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Public Notice on the Export Bonus Scheme Which Is Supported by Bond Notes

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Public Notice on the Export Bonus Scheme Which Is Supported by Bond Notes PUBLIC NOTICE ON THE EXPORT BONUS SCHEME WHICH IS SUPPORTED BY BOND NOTES Strategy to stimulate export production in order to maintain and sustain the multi-currency system in Zimbabwe. Reserve Bank of Zimbabwe 15 May 2016 PUBLIC NOTICE ON THE EXPORT BONUS SCHEME WHICH IS SUPPORTED BY BOND NOTES Strategy to stimulate export production in order to maintain and sustain the multi-currency system in Zimbabwe. Introduction of the export bonus scheme and its relationship to Bond Notes. This information provided herein also takes into account the healthy debate and dialogue that has been taking place around The cornerstone of economic development of any country is this subject matter. production of goods and services. In this regard, the sustainability of the multi-currency system in Zimbabwe is dependent on the economy’s capacity to generate sufficient foreign exchange to Why Introduce Export Bonus Scheme meet its requirements. Whilst Zimbabwe’s exports have gone up from an average of Foreign exchange that is being used by everyone in this country USD1.7 billion during the period 1990-2009 to an average of comes from exports, diaspora remittances, foreign investments USD3.6 billion during 2010-2015, the current low level of local and loans and grants. A total of 60% (around US$3.6 billion) of production is not able to satisfy local demand. the foreign exchange is from exports. Zimbabwe’s major exports are tobacco, gold, platinum, diamonds and ferrochrome, which Zimbabwe’s widening trade deficit of around US$2.5 billion, account for around 80% (US$2.6 billion) of the country’s total requires a substantial policy reset to promote exports in view of lack export receipts. of competitiveness of Zimbabwean exports due to global shocks that include the strong US Dollar, sharp decline in commodity Over 40% of Zimbabwe’s exports are to South Africa and around prices and tighter global financial conditions. There is also great 60% of the country’s imports are from South Africa. Whilst this need to bring sanity in the management of foreign exchange in is the case, the country has not benefited from the significant order to promote local production that is necessary to reduce depreciation of the Rand against the USD as prices in Zimbabwe import dependence. Doing nothing about this highly unsustainable have remain static. This is not healthy for the economy which is trade deficit of US$2.5 billion is ruinous for the economy. now being used as a bureau de charge economy for arbitrage and hedging against the strengthening USD. It is against this background that the Bank introduced the performance related export incentive/bonus scheme to be awarded Revitalising of the multi-currency system requires that Zimbabwe’s to exporters of goods and services to address the challenges of exports are boosted through provision of incentives, whilst at the low productivity and promote exports. The country needs more same time ensuring that import dependency is reduced through exports to liquefy the multi-currency system. As an incentive/bonus efficient and productive utilisation of foreign exchange. for exporters, the Reserve Bank would pay up to five percent (5%) incentive/bonus to exporters of goods and services. The Bank is It is against this background that the Reserve Bank of Zimbabwe also putting in place measures to deal with externalization and the hereby wishes to provide information to the public on the rationale inefficient distribution and utilization of foreign exchange. Why Bring Bond Notes to Fund the What is the Basis of the Value of Bond Export Bonus Scheme Notes The bonus scheme of up to 5% of export receipts would be paid in Bond notes derive their value from the Nostro Stabilisation and Bond Notes. Whilst Bond coins where introduced to deal with the Export Finance Facility and this Facility caps the amount of Bond challenge of change and trading in sub-dollar prices, Bond Notes notes to be issued. The Bank cannot issue Bond notes in excess are being introduced as a funding mechanism to provide an export of that amount. Furthermore, the Bank cannot therefore issue bonus scheme to exporters of goods and services. Bond notes when there are no exports. The bonus scheme is being awarded in Bond notes in order to Where to Redeem Bond Notes preserve the facility from externalisation and/or capital flight. It is important to emphasise that the coming on board of Bond notes Bond Notes are redeemable for any other currency within the multi- does not mark the return of the demonetised Zimbabwean Dollar currency system. In this regard, one can redeem the Bond notes and printing of local currency. The macroeconomic conditions are for USD, ZAR, Euro, Yen, Australian dollar, Yuan, Pula and Rupee not yet right for Zimbabwe to return to its local currency. at any bank or any Easylink