged to apply prudent lending practices when lending to individuals to finance their Current Account transactions. Such lendings shall attract an interest rate of not more than LIBOR + (1-6 %) depending on customer risk assessment profiles.
• The Exchange Control priority list for payments, is hereby removed and market players are expected to compete for funds. Banks are, however, encouraged to ensure that most of their loan advances is biased towards the productive sector to reinvigorate the supply side of the economy.
• Banks that install POS machines and systems in foreign exchange trading areas shall be exempt from the open market disposal requirements on their forex earnings.
• Banks are expected to encourage the transacting public to open individual FCAs through which the POS systems shall be implemented in line with the ZIMSWITCH mechanism.
• In addition, banks are encouraged to have debit cards (Master card/Visa) for their FCA customers, for transactional purposes, locally or internationally.
Payment of Salaries in Forex
• All registered foreign exchange licenced shops are advised that they can pay their employees in foreign currency from the proceeds of their registered activities, with no Exchange Control approval required. Such payment of salaries will, however, be done under advice to Exchange Control and the salaries will only be paid through the employees’ FCAs established with local Authorised Dealers.The same modalities on the payment of salaries in forex shall also apply to staff of organisations such as NGOs, Embassies, International Organisations and Diplomatic Missions, whose funds are treated as free funds. All corporates shall with immediate effect be allowed to pay salaries in forex for their employees without prior Exchange Control approval. However, all such requests shall be processed at bank level.
Goods Purchase Vouchers in Foreign Exchange.
• Under this framework, the participating retail and wholesale outlets develop buying credit schemes where they issue vouchers to institutions for onward distribution to their staff for use in buying from the licensed shops.
• As announced by the acting Finance Minister in his Budget, government has reclassified into Strategic Reserve Assets for the country, the following minerals as is the case with gold: (a) Gold;(b) Diamonds; (c) Platinum; and (d) Emeralds.
Exchange Rate Arrangements
• With effect from today,the following exchange rate arrangements, will come into effect:
(a) All economic foreign exchange transactions will be effected at the interbank exchange rate, determined through the voluntary buying and selling activities of economic agents through the banking system. (b) Given the currency revaluation, combined with the need to give impetus to the export sectors, the starting interbank exchange rates will be at:
• Z$2 (re-valued) ($2 trln Zimbabwe Dollars before Revaluation), is to equal a unit of the South African Rand; and
• Z$20 (re-valued), Z$20 trln before revaluation; to a unit of the US$, with all cross rates against all the other currencies applying.
Post the 2nd of February, 2009, the exchange rate shall be determined in the market, with midrate average daily rates being published from public data to guide the transacting public and the rest of the economy.
• With effect from today all special dispensations allowing the platinum and diamond mining companies to keep offshore FCAs has been and is hereby revoked, so as to ensure that Zimbabwe’s extractive industries fully benefit the local economy. What this means is that by today all offshore accounts currently collecting Zimbabwe’s exports should be transferred and banked onshore with Zimbabwe domiciled banks of one’s choice.
• Accommodation rates on local currency lending will continue to be highly penal,and shall remain pegged at the current levels of: 10 000% for secured local currency lending and 40 000% for unsecured local currency lending.
New Statutory Reserves
•Demand and call deposits to 10% forex and 15% local from 50%
• Savings accounts 10% forex and 15% local from 50%
• Repos and buybacks 10% forex and 15% local from 50%
• Discount Houses 10% forex and 15% local from 50%
• Finance Houses 7% forex and 10% local from 40%
• Building Societies 2.5% forex and 5% local from 10%
FCA retention by exporters
• FCA upfront sales to the RBZ has been reduced from the current 15% of exports to 7.5%, with effect from 1 February. This means that exporters can now retain 92.5% of their export proceeds in their FCAs.
• In order to build confidence in the country’s foreign exchange market, all holders of FCAs, including exporters can hold foreign exchange in their FCAs indefinitely.The 21 day liquidation requirement, has, therefore, been revoked with immediate effect.
ZSE trading
• To kick-start the process of ZSE trading in forex, listed companies, together with their auditors, working in conjunction with the ZSE must come up with transparent and robust valuation criteria enabling both domestic and foreign investors to trade their shares in foreign exchange. Once fully licensed to trade in foreign exchange, the following Exchange Control Regulations shall apply on all trades on the ZSE conducted in foreign exchange: (a) A financial sector stability levy of 1.5% shall be payable to the RBZ in foreign exchange; and (b) Each seller of shares in foreign exchange shall liquidate 3.5% of proceeds to the RBZ at the going interbank exchange rate. Stock broking firms and Authorised Dealers will be obliged to ensure that these Exchange Control Regulations are fully complied with.
Gold
• With effect from 1 February (a) All gold producers shall retain 92.5% of their sales in foreign exchange as is the case with all the other exporters; (b) Those wishing to liquidate part of their FCAs will be free to do so;
Payment Modalities…
• (c) Each gold producer, upon delivery of produce to Fidelity Printers, and upon the certification of the actual purified value, will get a gold export certificate; (d) The gold producer shall make arrangements to market and ship its gold, which shall be consigned out of Fidelity to the gold producer, net of the 7.5% portion to be sold to the RBZ and purification charges as agreed with Fidelity Printers and Refiners. The exporting of the physical gold shall, however, conform with the usual CD1 documentation so as to avoid illegal externalisation of the country’s resources; and in order to contribute positively towards the recovery of the gold sector, all outstanding amounts to the gold sector have been converted into Special Tradable Gold-backed Foreign Exchange Bonds that have a (a) Tenor: 12 months; (b) Interest: 8% per annum on maturity. Interest shall be applied in retrospect from the date the amounts fell due; (c) The holder can sell the bonds to any interested counterparty locally, regionally or internationally at agreed time-to-maturity discounts; and (d) The RBZ will honour the full principal plus interest on maturity to the holders of the bonds on maturity.
Exchange control deregulation policy measures
• With immediate effect, individuals and companies are free to pay for goods and services offshore, as well as pay for genuine external debts without prior Exchange Control approval. It should be noted, however, that Banks are expected to continue recording these payments and report to the RBZ in line with the stipulated reporting systems to be determined from time to time.
• As a way of giving comfort to lenders, Monetary Authorities shall allow firms to enter into onsite management agreements with foreign lenders without seeking prior Exchange Control approval.
Companies are therefore urged to engage their offshore partners in creative win-win structured financing arrangements such as issuing redeemable shares which have attractive coupon rates.
Structure of Zimbabwe’s External Debt
• Medium to long-term external debt continue to dominate the external debt stock, accounting for 95.2% of the total. The remaining 4.8% is short term debt. Of the country’s total external debt, 95.3% is owed by government and parastatals while 4.7% is owed by the private sector.
External Debt by Creditor Type
• About 44% of the country’s total debt is owed to multilateral creditors, while bilateral and commercial
creditors are owed 50% and 6%, respectively.
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The country certainly needs the return of the Rule of Law!
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