CGIC won't cover
new business
WITH THE value of Zimbabwe's imports down by half over last year, South African curbs on export credit are expected to have very little effect.
Credit Guarantee Insurance Corporation is reviewing the rates on its cover to Zimbabwe and is not accepting new business. Existing contracts and business are not affected.
Although official figures are not available it is thought that about 30% of South Africa's total exports to Zimbabwe are underwritten for loss and non-payment.
The restriction has been imposed because of the foreign currency crisis throughout the country, which has meant that payment for imports is being delayed, sometimes for months.
Says Professor Tony Hawkins, head of the business studies department of the national university: "Obviously, premiums will be higher as a result, including those for existing business as there is a much greater risk. As a proportion of the total costs of transport, export cover is very small.
"However, of greater importance is the fact that this is another signal of the world's growing nervousness about Zimbabwe's credit risk Ñ which is underlined by the reported downgrading by Credit Guarantee of Zimbabwe's rating from 2B to 3C. Exporters throughout the world to this country are probably going to be demanding payment up front before supply, which inevitably raises the cost of the goods."
Shipping firms confirm this trend, saying that Letters of Credit are now becoming the norm rather than the exception.
"We have almost had to set up a new department to arrange LCs," said one Harare shipper,"and open contracts are being done away with. It seems that everyone out there does not have much faith in our ability to pay in foreign currency."
LCs can raise the cost of transport by as much as 15% according to bankers, which is going to add to the hard currency burden facing the country.
So serious is Zimbabwe's plight that Reserve Bank governor Leonard Tsumba has been on an unplanned tour of European capitals, trying to raise more money as part of what bankers call "a begging bowl mission."
By Martin Rushmere
Copyright Now Media (Pty) Ltd
No article may be reproduced without the written permission of the editor
To respond to this article send your email to
