Government has swiftly moved to avert a potential catastrophe by availing an emergency US$400 million credit facility to manufacturing companies for the importation of critical raw materials, the Zimbabwe Independent can reveal.
This comes after the Confederation of Zimbabwe Industries (CZI) last week warned that manufacturing companies could be forced to halt operations if government fails to arrest the crippling currency crisis within the next 10 days as most are left with less than a month’s stock of raw materials. The 10-day period lapses on Saturday.
The package is in the form of letters of credit being issued by the Reserve Bank of Zimbabwe (RBZ). A letter of credit, also known as a documentary credit or bankers’ commercial credit, is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods.
The arrangement means that companies will procure raw materials from foreign suppliers on credit on the strength of the letters of credit which the RBZ has guaranteed.
The Zimbabwe Independent learnt that the arrangement was made at a crisis meeting held between the manufacturers and RBZ officials last Friday.
The US$400 million will cover industries’ raw materials requirements for two months. RBZ governor John Mangudya confirmed the development this week, saying the central bank has already begun processing the letters of credit.
“We have been facilitating the issuance of letters of credit for the local firms for the production of essential products. The letters of credit will go a long way to meet and assist firms to cater for their import requirements,” Mangudya said.
“The issued letters of credit so far amount to around US$100 million and some are being processed. The way
letters of credit operate is such that amounts repaid can be redrawn, it’s a revolving facility of US$125 million. This means that before the issued letters of credit are redrawn, the ones being processed amount to US$25 million,” he said.
Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe also confirmed that the RBZ had begun issuing out letters of credit to various companies to facilitate the importation of crucial raw materials to sustain operations over the next two months following last week’s engagement.
He said the value of the letters of credit was enough to meet companies’ monthly foreign currency requirements of US$200 million.
“Letters of credit have been processed for individual companies; they will be getting raw materials from their respective suppliers. The letters of credit will cover raw material requirements by industry for the next two months. On a monthly basis, we need something between US$180 million and US$200 million,” Jabangwe said.
