Harare hit where it hurts the most: Its Forex

A man holds bond notes released by the Reserve Bank Of Zimbabwe in Harare central business centre on November 28, 2016. PHOTO | WILFRED KAJESE | AFP 

In Summary

• Tobacco is the country’s second largest source of revenue after mining, and has also been hit by the coronavirus, which literally froze all exports.
• A slump in tobacco revenues would have a huge dent on Zimbabwe’s reintroduced currency, which has already lost significant value since the country’s abandoned the decade long dollarisation mid last year.
• China is one of the largest buyers of Zimbabwean tobacco, and has not fully restored its supply chain.

By KITSEPILE NYATHI
More by this Author

Zimbabwe, perennially in need of foreign currency reserves, was banking on its annual tobacco exports to earn needed Forex from this month, as the harvest is readied for export. Then coronavirus happened, stopping all exports.

Zimbabwe is Africa’s largest tobacco producer and this year’s marketing season for the golden leaf, which was set to begin on April 22, was expected to bring some relief to an economy already struggling with electricity and fuel shortages.

On March 30, the country imposed a 21-day lockdown to stop the spread of the disease that has infected over a million people globally and killed tens of thousands.

This week the government was, however, forced to relax the lockdown regulations to allow citizens to access remittances from the diaspora as foreign currency inflows started drying up.

Experts said with the tobacco marketing season hanging in the balance, the economy would take a further battering as shortages of foreign currency become more pronounced.

Tobacco industry leaders said they expected that even when the lockdown is lifted, social distancing rules recommended by the World Health Organisation to stem the spread of the coronavirus, will market it difficult for auction floors to operate normally for most of this year.

Patrick Davenish, the Tobacco Industry Marketing Board chairperson, warned the industry would be in trouble if conditions do not allow for foreign buyers to reach Zimbabwe in the coming weeks.

“The position is that we have set the tobacco marketing season dates to April 22, meaning we have a month to monitor development of the virus,” Mr Davenish said.

“If it becomes worse we may come up with other options depending on the situation on the ground. If the situation gets worse, we may be in trouble.”

He said auction floors were weighing options that could be taken for this year’s marketing season to go ahead.

The opening of the auction floors had already been delayed by a month due to the late onset of the 2019/20 farming season as well as disagreements between tobacco farmers and the Reserve Bank of Zimbabwe over payment methods.

Projected tobacco output for this year has been put at 225 million kilogrammes, down from last year’s 250 million kilogrammes.

Serious disruptions

Average prices for last year’s crop also ranked among the lowest in a number of years with fears that the situation could get worse this year.

By Wednesday, Zimbabwe had recorded 11 coronavirus cases, with two fatalities, forcing the country into making a chain of decisions to contain the spread.

Raymond Sixpence from the Progressive Agriculture and Allied Industries Workers Union, which represents tobacco farm workers, said they expected serious disruptions in the tobacco sector because of the outbreak of the Covid-19.

Mr Sixpence said farm workers were already unsettled because of lack of protective clothing.

He said if their plight was not addressed, workers that were currently grading tobacco would be forced to down their tools.

“Employers have done nothing to protect the employees against the virus,” Mr Sixpence said.

“They don’t have sanitisers, masks or anything and it seems all these farmers simply want their work done and make money but without considering the health of their workers.

“Workers are taken from towns or other nearby farms and they are transported in numbers to the workplaces without even social distancing and are forced to work in groups, exposing them to the virus.”

Victor Bhoroma, a Harare-based economist, said disruptions to the tobacco marketing season would spell disaster for the struggling economy as foreign currency inflows would be limited.

“The auction season is set to begin (this month) and it’s inevitable there would be disruption to the marketing season, which relies on physical interaction between farmers and buyers at various auctions,” Mr Bhoroma said.

“The price for the golden leaf may slump this season further from the average $2.03 per kilo for the 2019 season due to a decline in global consumption.

“This will have dire consequences to the whole economy, to over 150,000 registered farmers and various industries that depend on competitive tobacco prices for their business.”

A slump in tobacco revenues would also have a huge dent on Zimbabwe’s reintroduced currency, which has already lost significant value since the country’s abandoned the decade long dollarisation mid last year.

“The interbank foreign currency market will be affected by the dip in tobacco export earnings,” Mr Bhoroma added.

Largest buyers

China, the first country to shut out the world, is one of the largest buyers of Zimbabwean tobacco, and has not fully restored its supply chain.

Meanwhile, the International Monetary Fund warned in its latest Article IV report that the outbreak of the coronavirus would worsen Zimbabwe’s economic instability
“Covid-19 will make it even harder to balance the policies needed to restore macroeconomic stability with those to address urgent social needs,” the IMF said in the report.