For a year, Eddie Cross served on the Reserve Bank of Zimbabwe’s monetary policy committee, before being fired for speaking too much. In a recent interview with TechZim, he reveals why he is “not unhappy” with the forex black market. Here is his reasoning:
“Today, if you put a million US dollars on the table in the informal market, it will be very difficult for you to find a buyer. I have a friend who is a money trader he tells me that for sums of US $ 10,000 and above they will pay 138: 1 they don’t want NOSTRO they want cash .
So who is buying at these rates? It’s the smugglers. So people who buy gold need cash. They are currently buying gold in Zimbabwe for 60 percent of its real market value. They then take the gold, smuggle it into South Africa, and it is refined in a refinery. They then sell it in South Africa for rand, if they are paid in rand, they then sell the rand in South Africa to a Zimbabwean importer – OK Bazaars, TM Supermarkets – for a premium.
The local company, TM or OK, pays them in Zimbabwe for the RTGS at a premium and they take the RTGS and they come back to the market and buy more US dollars.
On top of that, you have these runners. I guess 30 or 40 percent of all imports into Zimbabwe are run by runners. These runners operate entirely in cash, they pay bribes at the border, they don’t pay taxes, they don’t pay VAT. You get products delivered to your door for less than you can import them yourself, but you have to have US dollars in cash. This is where these wild rates come from.
I spoke to a major transporter in Bulawayo and he told me that all of our spare parts are brought in by racers, we cannot compete with them. No one will tell you who is behind these runners. I know this because I have a friend who is a money trader. Let’s say I need RTGS or vice versa. He gives me a price. I can tell you the RTGS is in my bank account before I hand over the money to him. It is very effective.
I am not unhappy with the parallel market. In fact, I think if there is a big bonus, you know who gets it? These are the guys who get the money from overseas, the remittances. In my opinion, the remittances are 3-4 billion US dollars per year, and these people receive their remittances in cash.
Mukuru operates in South Africa and has three million customers. Last year, the average transfer per month was US $ 79, or US $ 69, or US $ 3 billion, all in cash. Quite frankly, if I was a guy living here and got US $ 1,000 from my relative in the US and took him into the informal sector and got RTGS $ 140,000 for that, I’d be fine. sit down and that’s where the construction boom comes in, it goes into the pockets of the right people. That’s why the remittances are going up right now, it’s because the guys who send money to parents are getting phenomenal returns on money.
At home in Bulawayo, we have a whole suburb near my home which is being developed by people from the diaspora. One of them, a doctor in UK, built this wonderful house and he furnished it, and he was doing it with remittances to Zimbabwe and he told me he got a huge look back at his books delivered here in local currency and which he was able to build for next to nothing. For me, everything is positive.
The reality is that if we put all of our foreign currency on the market, in a real auction today, the currency would really strengthen, that’s the reality. 85 would be too low. I think then we would have to buy currencies in the market to keep a weak currency because we need a weak currency, we don’t need a strong currency.
If you ask any exporter, they’ll tell you they’re not getting a fair price for their foreign currency, but the reality is, if you look at their books, they’re making money. Look at Zimplats, on a billion dollar turnover, they made a profit of 500 million US dollars, they paid a share of 200 million US dollars. Where the hell have you ever seen a mining company get that kind of return, and then you tell me that 85 to 1 isn’t good enough? They see these rates in the informal sector and say we want these rates, but these rates are not justified. I do not think so.
I am not at all unhappy with the current situation. If I were Governor of the Reserve Bank I would be very happy, but what we need to do is expand the flow of currency through the auction and I would love to see the banks come to the party, would love to see everyone come to the party. For example, these NGOs are paid in foreign currency and pay their staff in foreign currency, I would like to see them put their money on the market and pay their staff in RTGS dollars, and they contribute to the national good.
A lot of businessmen have told me that they can handle around Z $ 100 to US $ 1. I think we should allow the auction rate to depreciate to this level. I think it’s a good thing if we move towards convergence, but don’t sacrifice the welfare of the majority for the benefit of a minority of exporters.
I also need to dispel the myth that the auction rate is managed. It is not managed, this rate is determined by the buyers. It’s now been four weeks since we’ve reduced applications below 85 and this has had no impact on the offers. I have a friend who runs a big business and he asks for US $ 500,000 every week and he depreciated his bids, he’s now at 86.5 to be sure, and others are bidding at 81 or 82, that’s absurd. It’s just trying to get American dollars at an artificially low price. We should eliminate these guys completely.
(Please note that the interview was conducted in July and the rates have since changed. The official rate is now 1: 88.55 and the black market rate is between 140 and 170)