An exchange rate is the rate at which one currency can be exchanged for another between nations or economic zones. It is used to establish the value of different currencies in relation to each other. For economies like Zimbabwe that actively participate in international trade, the exchange rate is an important economic variable. Countries with stable and growing economies will normally have higher exchange rates whereas countries with unstable or declining economies will have lower exchange rates. A customs exchange rate is used in filing the bill of entry for imported goods.
Exchange rates are influenced by factors such as amongst others:
- Interest rates
- Chang of competiveness
Some time ago in Zimbabwe, customs exchange rate reviews were updated on a monthly basis, nevertheless due to unstable exchange rates the updates were now being effected on a weekly basis. However, during the period early June 2023 Zimbabwe experienced exchange rates fluctuations and this resultantly affected the customs exchange rates.
Imported goods to be warehoused in inland bonded warehouses pending final clearance and those transiting through Zimbabwe are covered by local bond guarantees with penal sums to cover the duty at stake. These bond guarantees were adversely affected by the erosion of the Zimbabwean dollar resulting in their being insufficient and negatively impacting on trade facilitation as movement of cargo was delayed especially transit cargo.
When the operating environment is stable, the need for review of penal sums is triggered by the increase in values of transactions to be covered by the bond. Conversely, with the runaway inflation experienced recently, customs exchange rates were affected and bond guarantee amounts were being eroded on a daily basis. Business could no longer move cargo in bond due to the erosion of the local currency as the guarantee were now insufficient to cover duty at stake. Business had to go back to their insurers or bankers to apply for additional bond, but unfortunately this process could not keep up with the movements in exchange rate. The erosion of penal sums due to exchange rate instability became a non-tariff barrier to trade as trucks were being delayed at the country’s different entry points.
- Although currently the exchange rate seems to have stabilised, it is recommended, in the spirit of trade facilitation, to be proactive and make it optional for those importers and agents wishing to have their bonds in United States Dollars do so. This will resolve the challenge of exchange rates fluctuations if these were to recur in the future. This will also work to the advantage of the government as the exposure on removals in bond cargo will be minimised through use of USD bonds.
- In the past when the same exchange rate instability challenge was experienced, the Zimbabwe Revenue Authority took the initiative to uplift the agents’ bond to compensate for the erosion. This however could have come with its on pitfalls. It is now for the Revenue Agency to engage its stakeholders to come up with solutions that are mutually beneficial.
To date, so much strides have been made by the government to improve the ease of doing business index as well as implement trade facilitation initiatives. All the gains to date cannot be eroded by the exchange rate instability. With transit cargo, there are now alternative routes in the region and as a country if we do not put in place measures to make our routes attractive, Zimbabwe routes will be side-lined and business will be lost to others.
About the author
Edina Moyo- Mudzingwa is a seasoned international trade, customs and border management professional with over 30 years professional experience, including 22 years in supervisory and management roles. She is also a researcher with a keen interest in Trade Facilitation and Women in Trade. She holds a Master’s in Business Administration (Customs Management). She writes in her personal capacity and can be contacted at email@example.com.