Sunday, 27 November 2016

WHY PARALLEL MARKET IS THRIVING

The shortage of cash in the market has created dual pricing for cash and electronic transactions as traders scrounge for the elusive United States dollar which quickens the process in foreign payments to raw materials suppliers.

Traders are giving discounts of about 10% for cash transactions. The trend of dual pricing started in the fuel business, but has spread to other sectors of the economy as traders give incentives to customers who buy with cash.

Fuel operators are giving between 2 to 6 cents discounts on cash sales, while Raylite Batteries was giving a 10% discount on cash sales.

The discount on cash transactions comes at a time companies are struggling to make foreign payments after the Reserve Bank of Zimbabwe (RBZ) in May came up with an import priority list to promote efficient utilisation of foreign currency and to re-orient import demand towards productive uses.

A banker told Standardbusiness on Friday that the existence of the dual pricing system was a manifestation of the emergence of a parallel market.

“Electronic dollars have clearly less value than real dollars. Retailers want cash because with cash you can still pay for imports either at the bank [direct payments against cash deposits] or through runners [you give runners cash and they go out and bring stuff for you]. When you receive RTGS [Real Time Gross Settlement System] dollars as a business, you still have to join the import payment queue at the bank,” the banker said.

“It’s clear that electronic payments have to be accounted for whereas some retailers don’t bank cash and eventually avoid paying taxes such as VAT [Value Added Tax] on cash sales. With electronic payments, you cannot hide them because they go onto the bank statements so VAT has to be paid.”

An economist with a leading commercial bank said the dual pricing system was the new normal in an environment of too many controls.

“These could be people who are not on the foreign exchange priority list. The more it becomes difficult to access foreign currency, the more the situation becomes prevalent,” the economist said.

“It shows that if we put controls, people always find alternative ways to sustain their businesses. People find a way of circumventing the authorities.”

In coming up with the import priority list, RBZ said people were spending hard-earned foreign currency buying trinkets. RBZ said its measures would boost local industries and grow exports.

According to the list, priority one was given to net exporters, who import raw materials or machinery to aid them to produce and generate more exports. Non-exporting importers of raw materials and machinery for local production (value addition) that directly substitute import of essential finished goods and importation of critical and strategic goods, such as basic food stuffs and fuel, health and agro-chemicals, were also given top priority provided that the goods are not available locally.

Repayments of offshore lines of credit procured to fund productive activities; payments for services not available in Zimbabwe and foreign investment (capital disinvestments, profits and dividends) have also been given top priority.

Priority two (medium) is given to bank’s borrowing clients in the productive sector, who engage in critical and strategic imports.

Priority three (low) is given to payments of university and college fees and cash depositing clients in the retail and wholesale service industry. The customers generate cash, which can either be recycled for local use or repatriated to replenish nostro accounts. Low priority is also given to other borrowing clients, who have engaged in the importation of non-strategic goods.

RBZ said transactions considered not a priority included capital remittances from disposal of local property, capital remittances for cross-border investments, funding of offshore credit cards and importation of trinkets. It also includes importation of low local content consumer goods and/or goods readily available in Zimbabwe, such as non-commercial vehicles, maheu, bottled water, tomatoes and vegetables, payments for services available in Zimbabwe and donations.

Industry and Commerce deputy minister Chiratidzo Mabuwa told Parliament on Wednesday that it was against government policy for traders to apply a dual pricing system on cash and plastic money transactions. She requested “members of the public who may have been subjected to this behaviour to report such cases to the ministry [Industry and Commerce]”.

But an executive with an international bank said authorities could not do much to curb the system as any “attempts to direct the market on this matter will drive commerce further underground and increase the premiums that cash is already trading at”. It would widen the price gap, he added.

“This phenomenon also suggests that bond notes will introduce a third price and very soon people will be faced with a United States dollar cash, plastic money and bond note price,” the banker warned. standard 

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