Zimbabwe: Fresh Crisis Hits Tobacco Season

Source from:  Financial Gazette (Harare) April 13, 2007 04/17/2007

ZIMBABWE'S tobacco selling season could lurch into a fresh crisis amid reports authorised dealers were struggling to mobilise enough foreign currency for purchases. The selling season, already mired in a dispute over a favourable exchange rate for growers, was initially scheduled to start on March 14 but was postponed due to lack of sales bookings after growers failed to agree on a viable exchange rate with the central bank. The Tobacco Industry Marketing Board (TIMB) said a new date would "be announced after consultations with all stakeholders and assessments of preparedness of growers to sell have been made". But sources said the major worry nagging authorities was the struggle to mobilise offshore funding for tobacco purchases during the selling season. In terms of the country's exchange control regulations, all green leaf tobacco from the auction floors and contractors is purchased in United States dollars. The Reserve Bank of Zimbabwe (RBZ) last week issued a fresh notice advising authorised dealers to "arrange offshore lines of credit on behalf of tobacco merchants and contractors". But dealers who spoke to The Financial Gazette indicated that international financiers were growing increasingly risk-averse and unwilling to extend fresh credit facilities to local financial institutions for merchants. "It's getting very difficult," a bank treasurer said this week. "We normally do this on a bank-to-bank basis but those that we have traditionally relied on have given us their backs." He said, however, that a few banks had managed to source foreign currency from their parent institutions offshore, but this would be insignificant. Afrexim Bank, roped in by the central bank to help, was said to be worried by the increasing turmoil in the country's markets, although a source indicated they would still be able to assist with some hard cash for the tobacco purchases. One source indicated that Afrexim was not necessarily concerned with the country's default risk but was rather losing faith in the country's prospects on both the political and economic fronts. In its notice to authorised dealers last week, the central bank maintained that all tobacco merchants and contractors would be compelled "to access offshore funds for the purpose of purchasing the green leaf tobacco". However, newly registered tobacco merchants and those that have been operational for less than three years would be accommodated through a memorandum of deposit (MOD) facility if they demonstrate "beyond any reasonable doubt their inability to secure offshore lines of credit". The MOD has a limit of US$20 million for eligible merchants. The central bank said authorised dealers would arrange the offshore lines of credit on behalf of tobacco merchants and contractors. "Funds drawn down from such offshore lines of credit shall be credited to a special Tobacco Foreign Currency Account with authorised dealers. Prior to purchasing tobacco, a tobacco merchant or contractor shall instruct the authorised dealer to sell to the Reserve Bank foreign currency from the special tobacco FCA (Foreign Currency Account)," the Reserve Bank said. The RBZ would buy the foreign currency at the ruling exchange rate and the resultant Zimbabwe dollars would be deposited into the merchant or contractor's special Zimbabwe dollar account holding only Zimbabwe dollars proceeds from the disposal of foreign currency to the RBZ. The merchant or contractor would pay for tobacco with funds from the special Zimbabwe dollar tobacco account. Enditem