Dumisani Dube | Harare | Zimbabwe.
The recent Reserve Bank of Zimbabwe (RBZ) monetary policy decision announced on 6 February 2025 to reduce the foreign currency retention threshold for exporters from 75% to 70% has sent shockwaves through the agricultural sector, particularly among export farmers. This move, while aimed at bolstering the local currency, threatens to undermine the viability of export-oriented agricultural businesses, especially in an already volatile economic climate.
Zimbabwean export farmers, facing high input costs largely denominated in US dollars, have become heavily reliant on exporting their produce to secure foreign currency. This strategy allows them to hedge against the inherent risks of the local currency and ensure access to essential inputs for future production cycles.
The reduction in forex retention will directly impact farmers’ profitability. With a smaller portion of their export earnings retained in foreign currency, they will face increased difficulties in:
- Purchasing critical inputs: Importing fertilizers, seeds, and other agricultural inputs, which are often priced in US dollars, will become more expensive as they may have to source the extra foreign currency elsewhere.
- Servicing foreign currency-denominated debts: Many farmers have incurred debts in foreign currency for equipment and machinery. Reduced forex retention will make it harder to meet these obligations.
- Investing in farm improvements: Expanding operations, upgrading equipment, and implementing improved farming practices often require significant foreign currency investments.
Furthermore, the reduction in forex retention erodes the confidence of credit providers in lending to export-oriented farmers. Credit facilities often prefer to work with exporters to mitigate the risks associated with the unstable Zimbabwean dollar. The decreased incentive for exporters to retain foreign currency may discourage lenders from extending credit, further limiting farmers’ access to crucial financing.
This policy change comes at a time when Zimbabwean farmers are already grappling with numerous challenges, including unpredictable weather patterns, rising input costs, and limited access to markets. Reducing forex retention risks undermining the resilience of the agricultural sector and hindering its contribution to economic growth.
The government must carefully consider the potential negative impacts of this policy change on the agricultural sector. It is crucial to find a balance between supporting the local currency and ensuring the sustainability of the export-oriented agricultural sector, which plays a vital role in Zimbabwe’s economy and should be promoted and protected by all means.
Dumisani is an agricultural, compliance expert and lead consultant at fresh solutions Africa. He can be reached via email at freshsolutionsafrica@gmail.com. Follow us on x @fresh_solzim
