This article is further to the one I wrote on 27 May 2021 titled “Overview of Exchange Control Regulations” and another of June 3, 2021 titled “Key Exchange Control Regulations on Exports”.
In former first article I listed some measures, such as controls over imports and exports, used by Government to influence inflows and outflows of currency to avoid exchange rate volatility. The second article was specifically on exports.
In both articles I also explained the exchange control regulatory framework in Zimbabwe which include the following:
Exchange Control Act (Chapter 22:05) (the Act) which is the principal Act and more importantly section 2 on the regulatory powers of the President,
Exchange Control Regulations, 1996 (Statutory Instrument 109 of 1996) (Regulations of 1996), issued by the President in terms of section 2 of the Act,
Exchange Control (General) Order, 1996 (Statutory Instrument 110 of 1996) (General Order), issued by the Reserve Bank of Zimbabwe (“RBZ”) with the approval of the Minister,
Directives, circulars and orders, issued by the RBZ to supplement the provisions of the General Order, in terms of section 35 of the said Regulations of 1996.
I emphasised that the exchange control regulatory framework (the exchange control regulations for simplicity) is dynamic as laws are changed from time to time to deal with live issues. Readers should always consult on the latest position at law and seek prior Exchange Control approval where necessary.
Exchange control regulations on imports
Key exchange control objectives on imports include controlling the outflow of foreign currency, effective use of available foreign currency in terms of the country’s priorities, adequate foreign currency is available to stabilise the local currency.
These measures also benefit local industries and may be used with import restrictions through import bans, use of import permits or prohibitive duty.
Section 2(1) of the Act empowers the President to make regulations relating to, inter alia, the control of imports into Zimbabwe.
Key Control Measures
The following key measures on imports used by authorities are analysed below:
Exchange Control approvals.
Payments from local sources of Use of free funds.
Monitoring of outstanding acquittal of advance foreign payments.
Central banks may prohibit certain foreign payments or require prior Exchange Control approvals for some payments.
According to the Reserve Bank of Zimbabwe’s website, importers of goods and services are allowed to effect foreign payments through their Authorised Dealers (Banks) without seeking prior Exchange Control approval from the apex bank.
However, RBZ Circular 1 of 2021 (the circular) requires authorised dealers (banks) to seek prior Exchange Control approval for the funding, from the auction, of all non-current expenditures in respect of goods already received or services already rendered.
Payment for imports from local sources
The main sources of foreign currency for payments out of Zimbabwe include the Foreign Exchange Auction Trading System (“Auction”) which was introduced in 2020, positive balances in Nostro FCAs from for example export proceeds and free funds.
According to the RBZ Exchange Control Directive RV175/2020 of 22 June 2020 (the directive) foreign currency sold at the Auction system shall only be for settlement of foreign payments and shall be from the following sources:
Offshore lines of credit arranged by the RBZ,
Surrender portion of export receipts.
The requirement for compulsory liquidation of retained funds was removed through the circular.
There are various controls put in place through laid out procedures and qualifying criteria in the directive and readers are advised to familiarise with it.
For example according to paragraph 2.3.1 of the circular funds from the auction shall be used for settlement of current invoices and not outstanding or overdue amounts in respect of goods already received or services already rendered.
In terms of paragraph 4.3.2 of the directive bidders with overdue export receipts, unacquitted foreign payments (Bills of Entry Imports) and positive nostro foreign Currency balances (FCAs) are not eligible to participate on the auction.
The Directive includes a priority list for foreign payments for currency sourced from the auction and Interbank market, split into Category One and Two, in view of the scarcity of foreign currency.
According to the directive about 70 percent of the foreign payments should be for productive and essential goods and services. Such goods and services include:
Imports of raw materials, machinery and spare parts for local production (value addition) that directly substitute imports of essential finished goods.
Imports of critical and strategic goods such as basic food stuff and fuel, health and agrochemicals provided these goods are not available locally.
Goods and services not locally available for tourism operators.
Medical consumables and fees.
Payments for services not available in Zimbabwe.
Commercial vehicles and agricultural equipment.
University and college fees.
Remittances of rental income from properties financed from offshore.
Remittance of pension income for non-resident Zimbabwean who formally emigrated from Zimbabwe.
Category Two for which 30 percent of foreign payments may be applied include:
Disinvestment proceeds and dividend remittances.
Capital remittances for cross border investments.
Capital remittances from disposal of local property.
Funding of offshore credit cards.
Importation of other consumer goods and or services not readily available in Zimbabwe including non-commercial vehicles.
Monitoring outstanding acquittals of advance foreign payments
According to RBZ Exchange Control (General) Order, 1996 goods and services paid for in advance must be received within three months. Advance foreign payments shall be acquitted using Bill of Entry (BoE) as confirmation of receipt of the goods in the country.
As a control measure authorised dealers (banks) and RBZ Exchange Control monitor and make follow ups on outstanding acquittals of advance foreign payments.