ZTA and HDC raise alarm over RBZ’s forex retention cut

Both the Zimbabwe Tobacco Association (ZTA) and the Horticultural Development Council (HDC) have issued strong statements in reaction to the Reserve Bank of Zimbabwe's recent directive to reduce foreign currency retention for exporters from 75% to 70%. Both organisations warn of far-reaching consequences for the country's agricultural export industries.

Tobacco sector faces critical timing challenge

In their February 13 statement, the ZTA emphasised that this reduction follows a previous cut from 85% in the 2023 season, creating a disturbing pattern of diminishing forex retention for an industry that operates almost entirely in US dollars. The timing couldn't be worse, coming just three weeks before the tobacco marketing season opens on March 8, 2025.

"Growers who have already committed to production costs based on the previous retention rate now face additional pressure on their operating capital and recouping expenses," the ZTA statement noted, highlighting the immediate cash flow challenges this creates for farmers who have already invested heavily in the current crop.

What makes this situation particularly frustrating is that it comes at a time when the tobacco sector is showing unprecedented potential. According to the ZTA, the latest statistics for the 2024/25 season reflect an impressive 11% increase in grower numbers, reaching 127,311, with field assessments indicating a potential record crop of 300 million kg and projected earnings poised to break the USD 1 billion mark for the first time in the country's history.

"This growth has largely come about from growers' confidence and improved returns for each US dollar invested," the statement emphasised. "The reduction in the USD retention will strongly erode this confidence and see a slowdown in growth."

Horticulture sector impact

The Horticultural Development Council has sounded equally serious alarms, warning that "producers of export-oriented crops such as peas, which have high production and logistics costs, may be forced to scale back operations." The council underscored that most of their inputs, from irrigation equipment to specialised packaging materials, are denominated in US dollars.

Joint concerns of dollar denominated costs

Both organisations highlighted the reality that their industries operate in a uniquely challenging environment where most costs are in foreign currency while revenues are subject to local surrender requirements.

The ZTA provided a detailed breakdown: "The tobacco growing industry operates within tight margins, with most inputs denominated in US dollars: fertilisers, chemicals, coal, fuel, specialised equipment, their repairs and maintenance, and living expenses being denominated in US dollars. Added to our cost of production are a myriad of government and industry levies and taxes, further reducing our global competitiveness."

Horticulture exporters face additional challenges with cold chain logistics, specialised packaging, and international certification costs, all of which require hard currency payments.

HDC proposal

The HDC has put forward a detailed proposal to address these challenges: "The HDC reiterates its previous recommendations that local utility providers, such as ZESA and local authorities, charge their services in ZiG to align with the new retention framework. Currently, exporters must pay many domestic obligations in foreign currency, creating an imbalance where they retain less forex but still have high USD-denominated costs. Adjusting local utility pricing to ZiG will help mitigate pressure on exporters and support the broader transition towards the use of the local currency."

Tobacco sector recommendations

The ZTA put forward two specific recommendations:

1. Special consideration for tobacco growers given their unique challenges and the strategic importance of the sector to Zimbabwe's economy
2. Allowing licensed tobacco merchants to trade any regulated foreign currency surrender portion within a margin, as per international standards, rather than surrendering it at the RBZ interbank rate

Global compliance

The ZTA noted that compliance with global environmental, social and governance (ESG) standards requires substantial investment, adding significantly to growers' costs.

Consultation seemingly ignored

The ZTA expressed frustration that despite a comprehensive consultative meeting with the RBZ where their representatives explicitly outlined the multifaceted challenges facing their sector, these critical insights appear to have been overlooked in the final policy formulation.

“The impact of this decision extends far beyond immediate farmer concerns, potentially destabilising the entire tobacco value chain.”

“ Neither does the USD Denominated Deposit Facility (USDDDF) adequately address many of the complex challenges. Converting critical forex to ZWG also undermines the sector’s ability to invest in necessary technological and sustainable agricultural innovations, in particular climate proofing and diversification.”

Call for urgent review

Despite these challenges, both the ZTA and HDC reaffirmed their industries' commitment to being strategic foreign currency generators, employment creators and empowerment enablers for Zimbabwe and its people, while urging policymakers to engage with the sectors on more sustainable and viable solutions.

With tobacco marketing set to begin on March 8 and key horticultural export windows approaching for the European summer market, the timing of this policy review is described as "critical" by both sectors.

* Both the HDC and the ZTA are organisations that represent the interests of their growers.