Branch of Homelink. This effectively means the public has a choice of either keeping or transacting in The Bond Notes are backed by a US$200 million African Export the Bond notes or converting them to other currencies when the Import Bank (Afreximbank) Nostro Stabilisation and Export Finance need arises. Facility. The issuance of Bond Notes has a self-control funding mechanism in that the Reserve Bank would release the Bond Notes Bond notes which are at par (1:1) with the US dollar can be on a gradual basis in line with receipt of export proceeds as well deposited into one’s US dollar account where one can transact as the limit of the auditable facility amount of US$200 million. The through RTGS, make foreign payments for imports or use their Bond notes would be printed outside Zimbabwe on an agreement debit cards for swiping. that also safeguards against abuse of the facility. Bond Notes would circulate in the market alongside other Why Not Inject the $200 Million currencies within the multi-currency system at par with the US Directly into the Market Dollar, (1:1 with the US Dollar) and would be used and treated in the same manner as Bond coins. The Zimbabwean economy has continued to suffer from foreign exchange malpractices since the adoption of the multi-currency Will Bond Notes Not Cause Inflation system in 2009. The foreign exchange malpractices include externalisation, capital flight, hoarding of US Dollar cash and Bond notes will not cause inflation and parallel markets because looting by unscrupulous businesses and individuals. Bringing in the amount in circulation would be small and limited by the size of Bond Notes would mitigate against such malpractices and other the facility which is capped at US$200 million. It is also important vices that have become entrenched in the economy. Bond notes to note that the current fundamentals are different from those of would, therefore, preserve the value of the Facility. the period of hyperinflation of 2008. During that period, domestic production was almost non-existent and any new money that was Conclusion injected into the economy became inflationary. The Bank would like to reassure the public that the Bond notes At their maximum of US$200 million as dictated by the Facility, which would be introduced to support exporters are a necessary Bond notes would only constitute 4% of the total banking sector export incentive/bonus scheme aimed at encouraging domestic deposit base. This measure is a very important step in stabilising production for export, especially given the external shocks of the economy and to safeguard against externalisation and capital low international commodity prices and the strong US Dollar. flight. The economy has to generate liquidity in this uncompetitive environment, and it is against this background that the Bank has Under the multi-currency system, which the country will continue come up with the current incentive/bonus scheme to cushion operating, the level of inflation has generally remained low, exporters while at the same time ensuring that the incentive is averaging -0.2% in 2014, -2.4% in 2015 and currently at -2.5% as preserved from externalisation by unscrupulous businesses. at March 2016. Unlike in prior years, the Bond notes will circulate with other multiple currencies. The Bank would also like to assure the public that it will not print Bond notes over and above the Facility amount. It is important Zimbabweans should take note of the fact that the current for the public to note that the issuance of Bond notes would be export incentive/bonus scheme is aimed at increasing domestic governed by the receipt of export funds into Zimbabwe and by the production for exports, thereby increasing the country’s export safeguards built within the Facility. earnings which liquefy the multi-currency system and therefore it would not be inflationary. The Bank would like to further emphasise that the pre-conditions for the introduction of a local currency are not yet there. The Will Bond Notes Maintain Their Value introduction of Bond notes should not in any way be misconstrued to mean that the local currency is being introduced through the Bond notes would be issued at par with the US dollar in the same back door. The Bank does not subscribe nor believe in that manner that the Bond coins have been operating. It therefore philosophy. All existing foreign currency accounts would continue means the Bond notes will exchange at the same value as the US to operate as normal. dollar. When the Bank introduced Bond coins for the purpose of change in 2014, many Zimbabweans were skeptical on whether Bond notes would gradually be introduced into the economy the Bond Coins would remain at par with the US dollar. We are all in line with the receipt of foreign exchange from exporters into aware that the Bond Coins have indeed remained at par with the the Zimbabwean economy up to a maximum limit of the Facility US dollar and have continued to make it easy for both consumers amount of US$200 million.
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