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Business Reporter

EXPORTING companies have lobbied the Government to increase the mandatory 40 percent surrender requirement saying it diminishes the incentive to export and is not viable for sound business operations.

Those in the clothing sector claim the 40 percent surrender requirement constrains ability to export noting that the sector, in particular, is raw material import depended.

They appealed to the Government to prioritise foreign currency allocation to companies pursuing exports and ensure that the exporting sector has access to constant electricity.

This came out yesterday during an exporters’ 2023 national budget stakeholders consultation process organised by ZimTrade in Bulawayo.

Zambezi Tanners general manager, Mr Arnold Britten, said the 40 percent retention was stiffling productivity in the leather sector as well.

“The 40 percent makes the leather sector uncompetitive and there is a need for a review. We are operating at 30 percent and to upscale, there is a need for us to have access to foreign currency. At the moment we are struggling to get foreign currency,” he said.

“We are forced to take loans, which are very expensive. We are unable to grow. All of our requirements are imported. The textile sector uses our products and they are unable to grow because they cannot access inputs from us, so our demise is also felt by the textile sector.”

Outlining some of the challenges faced by the sector, a representative from the Zimbabwe Clothing Manufacturers’ Association, Mr Menfre Tanyanyiwa, said the 40 percent surrender requirement has rendered exports less competitive.

He said the demise of the textile industry has hindered the use of locally produced fabric and the increased appetite for imported fabrics.

“If you want to export a product to any regional country and benefit from duty-free incentive you have to have transformed the raw material twice and you have to move it from yarn to cotton and cotton to clothing,” said Mr Tanyanyiwa.

“When you look at clothing and manufacturing, about 40 percent of your cost of products are raw materials and factor in labour.

“When it comes to 40 percent retention, it means you are looking for forex to fund importation of raw materials, which do not exist in the country.”

He suggested that the Government should support the relaxation of the double transformation requirement saying clothing manufacturers need to satisfy the demand by their customers for a broader variety of clothing and fabrics, which the local industry is unable to offer.

Mr Tanyanyiwa also said that Government support for exports needs to be extended beyond the small to medium enterprises and cater for established firms as well.

“Most established companies struggle to penetrate international markets due to significant costs of market reach, product certification and back and forth follow up visits,” he said.

On interest rates, a representative from Arenel Private Limited, Mr Steven Ncube said the 200 percent interests have helped curb inflation and bring convergence in the exchange rates.

“Some people are complaining about the 200 percent interest rates, when you look at what is happening globally, most central banks are hiking their interest rates.

“This is because there was a lot of money in circulation. As a sector our recommendations would be for the continuation of open market operations, that is the increase in interest rates,” he said. 

“Authorities need to maintain that but not to take too long. There is a need to balance it for sustainability as the market does not like extremes.”

“So far, the authorities are doing a good job, they have managed to moderate the reserve money. They should now moderate the broad money supply. They are also doing well on the foreign exchange market where they are now witnessing a convergence of the parallel market and interbank market but there is a need to liberalise the foreign exchange market.”

Mr Ncube said delays in the release of foreign currency allocated in the auction system was also affecting production levels.

“The delay in disbursement of foreign currency allocation from the auction system is affecting operations. In our case, we have bids that are outstanding from April this year and we encourage authorities to look into that issue,” he said.

“There is a need to liberalise the exchange rate, we should not do away with the auction system.”

ZimTrade chief executive officer, Mr Allan Majuru, said key issues that emerged centred on rebates, 40 percent retention and availability of foreign currency.

“One key issue that was coming out consistently was the issue to do with retention. It is an issue that we will forward to authorities,” he said.

“The players also acknowledged that the Government needs money to fund the auction system, import power and take care of other issues but what is critical is for our exporters to remain viable,” said Mr Majuru.