Oil expressers buckle under US$100million debt

COOKING oil producers are buckling under US$100 million external payments debts, as foreign currency shortages in the country continue taking a toll on their operations.

The manufacturers have since written to the Reserve Bank of Zimbabwe (RBZ) enquiring on the bank’s plans to help the industry clear outstanding debts as well as access foreign currency for key inputs.

Olivine Industries acting chief executive Sylvester Mangani said manufacturers were struggling to get foreign currency on the interbank to clear debts and pay for imports because volumes being traded were too low.

Other industry players told The Herald Business last week that the majority of cooking oil producers had run out of raw materials that included crude soya beans and palm fats amid the foreign currency crisis. 

There are concerns that the foreign currency shortages could cause fresh shortages of the basic product on the domestic market.

In fact, two major cooking oil producers, Willowton and Olivine Industries, have either significantly scaled down or shutdown completely, which might result in the market being under supplied. But central bank governor Dr John Mangudya, said cooking oil producers should be getting foreign currency from the interbank market through Letters of Credit (LCs), which are issued by the bank.

However, the oil manufacturing companies claimed that no firm had recently been able to get Letters of Credit to import key inputs. 

Further, volumes being traded on the interbank forex market are insufficient to meet demand, amid indications exporters continue to hold on to their hard currency because they feel the interbank rate is too low.

 The interbank rate was hovering around US$1 to RTGS$3,039 last week. “These people know what they must do. They may be misrepresenting facts. Isn’t it that they have been drawing down LCs (Letters of Credit) from Afreximbank, including the fuel importers,” the RBZ chief, Dr Mangudya said when contacted last week.

Manufacturers are now facing the twin challenge of outstanding debts and challenges accessing foreign currency to import fresh stocks of raw materials.

This also comes amid confusion over whether they will get forex at 1 to 1, as was the case until the monetary policy statement presented on February 22, 2019 or at the interbank market rate equivalent.

“The sector has accumulated circa US$95 million debts built up during the period leading up to the elections and soon thereafter,” said a source. 

“We wish to understand whether there is a plan in place to assist regularising and if these will be US$1 to RTGS$1 or at the prevailing rates on the interbank market rates.

“It will be critical to have a fairly predictable and regular allocation or Letter of Credit for suppliers of key raw materials in order to continue accessing product,” said a prominent industry source. 

The lack of clarity over the forex issue for the industry has reportedly been causing a pricing headache among producers, given that if LCs are funded at interbank rates, prices would need to be hiked.

Zimbabwe currently requires an estimated US$250 million for importation of crude oil and soya bean annually, which translates to a monthly foreign currency budget of US$20 million for the entire industry.

Estimates show that the country needs about 2 million litres of edible oils annually, but faces intermittent shortages due to foreign currency challenges, as imports continue to outstrip forex inflows.

Producers were responsible for meeting 95 percent of domestic consumption, although Government last year allowed people with free funds to import basics such as cooking oil following serious shortages.